The Mercedes-Benz Syndrome

In 2003, a client faxed (yes, faxed) me an article from a newsletter called Contractor Cents, which targeted the builder-remodeler trade. The article, written by Ruth King, discussed how some business owners used the money they earned in their business. (Fun fact: Ruth King is still producing “Contractor Cents” today, along with a podcast by the same name.)

The article applied to all businesses, no matter what product or service they offered and no matter how big or small. I think it still does.

The heart of the article went like this:

A colleague had an acquaintance who was looking for funding for his business. My colleague introduced him to a potential investor over lunch. The next day, the investor called my colleague and told him that although the person was nice, he would never invest in his business. My colleague asked why.

The investor said that he had “Mercedes-Benz syndrome.”

The investor explained that during lunch, he found out through casual conversation that this person was funding a $2,200 (Adjusting for inflation, today’s equivalent would be $4,300.) Porsche lease through his business. He appeared interested in having the company pay for his lifestyle. Investment that was supposed to go toward the business’s needs was going toward the owner’s wants instead.

The article said, “These are the contractors who don’t understand that cash does not mean profits and that having cash does not mean that you have to spend it.”

Can I hear an amen?!

Not all business owners are looking for investors or even a line of credit from their bank. However, the definition of investor is expanded to include all the people with a vested interest in their company (such as employees, suppliers, and customers). In that case, many eyes are watching where the company’s money goes.

To check whether purchases are being influenced by “Mercedes-Benz syndrome,” an aviation principle can be used.

In aviation, an airfoil on an airplane moving through the air creates lift, which causes the plane to climb. At the same time, a force called gravity is working against lift. This force holds down the plane and restricts how fast it climbs. It’s the same in a business, where cash is substituted for air.

Investing a company’s money in needed equipment, employee training, and items that increase productivity acts like air passing over an airfoil—it causes the company to soar. Spending the company’s money on non-essential items is the gravity that holds down its cash flow and restricts its growth.

Now, I’m certainly not suggesting that business owners need to run every purchase they make past their people for approval or that they shouldn’t enjoy the fruits of their hard work. But if they run their business purchases past the scrutiny of this aviation principle, they might be able to avoid “Mercedes-Benz syndrome” and achieve their goals much sooner.