The school principal doesn’t come into her classroom very often but, when she does, it’s invariably to make sure that my daughter Katie is working from the right page in the right lesson plan for her first-grade inner-city (not Boston) students. It’s all prescribed. Very little deviation is permitted. Standardized teaching for standardized tests.

No matter that the families of her 22 kids come from 10 different countries. No matter that each of them has a unique learning style. And, especially, no matter that some have progressed faster than others in reading, or in arithmetic, or in self-control. At an upper policy level, it’s been determined that the best way to control the output is to control the inputs. So everyone gets treated the same way…

…until they start asking questions.

Katie was well into her fourth month of pregnancy, and her condition was fairly obvious, except to her (usually) self-absorbed first graders. In mid-morning, in mid-lesson, a few weeks ago, her “little perfessor,” Michael Nguyen, cocked his head to one side, put one hand on his hip, and blurted out, “Mrs. Bender, you’re going to have a baby!”

“Yes, Michael,” Katie responded with a great inner smile, “how observant of you.”

Class continued. Katie didn’t miss a beat with the lesson plan. But Michael’s young brain was in high gear developing his own learning curriculum.

Same day, a little later: “So Mrs. Bender… how does the baby get out?” said Michael, who then considered out loud several imaginative possibilities before approximating an appropriate conclusion. In Mrs. Bender’s first grade, there are a lot of questions. Some are relevant to the lesson, some are relevant to life generally, and some are relevant to a life in particular. Very few are irrelevant, and none is ignored.

At the end of the day, recognizing that Michael’s “how does it get out?” was quite likely to be followed the next day by “how did it get in there?” Katie called Michael’s mom with the heads up: there’s a great opportunity for overnight home-schooling.

Home-schooling typically is not a frequent recourse for most small business owners. Most of those in my network, at least, manage to stay current with their industry, with general economic trends, and with new issues that may have an immediate impact, such as Massachusetts’ Health Care Reform Plan. But too often small business managers fail to recognize – even when they’re many months along – when their company is about to give birth to a steadily-developing financial issue.

Why?

Because most businesses are started by people with a strong background either in product development/operations or in sales and marketing. Where are the financial entrepreneurs? Starting financial services companies.

The result? Relatively few small business owners are able to ask non-standard questions in the financial area, the kind that lead to pregnant insights and informed action.

As one of those financial entrepreneurs, I frequently get to ask the kinds of questions that lead to the pregnant insights. I recalled a half-dozen this week that led to major teaching opportunities for me in 2007:

1. What’s the economic model for this business? Analysis revealed that the company was not economically viable on its own, that its continued existence could be justified primarily because of the benefits that it provided to its sponsoring joint venture partner.

2. Now that you’re finally making money, how come you never have any cash? Asked in order to diagnose a problem with the debt structure: a number of relatively short-term loans were draining resources that were needed to fund growth. Financial restructuring will result in new, longer-term bank financing to improve cash flow.

3. Who pays off the debt? Asked when a high-dollar offer to buy one of my client companies was enthusiastically received, before my client realized that debt liquidation is usually the responsibility of the seller. The net proceeds were a significant 20% lower than first thought, leading to an intense renegotiation prior to close.

4. Why does the expense for salaries and wages on this month’s income statement equal the sum of your three bi-weekly payrolls this month? Asked as an introduction to the subject of full accrual accounting. The cash-basis alternative would have left us distorting the results by recording six weeks of payroll in the month of August.

5. Why are you expecting to run short of cash next month when the full financial budget indicated an ample surplus? Asked as a reminder to analyze financial variances consistently. In this case, a full month’s worth of progress billings was overlooked.

6. You have raised prices to cover your increased product cost, but your gross margin continues to fall. How come? Analysis determined that as direct costs increased the company raised its prices, but not proportionate to its costs. Also, the lead customer, who accounted for 33% of revenues, turned out to be receiving an average 6% discount, which reduced the margin by two points.

Like my school-teacher daughter, I work constantly to get my clients to ask the right questions and then to help them find the answers. Unlike my daughter, however, I’ve never had questions about my tummy. But if my annual New Year’s weight loss resolution doesn’t kick in soon, Michael Nguyen will be cocking his head to one side and giving me a knowing look, too.

Alligator Bites

Andrew Schwartz during the past 25 years has become almost an icon as the master teacher at SBANE , the Smaller Business Association of New England, and elsewhere across the U.S. He has presented the ” School for Managers “, which he developed, hundreds of times to thousands of enthusiastic participants. The questions that he poses challenge new and veteran managers to rethink their approach to issues of leadership style, goals, employee communications, and time management, among other subjects.

Since Andrew’s focus is general management, a common concern is performance appraisal. He generates lively discussions by asking his students the following questions:

1. Do you have frequent communication with your employees between appraisals?

2. Was there a close correlation between the employee’s job description and the appraisal form that you used?

3. Did you evaluate mutually agreed-to performance goals?

4. Did you conduct an “interim review?”

5. Did you ask for others’ input about your employees’ performance?

6. Did you consistently document your employees’ performance between appraisal meetings?

7. Were you well prepared for your appraisal meetings?

8. Did you prepare your employees for the appraisal meetings?

9. Did you have uninterrupted meetings?

10. Did you always ask for your employees’ opinions?

11. Did you remember to discuss your employees’ performance?

12. Did you remember to discuss your employees’ positive accomplishments?

13. Did you focus on your employees’ performance rather than on their personalities?

14. Did you ask for input about what you can do to help them?

15. Did you close the appraisal meetings in a professional manner?

16. Did you follow up after the appraisal discussions?

Draining the Swamp

Total contributions to the 2008 presidential campaigns so far that have come from the oil and gas industry: $1,727,000

Total from the education industry: $6,406,000

Percentage of U.S. CEOs who believed this spring that the economy was either “good” or “excellent”: 84

Percentage of Americans overall who believed this: 37

Number of the world’s five most valuable companies last year that were Chinese: 0

Number this year: 3

Estimated amount that Americans lose every year by not redeeming gift cards: $8,000,000,000

– Harper’s Index, December, 2007 Data as of October, 2007