I never guess. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.· Sir Arthur Conan Doyle’s Sherlock Holmes, A Study in Scarlet
Monday, 18 August 2014
When we facilitate planning sessions with our clients, we begin our session with the diagnostic section. Diagnostics form the second of the three important skills all entrepreneurs must acquire in order to ensure the sustainability of the business. All entrepreneurs managing in a changing environment must master the art of business analysis.
Analyzing a business is not simply using a series of metrics. As you know, I believe that Happiness is a warm spreadsheet, but by the same token, the spreadsheet and information found are the tools…the entrepreneur is the craftsperson. Here are some key ways to use both analytics and business judgment to help you grow and develop your business.
Step One: Determine important measures
Many entrepreneurs look at financial metrics. There are other important metrics in other parts of the business. Marketing, Human Resources and operations all have measures that help keeping an eye on the health of your business. Establish a series of monthly and even weekly measures that allow you to take fast action, and annual and quarterly metrics that give you a sense of the ‘long term’ health of the business.
Step Two: Look for changes
Spotting trends and changes is an essential part of analyzing the business. For example, a drop in sales may represent a downturn, or simply a seasonal shift. Comparisons to the previous year help reduce these seasonal factors. Changes can come due to three factors. Internal factors are changes to the metrics caused by internal actions of the company. External factors are changes to the metrics caused by outside forces. Anomalies are random fluctuations with no identifiable cause. A single change does not necessarily indicate a trend, but may have no cause.
Step Three: Take Action
Once you have examined and sorted the changes, create strategies, or execute tactics to overcome these changes. Alternatively, take action adapting to the change. For example, if sales are down, execute a marketing strategy to increase sales, or reduce staffing levels. In the case of an anomaly, keep an eye on the metric involved and see if there are any underlying factors that are driving change to the metric and to your business.
Underlying Conditions / Assumptions
When performing your analysis over a longer period of time. For example US consumption of soft drinks is off by 20% over the past ten years. This trend indicates a change in the ‘underlying conditions’ under which beverage companies are operating. Demographics changes also change the underlying assumptions in healthcare, financial services and travel & leisure.
Spotting these changes longer term changes is challenging. Missing such changes often trips up large businesses. Ken Olsen, CEO if Digital Equipment Corporation (DEC) was quoted as saying, "There is no reason for any individual to have a computer in his home." DEC went on to merge with COMPAQ and then…disappear.
Good entrepreneurs often started their businesses by sensing changes. Great entrepreneurs, with the help of great analytics, sense these changes and adapt before the changes overwhelm them.
Monday, 11 August 2014
Billy’s Thirtieth law: The Three Business Skills Every Entrepreneur Needs. Skill One, develop great Tactical Skills
As I previously wrote in The Eighteenth Law, the entrepreneur must develop his or her skills ahead of the development of the enterprise. We can look at specific business aspect skills; learning more about finance, management, marketing and the operations of the business. Development also includes developing skill sets in three important components of business planning. These skills are Analytical, Strategic and Tactical.
Analytical Skills include all aspects of measuring, and interpreting those measures to make more effective business decisions.
Tactical Skills include all aspects of achieving goals set by the company. These include everything from performing tasks to the systems and workflows that efficiently get things done.
Strategic Skills are the planning, goal setting and visioning aspects of your company. Strategies set direction while tactics get you to the destination.
To use a simple example, when you take a vacation, strategy is deciding where to go, tactics is deciding how to get there and analysis tells you how long it will take. These three skills are taken from business theory; but don't let that scare you. You are already using each skill on a regular basis. The challenge is developing skills and building on the skills in which you may be weak. Over the next three blogs, I will shed light on each skill, why they are important to your firm and how these skills are essential parts of developing your enterprise.
Tactics: Most Entrepreneurs' Strongest Skill
Strategy requires thought, tactics require observation.
· Max Euwe, Chess Grandmaster & Mathematician
Most of the entrepreneurs I have met have little idea of why they are successful. They attribute success to creativity, insight, hard work and other factors popularized by the press. When I look at successful business owners they do not invent a better mousetrap, but rather build and sell mousetraps better than their competitors. Successful entrepreneurs deliver well and deliver early. This simple fact is not exciting, but it is the truth.
In a previous blog, I suggested that success was more than simply hard work. Successful entrepreneurs combine hard work with great tactics, especially when the goals (strategies) in the early stages of business development are quite straight forward.
Tactical thinking is essential to success…especially early success. An entrepreneur with whom I worked was in the solar control business. This industry uses window tinting and roller blinds to reduce heat and glare in both buildings and automobiles. The owner got his start installing tint automobiles and recreational vehicles. He was extremely good at it, got a good reputation in the industry and built a profitable business.
He didn’t invent window tinting. He didn’t apply it to an entirely new industry. He just found a better way of doing thing others were not doing well, and then building on it. There are tactics in production…finding better ways to produce your products or deliver your services. There are marketing tactics, ways to influence your customers in ways that help you achieve your sales and profit goals.
The challenge, as we shall discover going forward, is that strong tactics alone only take you so far. This comes back to the hard working entrepreneur who works hard, but never really achieves much of anything. It is fine to have your business exist to provide you with a job, if that is what you want. There is nothing wrong with that…in fact that describes my own situation. Many people want more…and tactics alone will not allow them to accomplish that goal.
Good tacticians always look for a better way. They know that there are no best practices, just best practices thus far. In manufacturing they look at systems such as LEAN, TQM and Theory of Constraints; apply behavioral event interviewing in their recruiting efforts and apply online efforts to marketing. Smart tacticians take from the best systems, adapt them to their unique situation and improve their ability to deliver.
The weakness with tacticians hurt businesses in the long run. These include a lack of the ability to delegate, assuming their tactic is the best tactic and failing to realign tactics when the company needs to change strategy. Firms can get stuck in a ‘tactical trap’ where the means becomes more important that the ends.
Most entrepreneurs are tactical and that is great when both the enterprise and the economics are stable. Alas, we live in turbulent times; times that require more than great tactics, but add analytics and strategic thinking to the mix to develop a growing and sustainable enterprise.