The downside of specialisation

“If a terrorist came through the front door, I’d smash his head in with the fire extinguisher,” he said.

I was shocked. I hadn’t thought about how to deal with terrorists. I’m an accountant.

I was in a pub in London with a colleague, shortly after the London Bridge terror attacks. It was a warm summer evening, a Wednesday, and the pub was doing a good trade.

As I often do, I’d switched on my accountant brain and was trying to work out how much money the pub was making on a day like this.

“There’s about 40 people in here, and the average drink price is, say, a fiver. Each person probably orders 1-2 drinks per hour: let’s say £10 per person per hour in revenue, as I’m only counting drinks and not food. That’s £400 per hour.”

“Gross margins on alcohol and food are high: let’s call it 75% for simple maths. So they’re making £300 per hour in gross profit1. If you’re open from midday to midnight, that’s £3,600 per day.”

“From that you need to subtract staff costs. There’s 3 staff on, and probably another one in the kitchen. Let’s say they’re on close to minimum wage, so you can probably hire them at a total cost of about £12 per hour all in. So your people costs are 4 people times 12 hours times 12 pounds per hour–I’m 3 pints in and I can’t work it out that fast, but it’s about £600 per day2.”

“So £3,600 gross profit less £600 staff costs means they’re clearing £3k a day. Over the year, that’s probably about a million quid before rent and overheads.”3

(Yes, this is how I think. A lot. When we’re in a nice restaurant my wife gets annoyed.)

At this point my colleague said, “I never thought about that at all. But that’s because I trained in the police. I was just looking for the fire exits. And making sure no one in here looked like they were going to start anything.”

To the man with a hammer, everything looks like a nail.

But as Charlie Munger says:

You’ve got to have multiple models — because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models..

And the models have to come from multiple disciplines because all the wisdom of the world is not to be found in one little academic department.”

When I walked into that pub, I was fitting reality to my mental models as an  accountant. I saw customers generating revenue, staff that cost money, and a whole bunch of things that looked like overheads. My colleague saw reality through the lens of law enforcement: he saw potential threats, exit strategies, and things that look like weapons.

That’s the downside of specialisation. You become the man with the hammer.

  1. £400 per hour in sales * 0.75 gross margin = £300 gross profit per hour
  2. It’s actually 4 x 12 x 12 = £576, but I was close.
  3. I have no idea how much rent and overheads are on a pub in London by the way, but if I wanted to go further I’d probably look at the pub’s website, try and find the name of the company that owns them, then look for that company’s annual accounts on Companies House.

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