Nov 15, 2021 | Leadership, Management, Small business
The term ‘Washing Machine Brain’ was used recently by a client as we sorted through all the competing tasks and priorities of his role running a small, rapidly expanding business. Everything was mixed up, tangled, swirling at a rate he found difficult to keep up with, let alone get on top of any of the seeming endless list of tasks.
Common problem, and a very expressive descriptor.
Over the 18 months I have been working with him, the number of tasks and the complexity of those tasks seems to have increased geometrically, while the revenue has increased arithmetically.
Again, a common problem in a rapidly growing business. Every advance delivers a new set of management challenges, until a tipping point is reached. After that point, the scaling of operations can be done off the established base, and the ratio is reversed.
Over the 18 months, we have achieved a number of milestones, and left some significant tasks underdone. The product is a bespoke manufactured product with a sizeable number of customer driven variables, many of which are challenging to explain to the customer base.
We have:
- A very clear strategy, well understood by the small number of employees. .
- Implemented an operational planning process from order to installation that works pretty well. This uses Trello as the formal communication tool, enabling transparency across the operational staff, as well as encouraging input and accountability.
- Developed an electronic customer record in Dropbox that is the storage and reference point of all design and operational data that relates to individual customers.
- Automated the quotation process, although there is manual intervention still required, and given the nature of the product, may always be required. However, there are still many ‘wrinkles’ to be sorted out.
- Partially implemented a powerful CRM system to manage the outbound sales effort and lead funnel. Like many of these products, every time we turn a corner, there is more to do, but the promise of further automation to assist scaling is seductive.
- Generated more sales leads than can be managed with the existing operational and sales resources.
- Moved from break even to making sufficient profit to reinforce the owners faith in the product, and ensures the business has the resources to fund growth internally.
We have not:
- Successfully implemented a systematic qualification process to optimise the time spent in the pre-sale stage. We need a process to identify tyre kickers and potentially difficult customers & jobs early enough to either walk away, or price them accordingly.
- We do not have an adequate handle on cash flow, or the accounts generally. As a reformed accountant, this disturbs me greatly. These ‘back-office’ tasks require robust processes and resources, and remain a work in progress,
- The supply chain on which we rely is disorganised and hugely wasteful, much of which we wear in lead time uncertainty. While we do not control a key part of the manufacturing, the incentive to find a way to exert control is compelling.
- Labour availability is a profound challenge. The product relies on physical installation which can be complex, depending on the site. It has a range of variables new to this country and finding experienced people has proven almost impossible, and finding suitable trainees at least as hard.
None of this is unusual in growing successful businesses, but knowing that does not make the challenge any easier.
The only antidote is focus. Relentless focus.
Pick the few things that can be done today, this week, this month, and focus on getting them done, before moving onto the next source of value to be addressed. In so doing, spend the time and effort to complete each activity as well as possible. It is inevitable that in a growing business, the requirements will change, so processes need to be able to evolve, but there is little more frustrating and wasteful than having to re-cover areas you had thought behind you. Over time the washing machine will become significantly less chaotic as we iron out the wrinkles and scale the business. (Sorry, could not resist the obvious pun)
Nov 11, 2021 | Change, Leadership
Too often dissent is seen as just negative. Sometimes it is, particularly when the dissent is from a course of action that demands change, but even that can be useful.
The nature of dissent, when removed from becoming personalised, is usually hugely positive, as it opens conversation, points up otherwise glossed over weaknesses in an argument or proposal, and provides ‘safety’ for others to voice their views, dissent or otherwise.
These positive outcomes from dissent to an idea, proposal, or course of action, usually become consumed when the dissent is seen as an attack on the ideas, status or qualifications of the individual who made the proposal. In this case, it becomes even more important that someone speaks up, be the first, and it is a measure of leadership that those ‘in charge’ accept, and even encourage the dissent as a positive contribution to the process of decision making and risk assessment.
Dissent is the only real antidote to confirmation bias.
We see the factors that reinforce the views we already hold, while not seeing those that conflict. We all ‘suffer’ from such biases, it is an evolutionary tool that serves to maximise the cognitive capacity we have, but in business it can be terminal. I am sure there were those inside Kodak who thought the digital camera might be a good idea after Steven Sasson invented it, but they were not heard. Gary Starkweather, the inventor of laser printing inside Xerox, was almost fired, until someone in PARC, on the other side of the country recognised a good idea, unencumbered by the weight of the status quo, and the rest is history. Netflix blundered mightily when they tried to separate their DVD and nascent streaming businesses into two companies. CEO Reed Hastings later recognised his mistake in (unintentionally) allowing his voice to be the only one heard, and later put in explicit processes to enable dissent.
Dissent should be encouraged and made ‘safe’ for the dissenters.
However, when you are the dissenter, there are a few ground rules to follow.
- Ensure the dissent is to the proposal, the facts or foundation assumptions, not the person making the proposal.
- Base the dissent on arguable grounds, quantifiable outcomes, reasonable extrapolations based on robust assumptions, informed opinion, and experience.
- Be very concise and clear
- Use both narrative and facts to make your case, not just one or the other.
All progress depends on doing something differently.
The absence of dissent leaves the status quo as an unquestioned fact, from which no progress can be made.
Encourage, nurture, engage, and value constructive dissenters.
Header cartoon credit: Scott Adams and Dilbert. Again.
Oct 20, 2021 | Governance, Leadership
Effective managers are sensitive to the differences between working capital and investment capital.
The former is the money it takes to keep the business running, to generate the transactions, fill the gap between the sales registered in the P&L, and the cash coming into the bank this month. The latter is the money that needs to be invested to keep the business competitive, renewed, and more likely to have a long and successful life delivering competitive returns to stakeholders.
Peter Drucker observed that: ‘The purpose of a business is to create and keep a customer’ which is often used as a quote.
The full quote was: “Because the purpose of business is to create a customer, the business enterprise has two, and only two basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
He was right, as usual.
Without customers, you do not have a business.
Marketing activity of any sort is an investment in future sales.
The creation and long-term engagement with customers, is just as much an investment as one in a piece of capital equipment. Marketing consumes funds over time that are necessary to generate the cash coming into the bank consistently and predictably.
Marketing investments are in effect, the working capital of revenue generation. However, they are treated as expenses in the profit and Loss statement, which leads to them being regarded as a variable expense, rather than an investment.
You could mount an argument that a major proportion of the marketing budget should be capitalised, as an asset, not depreciated as you would with capital equipment, but offset by a deferred revenue liability.
In a past life, in charge of significant marketing budgets, I have been on the losing end of the argument that cutting marketing expenditure in tough times is absolutely the wrong thing to be doing. The net result has been to erode brand position, revenue, and margins over time, as well as not being able to take advantage of competitors similarly dumb decisions to reduce marketing investment.
The research evidence to avoid such cuts is overwhelming. However, while the marketing budget resides in the P&L, it will continue to be a balancing item for annual EBIT, rather than playing the long-term role of building commercial sustainability.
Oct 15, 2021 | Leadership, Management, Small business
One percent is a tiny fraction. A question I have asked many times of clients, and management in my former corporate life is ‘who could not……… by one percent?
The blank is filled in by a variety of items:
Raise prices, reduce trading costs, reduce overheads, increase volumes, and so on. Nobody ever says ‘No’ to the proposition.
When you look at the impact, particularly cumulative of those one-percenters, they supercharge profits.
We are all in business to make profit, without profit, we are not in business. While there is an extremely important place for calls to be good corporate citizen, provide all stakeholders with a mission and vision to which they can relate, and to build for the long term, none are possible without commercially sustainable profits.
Many SME’s I talk to fail most basic understanding of the make-up of their P&L, and how the one percenters impact on profitability. Usually it is simply because their accountants have failed to break their costs up into fixed and variable, and they have no idea of the impact of the one percenters as they have never done the exercise on a spreadsheet which makes it incredibly obvious.
Profit is not a bad word, it is the gold standard.
It also not a useful objective, which is a role played way too often. Profit is an outcome of a whole range of other, often very small things, done successfully.
Cartoon credit: Dilbert. Anyway, who would want to do business with an unprofitable business?
Oct 13, 2021 | Innovation, Leadership
Machines do not, at least do not yet, have ideas.
Ideas come from people, they are social things, emerging from social situations.
We often find technical solutions to problems, but are they ideas?
It seems to me that they are more the progressive peeling of the onion, until you get to the core when a solution presents. By contrast, ideas do not come from the onion, rather, they come from seeing the onion in some sort of new context that delivers a new and unexpected outcome, not connected to the original.
Research demonstrates that men are more likely to show up on the autism spectrum than women, the ratio being about 4:1.
On the other hand, women are more social than men, their brains are more likely to ‘see’ things from the perspective of others. Empathy in the jargon.
This is consistent with my observation over the years that women are better marketers than men, in terms of the idea generation, but less likely to implement to a plan without deviation. A gross generality, proven often in my experience by the numerous exceptions.
It is just more likely that women will come up with something from ‘left field’, a connection of seemingly unconnected items, than men.
However, the lesson is that ideas have a genesis in social interaction, curiosity about others, and emotive understanding of a different perspective. The more interaction there is, the more fertile the ground from which ideas emerge.
Idea farming is not dissimilar to any other sort of farming. Both require prepared and fertile ground, a willingness to take on some risk, local knowledge, technical expertise, lots of feedback, and appropriate catalysts.
Then comes the more mechanical process of implementation.
None of this is easy. If it was, everybody would be doing it. When you need to add a bit of experience and ‘idea farming;’ expertise, let me know, I just may be the catalyst you need.
Oct 1, 2021 | Change, Leadership
Most manufacturers seek to cut costs, a reasonable response to the increasingly tight margins available in all but very few manufacturing enterprises.
There is an alternative, hard to see and act on, but viable.
It involves thinking about the paradox that exists in manufacturing.
As automation has increased, and costs driven down by the reliability of machines doing repetitive work, jobs have not disappeared, but they have changed shape and location. The value added previously by people doing manual manufacturing tasks have moved somewhere else.
Value is a parallel to Einstein’s theories of relativity.
Matter does not disappear, it changes form under some sort of pressure, and moves somewhere else.
Value, similarly, does not disappear, it moves somewhere else. It cannot be destroyed, but when it moves, there are winners and losers. Think about all the value supposedly destroyed by mergers and acquisitions in the last 30 years, very few have lived up to the hype used to justify the change. Shareholders have lost, but those buying assets at less than replacement cost, and those benefiting from the exit of larger businesses have picked up value in many ways.
Again, value has not been destroyed, it has just moved.
If this is true, the task of manufacturing management is not to cut costs, but to extend capabilities.
It seems to me there is a progression happening.
Machines take on repetitive tasks, increasingly more complex over the last 50 years. They are now moving towards cognitive tasks, with the development of AI. It is in its early stages, but the shift appears to be real as I see the evolution. Again, the jobs of people in cognitive tasks will move somewhere else, they will not disappear.
The somewhere else seems to me to be towards social skills, untouched by automation. However, I suspect in 30 years that will no longer be true, but by then I will be gone, and someone else can worry about it.
Unlike the sci-fi of Netflix, this is not an inevitable dystopian outcome, it is a tool that is there to be understood and managed for the greater good.
Business leaders that see the differences and can manage the shape of them will win in the marketplace of the future, others will, well, move somewhere else.
Pity our political leaders seem unable to grasp the idea that change, and commercial evolution is a value adding outcome, that in the long term will be beneficial, while sticking to the status quo, betting the house on it remaining so, is the way to oblivion.
Header cartoon courtesy Tom Gauld in New Scientist.
