The three inevitable stages of successful entrepreneurial activity

The three inevitable stages of successful entrepreneurial activity

Sep 27, 2021 | Customers, Innovation, Small business

Every business starts small. The biggest on the planet all started somewhere, in a garage, dorm room, lab, somewhere between the ears of the entrepreneur.

Most fail, or at best deliver a return that would have been dwarfed by the interest on the same investment in a bank account.

Some however, do succeed, occasionally in spectacular fashion.

We all see the ones that do, they are shoved down our throats all the time as the heroes, the ones who made it, and we are asked the question, if they can, why can’t you?

There seems to me to be a pretty consistent sequence of growth, a sequence that holds true across all sorts of products and services, geographies, technologies, and circumstances.

Cheering.

This is the first stage, it is all enthusiasm, cheering from the sidelines, jumping up and down, wishing for stuff to happen. What it is about when you are in the midst of it all is hard grind, chaos, and cash.

At the beginning, you work your arse off, seemingly 24/7, with no letup. Everything that gets done depends on you doing it, you do not do it, it does not get done. Simple. It is messy, usually chaotic, as pressures come from every direction, your attention is demanded by each, which is why the 24/7, and still there is little forward progress.

Then there is cash. As you start, nothing is more important than cash. More start-ups go broke for lack of cash than every other reason combined. Managing your cash is simply the most important thing you must do.

Planning & doing.

Assuming you survive the cheering stage, you will have come to the point where you have a little more head time to be used considering ‘what next’. You probably have a small number of employees, and perhaps some outsourced services, like accounting and IT.

Answering the ‘what next’ question will be eating at your guts, as for sure you do not want to continue as you have been. Your kids are growing up without you, your family seem to be strangers, you have not had a weekend with your mates for ages.

So, you look forward to a different future and stumble into some planning. It is never as easy as filling in some generic template, of which there are plenty making alluring promises. It is more about the graft of figuring out how to accumulate and allocate the resources necessary to grow. While the game is still about cash, it has also become about profit, what is left for reinvestment at the end of the month, quarter, and year.

You plan your products and services, the foundation stuff you need to get right, like the legal and regulatory things that must be done, understand the financial and strategic pressures that are present, and settle for the moment on a business model that guides how you will turn your chaos into sustainable profitability.

However, a plan, no matter how good it may be at telling the future, envisioning new products, markets, and customers, needs one further ingredient.

It needs to be implemented.

Plans that do not get implemented are usually called dreams. You will also recognise the realty of the muttering of generals throughput the ages that while planning is essential, nothing ever goes exactly to plan, so you must be ready to be agile tactically, while consistent strategically.

Building & growing.

The essential ingredients to building and growing an enterprise, on top of the financial resources that enable that growth are threefold:

  • People to do the work,
  • Processes for people to follow, and over time, optimise,
  • Retention of the hunger and freedom that enables innovation.

The great paradox, and downfall of many if not most successful businesses is that they get the last one wrong, as they optimise risk out of their processes in favour of certainty and continuity of the status quo.

The task of being the entrepreneur has changed from one of management, to one of leadership. You are no longer engaged in tactical activity, which is being done by others in a manner that is transparent to overview, and with KPI’s based on outcomes. The tasks now are about the people doing the work, from the daily tactical stuff to the functional management. Your role is to lead all these people and ensure that the processes being deployed deliver on the plan. It is all about the productivity of resources deployed, people and financial, that is delivered via the processes that evolve.

Anyone who thinks this is easy has never done it.

Anyone who stands on the sidelines and cheers for you might be a cheerleader, supporter, and beneficiary, but they are not a coach. A coach delivers the models and means by which the success is generated, which is much more than cheering, as it involves getting dirty from time to time, being always challenging, and ensuring you are looking beyond the tactical that threatens to always consume you.

At each point in this growth pattern, there is a single question that you can ask that will give you an answer to the question of growth potential contained in any tactical decision:

‘Does this scale?’

Many small business owners do not ask this question, so end up selling their time for money, and there is only a limited time in any day. Therefore, if you are about to invest in tactical activity of any type, ask that simple question. If the answer is yes, fine. If it is no, think again.

When you are looking for a coach with the scars to prove experience, browse through the posts on this StrategyAudit site, and then you might want to give me a call.

The demarcation of Accountability, Responsibility, and Authority.

The demarcation of Accountability, Responsibility, and Authority.

Sep 23, 2021 | Governance, Leadership, Management

‘How can I be held responsible when I do not have the authority’?

Anyone in a management role has probably heard, and perhaps asked that question after some ‘do-do’ hits the fan.

‘Accountability’, ‘Responsibility’, and ‘Authority’ often become entangled in ways that leave management, improvement, and scaling of any set of activities challenging. The lines become blurred and ambiguous, which enables problems to be shovelled into a quiet corner, unresolved.

As with any process, ensuring shared clarity, transparency and understanding is the only way to improve.

The absence of such shared understanding means a problem will always be someone else’s. ‘Not my job‘ in the vernacular.

Following are my definitions, which may clear up the differences.

Accountability

Accountability means that someone is specifically held accountable for the activity or set of activities. That person is accountable to track the progress of the activity, process, function, whatever it may be, and give it a ‘voice’. If you cannot nominate one person who is specifically accountable, it will fall through the cracks.

Responsibility

Responsibility falls to anyone who has the ability and opportunity to respond proactively support an activity or process. Anyone who ‘touches’ a process has responsibility to do their best to ensure that the activity progresses as expected, and to remove any hinderances they may see. This is decision making at the ‘coal-face’, taking responsibility for outcomes.

Authority

Authority belongs to the person with the final veto power. There is always someone who has that final say. The larger the organisation, the further away from the day-to-day operational decisions that person is likely to be. Conversely, the bigger the decision, the closer they will be.

The processes and boundaries that determine the point at which a decision can be made will be an explicit outcome of the descriptions of each role, and the culture of the enterprise.

The differences between the meaning of these three words offers a huge expanse of quicksand, in which many people and organisations get stuck.

For example, in a previous life as GM of a large organisation, I had final authority over the expenditure of marketing budgets. The marketing manager had accountability for the development of marketing plans and their implementation across the functions in the business, and the authority to make relevant decisions within the marketing function. Product managers had accountability for the specific activities that took place in their brand portfolios. Operations management had responsibility to ensure that the products produced were up to specification, and when that was not the case, the authority to rework or dump as appropriate. Logistics management had the responsibility to ensure orders were filled on time and in full, and the authority to make decisions to ensure that was the case. We all had a shared responsibility to ensure that the customers who bought our products were serviced in a manner that had them coming back for more.

Back to the question asked at the top: ‘How can I be held responsible without the authority’. The answer is: ‘it depends’.

Everyone has the responsibility to manage their own activities on a daily basis, and be held accountable for the outcomes, but as you move up a corporate ladder, it becomes increasingly challenging to maintain the direct link. The more senior you are, the more you will be held accountable for things over which you have less and less direct control. That direct control is held at lower levels in the organisation.

The key to making this all work is to thoughtfully, consistently, and transparently delegate the authority to make the veto decisions, both Yes and No, as far down the organisation chart as possible. Counter intuitive as this may be to many, offering people control over their defined workspace and span of control, leads to quicker and more informed decision making. It also assumes that everyone understands the differences between these three words, and that there is consistent and explicit feedback on both the outcomes of decisions, and the manner in which they were arrived at and implemented. This requires that you pinpoint the job to be done, have a system of interlinking KPI’s, and that there is explicit and transparent performance feedback and management of both the process and those held accountable for the components of the process.

It also relies on having the best people in the right spots, willing and able to make the decisions necessary, at the right time. Of all the challenges faced by those at the top of an organisation, having the best people in the right spots to deal with the challenge of building commercial sustainability, is the most challenging of all.

Header cartoon credit: Scott Adams and Dilbert, again make the point.

Note: I realised after publishing that I had dealt with with this exact question previously in a post back in 2019. Fortunately, while the wording is different, the meanings ascribed to the three key words are identical. After 2000 plus posts, this accidental doubling up does happen occasionally. Perhaps it is a measure of importance?

Is pain always the best catalyst for rapid change?

Is pain always the best catalyst for rapid change?

Sep 22, 2021 | Innovation, Strategy

In the absence of pain, it is easier to do nothing, and just let things evolve.

This is human, we do not invest ‘just in case’, we invest to reduce pain, or more carefully, to leverage an opportunity. This is why big companies & bureaucracies are slow at reacting, the individuals who can lead change, those at the top feel little pain, in fact, accepting risk is dangerous, and invites pain into the room, so risk is avoided.

Look at any major event in history, the pain associated with it leads to change. Any war, epidemic, coup, they all lead to change. Often the change may have happened over a long time frame in the absence of the pain, but in its presence, the time is suddenly compressed.

Just look at the speed that mRNA vaccines have rolled out of labs and into peoples arms over the last 18 months.

The science of mRNA has been evolving slowly for decades. The first suggestion that RNA molecules that drive the synthesis of proteins, move around in a cell was made in the early fifties, and messenger RNA (mRNA) was discovered in 1961.

The first successful trials with mice of an mRNA vaccine were done in the early 90’s. However, the idea was not the target of significant investment, as it seemed alternative approaches were more promising. Over the last decade as the development of CRISPR technology made mRNA techniques potentially more stable, there was renewed scientific interest.

By early 2018 there was a body of scientific exploration that indicated that there was a significant opportunity for mRNA vaccines to be successfully deployed against a range of viruses.

Then along came Covid.

The rate of development accelerated dramatically because of the rapid and huge investment of both public and private money. By mid-2020 both Pfizer established in 1849, and Moderna established in 2010, were conducting human trials of a synthetic version of the messenger molecule that moves RNA from the nucleus of a cell to the outer casing of that cell, delivering protection from the virus.

Since then, there has been the biggest human trial in history going on, with millions of participants from whom data is being collected, enabling the rapid refinement of these vaccines.

This is exactly the process that has happened many times over history. A crisis of some sort compresses geometrically the time that would normally be associated with a significant change. However, the seeming rapid deployment of pain relievers usually happens after a long gestation of the basic science that delivers the antidote. mRNA did not happen overnight, the development from an idea to a testable molecule took decades before the vaccine could be developed and commercialised.

Pain causes rapid change as we seek aggressively to relieve it, disregarding the usual barriers, and accelerating the deployment of the science in products that relive the pain that are improved in real time.

As an aside, I would have thought the fires and floods of early 2020 in eastern Australia would have been sufficient pain for the message of climate change to penetrate the  collective brains of our political ‘leaders’, but it seems not. The final catalyst to action on this front will have to be really nasty indeed!

Header sketch. Francis Crik. The header is an informal 1956 sketch of the role Francis Crick imagined was played by RNA in the transfer of information in a cell. The presence of what became known as ‘messenger RNA’ was confirmed several years later.

Note: my understanding of the development process of mRNA is rudimentary at best, I am a marketer not a scientist or biologist.

Post Script September 2025. One of my scientificlly minded friends, Phil Jackson sent me this youtube video this morning. It goes into much more detail about how mRNA works, and the leadup science that went ito the development. For those few who read this, it will be of interest.

How can Australian manufacturing leverage Wright’s Law?

How can Australian manufacturing leverage Wright’s Law?

Sep 20, 2021 | Change, Innovation, Operations

Moore’s law is well known, understood, and has stood the test of time since published by Gordon Moore in 1965. Wright’s Law is less well known, and has also stood the test of time since the mid 1930’s.

Formulated by Theodore Wright, a pioneer aeronautical engineer, Wright’s Law describes quantitatively the relationship between volume and cost. It provides a reliable framework for forecasting cost declines as a function of cumulative production.

It states: For every cumulative doubling of units produced, costs will fall by a constant percentage’.

In various manufacturing operations I have been associated with, and many I have observed, I have seen this in action, but until recently I was unaware of Theodore Wright.

In effect, Wrights Law reflects the outcome of ‘learning by doing’.

Wright observed that for every doubling of output from the Curtiss-Wright Aeroplane factories, the production labour costs dropped by 10-15%. Other sources of cost reduction that together give a consistent cost reduction relationship are process standardisation and optimisation, labour specialisation, network effects, machine availability and efficiency, all things in the modern engineering toolbox.

Look around now at what is happening to the cost of Solar panels, Lithium-ion batteries, industrial robots, and what has happened to cars over a very long period.

Intuitively, Wrights Law stands up, and there is plenty of empirical evidence that supports Wrights 1936 thesis.

As Australia embarks on a path to some level of sovereign manufacturing capability, it will pay us to observe the realities of Wright’s Law.

This means we should find a way to judiciously apply patient funding to manufacturing operations that offer the opportunity to reach the volume inflection points that lead to a sustainable manufacturing base of key manufactured products.

We have thrown away many such opportunities, let’s not repeat the mistakes of the past.

As an aside, we now have another federal industry minister after the (necessary) resignation of Christian Porter yesterday. The now incumbent temporary minister Angus Taylor, is unlikely to do anything useful, but someone has to warm the seat. Being the eighth ‘seat-warmer’ in a government formed in 2013, 7 of whom would not know an ‘industry’ if it whacked them on the head  is hardly an ad for consistent policy and investment confidence.  Sadly this is in a time where both are desperately needed.

Header photo courtesy Wikipedia.

 

A marketers explanation of the ‘Price Elasticity of Demand’, and its implications.

A marketers explanation of the ‘Price Elasticity of Demand’, and its implications.

Sep 15, 2021 | Analytics, Category, retail

 

‘Elasticity’ is something most of us did in economics 101. Why have we not used it more than the evidence of my eyes would suggest?

The price elasticity of demand is usually defined as the relationship between changes in price and the resulting changes in volumes sold.

Elasticity = % change in quantity/ % change in price.

For example, assume you raise the price of a widget from $100 to $120, which causes the volumes sold to go from 1,000 in each period to 900. The price increase is 20%, the volume decrease is 10%. Elasticity is therefore 10/20, or 0.5.

It is the absolute value of the metric that is important, the distance from zero, rather than if it is positive or negative. If the number of widgets sold had been 750 after the price increase, the elasticity would have been 1.25. (25/20) a more elastic response to the price increase than the 10% drop in the example.

It is crucial for marketers to understand the elasticity of their products if they are to optimise the price/volume relationship, as price is the most sensitive driver of profitability.

The challenge is that there are a whole bunch of psychological and competitive factors that weigh into the equation in a consumers mind, simply not accommodated by the simplistic price/volume curve we all saw in that economics 101 class.

You can speculate all you like about price elasticity, but the only way you will know is to evaluate it in the marketplace.

We are currently (September) in the season where there is a glut of avocadoes available. My local Coles store seems to be altering the prices daily, anywhere between 1.00 each to 1.69 each. It is probably that they are partly reflecting the deliveries into their distribution centres, but the data collected at the checkouts will give them a detailed view of the volumes at differing prices, and even the time of day. This data is invaluable market intelligence that can be used to optimise their profitability for the product category.

Given that cost is a lousy starting point upon which to base price, it may be that this Coles is leaving money on the table by reducing the prices below $1.49.

How many less avocadoes would be sold at $1.49 than at $1.10?

Someone in their data analysis system, somewhere, has the data to make this call with close to absolute certainty as it applies to this store.

Theoretical price research, outside of the real purchasing decision making, is at best inaccurate, at worst, misleading. A/B testing used to be a challenge, but increasingly we can use digital tools to interrogate the data that digital capture, in this case the checkout, that has become available to us.

Companies like Amazon with vast amounts of data are so good at it that they know the price elasticity of individuals in particular product categories. They display prices accordingly every time you search, in order to maximise the chance you will buy at the highest price they can charge, based on your history.  ‘Dynamic pricing’ is the now common term being used to describe this process.

Once you understand the elasticity of the price/volume profile of your product, you are in a better position to maximise profitability, while delivering value to your customers.

Header cartoon credit: Scott Adams. Not sure the analogy is a great one, but the idea was amusing.