Since
commerce
began,
CEOs
and
owners
of
businesses
have
struggled
to
get
their
workforce
to
understand
the
financial
side
of
the
business
--
why
we
need
profit,
why
we
can't
distribute
all
of
it,
where
the
money
goes,
etc.
In
fact,
some
owners
have
trouble
themselves
when
they
get
past
the
income
statement.
A
P&L
is
pretty
straightforward.
In
fact,
I
talked
with
a
person
whose
business
failed
this
past
year,
and
he
said,
"I
understood
my
P&L
pretty
well.
What
I
didn't
understand
was
my
Balance
Sheet
--
I
think
that's
what
did
me
in".
PS:
He's
right
about
that.
I
recently needed
to
explain
the
relationships
between
the
P&L
and
the
balance
sheet
to
a
group
of
senior
and
middle
managers,
and
was
looking
for
a
metaphor
that
might
"stick"
better
than
just
walking
through
the
numbers.
Here's
what
I
came
up
with,
and
I'm
hoping
it
might
be
useful
to
you
in
explaining
the
same
thing
some
day.
There's an amazingly direct relationship between aviation and business. Flying an airplane is a whole lot like running a business, if you understand the correlations. What are some of those?
- Direction
=
Strategy
--
We're
making
good
time.
Are
we
going
to
end
up
where
we
want
to
be?
- Airspeed
=
Revenue
(sales)
--
What
keeps
an
airplane
flying
is
air
rushing
over
the
wings,
providing
lift.
In
fact,
lift
is
directly
proportional
to
airspeed.
There's
also
a
critical
airspeed
at
which
the
airplane
stops
flying
--
the
stall
speed.
- Altitude
=
Available
Cash
--
The
game-over
point
in
flying?
Premature
contact
with
the
ground,
otherwise
known
as
a crash.
Altitude
=
0.
Same
in
business
--
game-over
occurs
when
cash
=
0.
You
only
get
to
run
out
of
money
once.
You
can
come close
to
running
out
of
money
lots
of
times.
- Rate of Climb = Profit (or more accurately, cash flow) -- If you're losing altitude, recovery requires either of two things -- more airspeed (sales) or reduced weight in the airplane. Lift stays the same and you gain altitude. How do you reduce weight in the airplane?
- Throw the luggage overboard (jettison expenses). They have stores where you're going, and you can buy more clothes.
- If you're carrying mail, throw that overboard (eliminate non-essential activities). Those people will get over it -- they'll just send those letters again.
- Pick a non-essential passenger and throw him overboard. Not pleasant, but could mean the survival of the rest of the party. You can figure out that part of the metaphor.
The most useful part of this metaphor, I believe, centers around the most critical tradeoff in flying. That's the tradeoff of altitude for airspeed. When airspeed slows, lift is reduced, rate of climb becomes negative, or if you try to maintain altitude, you'll stall. So, you point the nose down and let gravity help you maintain airspeed above stall speed. Business equivalent? You settle for less profit, or even a loss to maintain airspeed. This will work for awhile. How long? Until you run out of altitude (cash). When altitude = 0, game over.
The important lesson, well known by old pilots, is this:
If you're losing both airspeed and altitude, you've got to come up with ideas -- usually pretty quickly. The best recent aviation example of ideas overcoming loss of airspeed and altitude is the "Miracle on the Hudson" -- the story of Flight 1549. In that story, Captain Sullenberger maintained critical airspeed, sacrificed altitude, and came up with an amazing number of ideas, just in time to become a hero.
