Why Appearances Can Be Deceiving In Business
Businesses are remarkably good at creating the appearance of success, but that doesn't necessarily tell you anything about the health of the business itself.
New premises, growing teams, industry awards, sponsorship announcements, bigger advertising campaigns and record turnover all create the impression of a business moving in the right direction. They're the things customers, suppliers and competitors naturally see, but they're only ever part of the story.
One of the Cataclean Plato Racing Mercedes AMG A35 cars. Source: Plato Racing.
British Touring Car team Plato Racing provided a fascinating example this week.
Just days after securing its first British Touring Car Championship victory and a one-two finish at Knockhill, the company entered administration. From the outside, it looked like a team with genuine momentum. The cars had become increasingly competitive throughout the season, the results were improving and there was every reason to believe the operation had turned a corner.
The financial accounts painted a very different picture. Plato Racing Ltd recorded turnover of £545,073 against costs of £1,380,170, resulting in an operating loss of £835,097. Put another way, the business spent £2.53 for every £1 it generated.
There's no intention here to speculate about why the company entered administration because none of us outside the organisation has enough information to do that responsibly. The interesting part is the contrast between what people could see and what the numbers suggested. One told the story of a race-winning BTCC team, the other raised questions about the sustainability of the business behind it.
The numbers behind the headlines
Businesses are judged every day using remarkably little information. A company that's been trading for thirty years is often assumed to be stronger than one that's only been around for five. A business employing fifty people appears more established than one employing five. Winning awards, sponsoring local events or having an impressive client list all help create credibility, but none of them tells you whether the business is actually healthy.
Turnover is another example. Businesses regularly celebrate reaching £1 million, £5 million or £10 million in revenue, and those milestones are worth recognising because building any successful business takes an enormous amount of work. The problem is that turnover has become one of the easiest numbers to talk about and one of the least useful numbers to judge a business by. It tells you how much money has passed through the business, but doesn't tell you how much of it actually stayed there.
A business turning over £10 million isn't automatically in a stronger position than one turning over £2 million. If the larger business is working on wafer-thin margins while the smaller one is consistently profitable, the headline figure becomes far less impressive. From the outside, however, most people only ever see the bigger number.
The same applies to many of the signals people naturally associate with success. A growing team increases costs as well as capacity. Larger premises create higher overheads. Winning a major client might transform a business, or it could leave it dangerously dependent on a single source of income. None of those decisions is inherently good or bad. Their value depends entirely on the commercial position of the business making them.
That's why comparing businesses can be so misleading. Two companies operating in the same sector can appear remarkably similar while facing completely different challenges behind the scenes. One might be investing heavily because it has strong cash reserves and a clear long-term plan. Another might be making exactly the same decisions because it's trying to reverse a period of decline. Looking from the outside, they can appear almost identical.
Comparing businesses is rarely straightforward
A competitor wins another award and it feels as though they're pulling further ahead. Another takes on more staff. Someone else seems to be everywhere on LinkedIn. Before long, it's easy to start measuring your own business against a version of somebody else's that's been carefully presented to the outside world.
Every business owner is dealing with challenges nobody else gets to see.
Rising costs. Losing a major customer. Cash flow that's tighter than the outside world would ever imagine. Significant investments that reduce profitability today in the hope of creating a stronger business tomorrow. They're all perfectly normal parts of running a business, but they rarely become public knowledge.
At the same time, some businesses quietly get on with the job. They aren't announcing every new client, sponsoring every event or posting daily on LinkedIn. They focus on looking after customers, keeping a close eye on costs and building something that's profitable enough to support the next stage of growth. They rarely attract the same attention, but they're often the businesses still moving forwards years later.
Comparing businesses becomes difficult because you're rarely comparing like for like. You're comparing your day-to-day reality with somebody else's public image, and they're almost never the same thing.
Looking beyond the headlines
One of the reasons this matters is because business owners don't just judge other companies this way. They judge themselves the same way.
It's easy to feel as though you're falling behind when competitors appear to be growing faster, winning more work or attracting more attention. Social media only amplifies that feeling because businesses naturally share the highlights. New clients, new staff, new offices and award wins all deserve to be celebrated, but they're carefully selected moments rather than a complete picture of what's happening inside the business.
Very few business owners post about the client they've just lost, the investment that didn't deliver the return they expected or the difficult conversations they've had to have with their accountant. They don't talk about cash flow keeping them awake at night or the months spent trying to recover from a decision that, with hindsight, turned out to be the wrong one.
That's perfectly understandable. Running a business is difficult enough without feeling the need to publicly document every setback.
It does mean, however, that comparisons quickly become distorted. Business owners end up comparing what they know about their own business with what they can see of somebody else's.
That creates pressure to make decisions for the wrong reasons. Expanding because somebody else has expanded. Recruiting because competitors are recruiting. Increasing marketing budgets because everyone else appears to be spending more. Those decisions might all prove to be the right ones, but they should be driven by what the business actually needs rather than what everybody else appears to be doing.
Plato Racing caught people by surprise because most of us naturally assumed the business behind a race-winning BTCC team must also be in a strong commercial position. The accounts suggested life was considerably more complicated than that.
Business owners make similar assumptions every day. We naturally judge companies by what we can see because that's the information available to us. Awards, recruitment, bigger premises, sponsorships, record turnover and race wins all tell part of the story. They just don't tell all of it.
That's one of the reasons comparing businesses can become such an unhelpful exercise. You're rarely comparing businesses with the same objectives, the same financial position or the same commercial pressures. You're comparing what you know about your own business with what another business has chosen to make visible.
The healthiest businesses aren't always the oldest, the biggest or the loudest. They're the ones making sensible decisions, understanding their numbers and building something that's capable of lasting. Those qualities don't always make headlines, but they tend to matter long after the headlines have been forgotten.
