How To Pay for Implementation? As easy as one, two or three!

4 12 2012

One stumbling block for Eye-Cubed Companies is regarding the acquisition of the required R&D resources for implementation.  Determining how to finance the implementation is a decision as important as identifying which innovation to pursue.  Each option comes with a unique set of pros, cons, expectations and risks.  As a result, this decision becomes hotly contested in boardrooms, around executive tables and between partners of any business.

Corporate behavior, when paired with the risk assessment of the innovation, is driven by the risk tolerance of each decision-maker.  The Research and Development budget of our organizations vary greatly based upon our innovative cultures, the size of our operations as well as the industry in which we function.  Each one of us determines and must work within our specific overall budget and/or cash flow restrictions.  Once we have an innovation and desire to move towards implementation, Eye-Cubed executives have three choices to consider with regard to funding the next step.

1.            Finance the implementation of innovation with existing cash flow:

Pros:

  • Pressure for immediate results is comparatively limited, as the implementation becomes part of the operational budget.  Each year, the budget identifies funds available for implementing innovative ideas.
  • The implementation team must answer to the executive committee or ownership group to keep in line with budget and show profitable results.
  • Patience and tolerance for performance is determined by internal metrics (see Metrics Shmetrics) and executive personalities.
  • The cost of failure is limited to the company’s personal investment in R&D.

Cons:

  • Since finances are often limited and strictly measured, the pace of growth is typically considered slow when organizations grow organically.
  • If project duration is not set at the outset, resources are limited to the corporate willingness and capability to invest each year.

2.            Take on debt to finance the implementation of innovation:

Pros:

  • Organization can leverage its borrowing power in return for anticipated returns.
  • When interest rates are low, success allows for systematic payback when performance is achieved.
  • Using the bank’s money allows for an investment in growth without need for “stockpile” of money saved for this purpose.

Cons:

  • Personal Guarantees usually are required when signing a corporate note.
  • Lender’s Covenants (operational rules and performance demands) may make it difficult to borrow and operate effectively.
  • Payback hinders operations when/if innovation fails.
  • There is a higher comparative risk associated with failure when the result is “owing money to the bank”.

3.            Partner with a “Big Brother” and use their money to implement innovation:

Pros:

  • Deep pockets allow for enhanced financial reach.
  • Added value to your partnership deepens the relationship your company shares with your partner.
  • Shared risk places less individual risk on each organization.

Cons:

  • There is an additional pressure to succeed when multiple parties are involved in the project.
  • Ties between organizations can create a dependency on your partner that leaves your company vulnerable.

Eye-Cubed executives recognize that debt obligations are most frustrating to payback when faced with failed innovative opportunities.  The typical risk-averse owner and/or executive cringes in these cases.  However, the possible reward may have been worth it if the innovation had been a success.  On the other hand, for Eye-Cubed companies, the most sought after method of financing implementation of innovation is when a key business partner teams up with their organization and drives the innovation forward with the resources/investment necessary to enhance the chances of success.

Ultimately, when organizations are unwilling to risk debt and unable to secure a “Big Brother”, they are left with financing the innovation with existing cash flow.  Eye-Cube companies identify the amount of resources they are comfortable investing in innovation and stick to that specific amount until the profitability of the innovation stands on its own and becomes part of the operational budget in future years.

Bring all of your Eye-Cubed Lessons forward and graduate with honors!

If you, your company, your industry conference or team is in need of the best keynote speaker, motivational management consultant, or inspirational presenter for your conference, strategic planning meeting or for professional development, click on these words and see how Eye-Cubed-U is prepared to help you. 

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