How to think about your business

Mar 2, 2020 | Governance, Leadership, Management

 

Business is simple, in principal.

Sell something for more than it cost you to produce or acquire it, recognising that the buyer needs to understand that the value they will derive from the product is greater than the cost they incur in buying it.

Simple.

Einstein said everything should be as simple as possible,  no simpler, and his E=MC2 is the simplest  equation that explains (somehow) masses of complicated stuff. It is the best example ever of Occam’s Razor, named after William of Ockham, a 13th century philosopher which encourages decision making to the broken down by progressively removing those outcomes that are based on beliefs and ideas rather than facts. When you have all the beliefs removed, you are left with the facts.

Often however, not so simple after you go one or two levels down the burrow to figure out just how you go about that process of removing all the biases and beliefs that masquerade as facts.

Charlie Munger, offsider to Warren Buffett in creating billions of value for Berkshire Hathaway shareholders over 50 years spoke about Mental Models in a speech in 1994.  His premise was that you need a ‘lattice’ of mental models that apply to the different  perspectives that apply to any question being faced in order to distil the ideas and wisdom that applies to your situation.

I agree absolutely with the idea.

It is simple, but as complex as you choose to make it.

As someone who helps small and medium manufacturing businesses improve the economic performance, there are numerous mental models at work simultaneously.

Strategic models: There are many strategic frameworks or models for business planning. Porters 5 forces, Boston consulting’s 4 quadrant,  game theory,  the old favourite SWOT, and many others. Profoundly important and often missed  at this point, is consideration of the business model being employed. 

Operational models: Lean thinking, 6 sigma,  shift sequencing, the mix of technical, support and operational staff, deployment of technology, interaction of technology and those at the work face,  on and on, you have the opportunity to use the wisdom of others to sort the relevant from the  not so relevant.

Financial models: the standard accounting forms of cash flow, P&L, and balance sheet, together with a break even analysis, and decisions about the type of costing models to be used, ratios to be calculated, and formats in which the information will be communicated. To properly understand the operational mechanics of a business, you need more than the standard financial reporting. Their limits are a view of what has happened to the money, little about why and how it happened, and certainly very little about what may happen in the future.

Marketing and sales models: where do I start?  Ideal customer profiles, value proposition, digital Vs analogue, differentiators, marketing toolbox and the multiplicity of tools to deliver leverage, ROI of marketing investment, Account based selling,  selling models such as BANT, sales funnel, conversion rates, anchoring a negotiation, and thousands more.

How do you sort all these options into a few that will deliver results that are worth the investment?

  • You start with the end in mind, the strategic and commercial objectives, the why. I call this process ‘hindsight planning’
  • You break down the challenges into sequential ‘chewable chunks’
  • You focus on the important more than the urgent.

Behavioural models: These usually emerge as a group of expected behaviours, collectively called ‘Culture’. The best example I can think of is the 10 commandments, common to the 3 Abrahamic religions (Islam, Christian and Jewish) that sets a wide framework of the few things you must not do, leaving the rest up to you. Together, in their own environment, they provide a ,macro framework for behaviour, which we then break down further into the components that we seek to live by in a community.

When you need some help sorting this out, call me.

 

 

How do you trouble shoot flow?

Feb 27, 2020 | Lean, Operations

You never get this process of articulating flow right first time, or second, maybe third for simple tasks. People are always people, they are in a hurry, forgetful, negligent, or new to the task, so it has to be made as easy as possible.

Toyota pioneered this idea of flow in a manufacturing environment, but whether you are in a factory, or in an office, the process is the same. There has to be a process for continuous improvement, or at the least one to identify and remove impediments to orderly and consistent flow, in any organisation that aspires to survive and prosper. It results in the optimisation of the process, which is usually radically different to what is required to encourage innovation, which is by its nature more ‘scrappy’ and disorganized, as the activity seeks to test its viability and grow.

Improvement only comes from a stable environment, where things happen in a consistent and predictable manner. When you have stability, you are in a position to experiment, and observe quantitatively the result of the experiment. Was it beneficial, is it worth incorporating into the standard process? If so, then the process check list is changed to incorporate the change as the new standard procedure. If not, a note is made so that at a later time someone can review and know the change has been tested, or indeed, use it as the base for construction of a hypothesis and further experiment that takes the change one step further to where it may make the difference.

A client some time ago installed a coffee machine in the tea room. An expensive unit, that took beans, ground them and dispensed with hot water and milk on demand. The unit has three  things that needed to be done. Beans added to the container, water added to its dispenser, and the line from the milk bottle, held in a small refrigerated unit on the side, needed to be removed and cleaned each day.

These seemingly simple things caused a lot of problems, and really shitty coffee. Water was put into the bean dispenser, (strangely perhaps, beans did not seem to find their way into the water dispenser) requiring an extensive service (twice) and the milk line seemed immune to any cleaning.

To address this challenge, we engaged the staff in a bit of a game, using a fishbone diagram and post it notes. 

Within a few days, the diagram was covered in suggestions, which at a lunchtime meeting we ‘workshopped’ down to those that the people using the machine thought were the best. We wrote a checklist, or standard operating procedure  for the coffee machine, which was tested over a few weeks by a small group of heavy users, then posted on the wall of the kitchen, as well as included in the businesses then developing library of SOP’s.  We also left a big framed photo of the fishbone on the wall in reception, as a reminder to all that improvement was everybody’s job, and that it could be fun, as well as useful.

And, far fewer problems with the coffee machine since.

 

Header photo courtesy Alwin kroon via Flikr

 

 

The grassroots essentials of marketing

Feb 19, 2020 | Branding, Customers, Marketing

 

What do we mean by the term ‘marketing’?

I suspect if I did a poll, there would be a scarily wide range of responses. So, let me repeat the definition I have evolved over 45 years, which would not be found in any textbook.

‘Marketing is the identification, development, protection and leveraging of competitive advantage that adds value’

This is different from the ‘purpose’ of marketing, which to my mind is to create the opportunity and motivation that, when conditions are right, will build relationships and create opportunities, that lead to transactions. That transaction might be a sale, a subscription, a vote, a referral; it can be many things, with the common element that it is an outcome of the so called marketing activity.

Let me use the metaphor of the expert gardener. 

This gardener has a process by which he/she manages their gardens.

  • They decide what it is they want, what the end product should look like, at least in general terms.
  • They pick the ground they will cultivate.
  • They prepare the ground in the manner appropriate for the outcome they have visualised.
  • When conditions are right, they plant the seeds.
  • They nurture the seeds and resultant seedlings until they are ready to harvest.
  • They repeat the process, incorporating the things they learnt on the way through.

This process is the same for growing broadacre grain as it is for growing a few decorative flowers in the back yard. As it is for marketing. The process is the same whether the product is a tub of yoghurt or a power station, a national effort, or a local one. Only the scale of the investment, implementation details, and time frame differ. Try to take a shortcut, and you end up with dead flowers, or at best, substandard ones.

So how does that rather vague stuff translate into your world of marketing the products and services of your SME?

When I first encountered ‘Marketing’ at University, 50 years ago, the core of it was ‘The 4 P’s of marketing’. Product, Price, Place, Promotion. Everything sprang from those 4 elements. A lot of water has passed under the bridge since then, and the expressions used may have changed a bit,  the processes of achieving them changed radically, but the core remains.

The architecture of the 4 p’s of marketing are a bit like the Model T Ford. It redefined the notion of the car, and how to manufacture it. Over time, the expression of the car has changed enormously, but the basic architecture remains.    

However, to me it makes sense to see ‘marketing’ from the perspective of the customer, and to do so, we need to answer a few simple questions:

  • What is the problem my customer has that I can solve with my product/service? This will answer the further question of why should my customer do business with me and not my opposition, which is all about the value you can create while being differentiated from the competition. You need to define it from the perspective of the customer. The costs, of all types, created by the problem, and the benefit to them of a solution.
  • Who is my ideal customer? Your ideal customer will see your differentiated value proposition, as being made for them. This takes focus and always hard choices about who you will service, and who you will not; it is the customer Pareto at work. If you have defined both the problem and the ideal customer, i.e. the one who has more of the problem, or feels it more acutely than most, when they see your value proposition, their instinctive response is ‘at last, this is for me’, or something similar.
  • How do I apply leverage to my marketing investment? It is at this point you are considering which messages, delivered to who, via what media, and how do you do that while getting the biggest bang for your buck possible. It is where the marketing rubber hits the road.
  • How do I make a profit? Profit is a simple equation: revenue minus cost.

Still the same four items, or ‘P’s, it is only the articulation and perspective that has changed. The primacy of the ‘p’s remains.

The common denominators in each of the four, required for success, are choice and iteration. You must make often very difficult choices, implement, learn from that experience, and apply the learning for the next iteration. This need to make choices, and enable the manner in which you deploy your modest marketing resources to evolve based on the experience, is perhaps the largest marketing hurdle for every SME I have ever seen. Many SME owners have had a bad experience with marketing snake oil, and are reluctant to try again, and others who have hit on something that seems to work are reluctant to change anything, so you get a lack of optimisation, not as much leverage as you could.  

As you consider your marketing, given the small scale of business, and budgets available, do not let your thinking be dominated by the mass models of the past. These are simply not appropriate for you. Way more appropriate are small, niche models, an artisanal approach. Why? We have become sceptical, untrusting, demand to know the real provenance, and only rely on those we know personally, and trust because they have earned that trust.

The original social media, word of mouth, subsumed by digital for the past 15 years is making itself heard again. Therefore it follows that you, the business owner, need to be seen and heard, tell your story, use the digital tools, but be personal and human. However, this does not mean you should turn your back on digital, by any means. The data and tools we have now could not have even been imagined 15 years ago, let alone 50 years ago. The practise of marketing has changed radically, the foundations remain the same, just way more exposed and subject to interrogation and automation than they were, and you have to be in there just to keep up.

As Einstein said, ‘Everything should be as simple as possible, no simpler’. What could be simpler than providing a great product and service that solves a problem, and having those problem liberated people tell their friends, and most particularly those with a similar problem? That is how to market at the grass roots.

 

 

 

Why most enterprises fail at cost effective marketing

Feb 17, 2020 | Management, Marketing

It is budget time again, that time of the year when planning comes to the fore, usually as an added job that is just a pain in the rear.

There is an easy way, and a hard way.

The easy way is to download a template and get the intern to spend a day filling in the gaps. About as useful as an umbrella in a cyclone.

Better than nothing, but only just.

Then there is the hard way, because it takes time, and requires you to use your brain, and the collective brains of others, and can be an emotional as much as analytical exercise, requiring time, energy, critical thinking, and collaboration, and making some really challenging choices.

Let’s define what we mean by marketing, useful if you are going to plan for it.

My definition of marketing is the ‘generation, development, leveraging and protection of competitive advantage’.

Not a definition you will find in any textbook, but mine evolved over 40 years of doing this stuff.

Competitive advantage evolves, and comes in many forms, but without it, you are in a commodity, price driven market, and you cannot win in that. The pace of evolution is these days frenetic, so writing a plan, and leaving it on the shelf for an occasional reference before the next budget session is useless. It has to be an evolving document.

If you can find a template that helps you do that, let me know.

Marketing is about the future, you are trying to shape it, so you are dealing with unknowns that can be qualified, but rarely quantified. With the use of various mental models, cause and effect, domain knowledge, customer intimacy, competitive understanding, tactical agility, and a whole range of other things, you can build a level of confidence that justifies the risks being taken.

It is a jigsaw puzzle, to which you do not have the picture, and many of the pieces you do have are wrong, and many are missing, so you have to experiment, make up your own, use someone else’s cast-offs, try making your own pieces to fit.

At the end, it is about making choices with imperfect information.

That is hard.

When faced with a choice that appears to be between two sub optimal outcomes, step back, and find another way. That is in itself a valid choice, and a very good one, and it makes you think.

The greatest two problems most corporates have in planning marketing are:

Extrapolation.

Confirmation bias.

Add 3% to last year, and, only seeing what they want to see.

That is what you get when you use a downloaded template in place of using your brain to critically assess options, information, domain knowledge, capabilities, resources, risk, and market and trend sensitive indicators.

How to make better decisions, more often.

Feb 13, 2020 | Governance, Management, Strategy

 

 

A decision is a choice, made in the face of a problem.

Problems, at their core, have only two sources:

Uncontrollable events.

Flawed processes and their application.

These two sources have entirely different paths to a solution.

Flawed processes need to be subjected  to some sort of continuous improvement program, resulting in a clearly articulated process that can be taught. This improvement process can become a normal part of activity, given the appropriate leadership and focus. A key part of the improvement process is the application of critical and creative thinking. Having a highly optimised process is not the same as having a truly effective one.

Uncontrollable events are entirely different, by their nature, are very difficult to unable to be forecast. They emerge with little if any warning, generally from the outside of an enterprise, so the solutions need to be arrived at in an entirely different manner.

Two factors contribute to the options facing us as we set out to address these random events:

  1. People put far more weight on the problem directly facing them, than even a much more serious problem that has little short term impact. It is also true that most people have a better idea of the dimensions of a problem that directly impacts on them, than others that may carry more corporate clout, but are do not directly affect them.
  2. We can only deal with a very few problems at once, we simply do not have the cognitive bandwidth to deal effectively with a number at the same time.

Therefore, considering these two factors, it makes sense to democratise the manner in which we deal with problems. In other words, enable those who face the problems to deal with them by giving them the resources and responsibility to do so, within clearly understood boundaries.

Two mental models to consider.

The first is a pyramid, full of problems. If the only person who has the power to address the problem, is the one or two at the top, only a few will be addressed at all. Democratising the power to address them enables others at lower levels to address those problems they directly face, so it follows that many more will be addressed. There may be some stuff ups on the way through, but overall the outcome will be beneficial. However, most corporate cultures make this very challenging, built as they are on a hierarchical structure.

The second is also a pyramid, but turned on its head. In this case, the base of the pyramid is facing outwards, towards the customer and various elements in the supply chain with whom the operating personnel have contact. This is where most of the operational problems occur, so give them the resources and power to fix them.

Do these seemingly simple things, and those usually seen as the bottom of the hierarchy have the opportunity to address the emerging problems as they are molehills, before they turn into mountains. It does however necessitate the devolution of power from the top of the organisations structure, and all the way down through and across the functional silos. This may be a scary prospect for most, but it enables the enterprise to be agile and efficient.

The impact of this sort of culture shift cannot be underestimated. It does however take a special and unusual strength of leadership to enable the change to evolve.

US general Stanley McCrystal achieved  stunning results in Iraq with one of the most rigidly hierarchical of organisations, the military, so you should be able to do it. General McCrystal’s experience is recorded in his book ‘Team of Teams’ which is a compelling account of a culture being turned on its head.