In Defense of Overhead
By Steve McKee
Everybody hates overhead.
Seriously. When have you ever heard someone say, “Thank God for overhead” or “You know what this place needs? More overhead.” "Dilbert" and "The Office" would still be funny without references to overhead, but they’d have less good material to work with. Overhead is just too easy to pick on.
Investopedia defines overhead as “the ongoing business expenses not directly attributed to creating a product or service.” The Cambridge Dictionary describes it as “regular and necessary costs, such as rent and heat, that are involved in operating a business,” then offers up an example of how it can be used in a sentence: “We need to reduce our overhead.”
Bingo. That’s how we think about overhead. Expenses that are, if not unnecessary, annoying and always to be minimized. To be sure, there is much to that idea.
But “overhead” can also be used to describe a type of camshaft that provides precision timing to the engine of a sports car. It can infer the power a tennis player commands to win a point via an “overhead slam.”
Those of us who are a certain age remember overhead projectors which, while they may have been the butt of many jokes, were the high tech of their time—cleaner than chalk, more flexible than flip charts and easier to operate than finicky slide carousels. And, of course, we all marvel at the sublimity of the stars overhead.
So, we may want to be careful not to think about overhead in a way that’s all bad. In business, overhead tends to not be attributable to specific line items because it’s hard to allocate with any precision. But try running an ongoing enterprise for any length of time without overhead. You might as well operate without a roof.
Speaking of which, if you’ve ever had to replace the roof of anything (from a house to a warehouse), you know it’s an unpleasant expense. It is no fun to spend a bunch of money on something for which the primary benefit is enabling you to maintain the status quo. Yet we dare not neglect the task when necessary, because what’s over our heads is critical to everything we do. There’s no reason to gild the tiles, sand the shingles or wallpaper the crawl space underneath our roofs, but preventing leaks and keeping out critters are both pretty important.
I’m always uncomfortable in management meetings when the topic of overhead comes up, knowing that there’s usually a few people in the room who have jobs “not attributable to a specific product or service.” They’re critical to our organization running smoothly, billing accurately and staying out of trouble, and yet it’s like they’re sitting there with “overhead” stamped across their foreheads, and everyone knows it.
It’s true that we want to avoid spending unnecessary money on overhead. But we want to avoid spending unnecessary money on any expenses, including those that are attributable to specific products and services. If advertisers spent money only on ads that were directly attributable to transactions, they’d buy very few ads. And as a result, they’d generate very few transactions. Effective branding is as much about accretion as attribution.
Same with overhead. The next time you differentiate between “line” and “staff,” remember it’s the staff that enables the line. Actors would be lost without the people who work backstage. Factory workers would have no jobs but for the accountants who ensure their work is profitable. It would be more difficult to hire – and easier to be sued – without the professionals in HR.
Most startups start up without formal overhead expenses, but someone still needs to track the costs, issue the invoices and ensure the bills get paid (usually in the dead of night or on weekends). Those of us who have been in that position know how glorious it is when we can finally hire someone to take care of those details so we can focus on that for which we got into business in the first place.
Before you can furnish a home or outfit an office – before it’s livable or workable at all – you need to make sure it’s well-covered. If your overhead is too high, you will indeed be paying for resources you don’t need. But if it’s too low, you’ll find yourself walking with a stoop—and perhaps even knocking yourself out.
Give overhead a break. It’s there to give you one.
Co-founder and author, Steve specializes in addressing the most meaningful problems. Call Steve when you want to change the world. He’ll have a thought (and some research) on that.
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