Recently I started reading Rework by Jason Fried and David Heinemeier Hasson and if first impressions are anything to go by, this book is going to be great. Amazon describes it as “a different kind of business book – one that explores a new reality”. One of the first (short, sharp) chapters is called “Planning is guessing” and I couldn’t agree more. It starts off with “Unless you’re a fortune-teller, long-term business planning is a fantasy”. The last couple of months have taught me the truth behind this statement and the danger of ignoring it.
Making business decisions based on a guess is an extremely dangerous strategy. This is doubly pertinent in a small business where cash is your life blood. Our company has been guilty of this on a number of occasions and by not reviewing these decisions on a consistent basis, we have found ourselves in a compromised position more than once.
We set a sales forecast in February of 2012 based on our best estimation (guess!) of sales grow in all of our markets. At the same time a budget was created based around this sales forecast, including some fairly aggressive spending on sales and marketing. As the story goes; the year started well with the sales forecast exceeded for the first 8 months, but there was no plan in place if things didn’t go according to script and they didn’t. November hit and so did the handbrake on sales. We were well below forecast and cashflow started becoming tight.
January has been an interesting month so far but on the positive side, this situation has forced us to take a hard look at our business and make some changes that will improve our company moving forward. The lesson we have taken from this situation is to continue guessing in the future, but to constantly reassess those guesses and adapt as things change. The main advantage we (small businesses) have over our behemoth competitors is our ability to be agile. Use this advantage to your benefit not only from a product development perspective, but also to improve your company.
No unfortunately I didn’t get to pick the brain of Neville Isdell, the former CEO of Coca-Cola, but I did read his book Inside Coca-Cola recently. It was pretty good, not great, but definitely interesting to get an insight into the ultimate global brand.
Whenever I read a biography or business related book, my goal is always to find at least one takeaway message. Anything that helps expand my knowledge, opinion or perspective on or about business. From some books I end up with a list but from Neville and Coca-Cola I learnt one key lesson. It is very simple and makes perfect sense but I barely ever hear it discussed when reading or conversing about business.
It essentially stems from Neville’s experience during his early days working for Coca-Cola in Zambia in the 60’s. Back then the distribution networks for Coca-Cola in Africa were rather primitive by today’s standards. Cases of Coca-Cola were paddled up a river by boat to be sold at stalls in villages. It may sound inefficient but it worked and secret as to why is very simple;
“Everyone along the way, from start to finish, makes a profit”.
I know that in real business life, especially as a small business, it is never that simple with everyone along the way always after a bigger piece of the pie. But it’s a great notion to keep in the back of your mind when building a business that will be sustainable in the long term.
A considerable detour on my return from a holiday yesterday was far from ideal, but gave me plenty of time to contemplate the first day back at work for 2013. Over the past couple of weeks I have been spending a lot of time thinking about how we as a company, need to improve in the New Year and ensure we are prepared to capitalise on our continual, rapid growth. The simple outcome of these musings is; do the little things right. Its basic advice that you hear time and time again, but far too often it is advice that gets forgotten when big, exciting opportunities present themselves.
That brings me back to the journey home; after making a considerable dent in what should’ve been a pleasant 4 ½ hour drive home, we came to a dreaded ‘road closed’ sign…problem. The engineer was 2 hours away from assessing the bridge in question we were informed (along with what seemed like half of Christchurch’s population) and IF he OK’d everything then would be allowed through. Never one to leave things up to fate, we did an immediate U-turn and headed back up the road and nearly doubled the length of our journey home by taking the next quickest route…solution (not ideal but a solution none the less). As we wound our way through the mountainous roads of New Zealand’s beautiful South Island, I vowed never to leave on a long journey again without checking out the road closures online…lesson.
So tired and dishevelled we arrived home, but not before I had given some good thought to how this little excursion could be translated into getting the little things right in our business. Problems are going to arise in business, its unavoidable and often outside your control. As they do you’ll have to come up with solutions; fixing problems is generally a poor use of time but an unfortunate necessity. The key is learning a lesson to ensure you don’t need to fix the same problem in the future and using problems to encourage continuous improvement. I am going to trial this problem, solution, lesson theory with my team and see if we can’t make it damn hard not to get the little things right.
The 80/20/20 Principle was introduced to me earlier this year by the fantastic CEO of Triodent, a small dental supplies manufacturer from New Zealand. An exuberant character, he spoke about how the 80/20/20 Principle is the key in allowing his company to be continuously innovative and compete against major market players.
The principle is simple, a new product idea is formed and it is made a marketable reality as quickly as possible. Well to 80% of its finished form anyway. But for 20% of the total development cost and in 20% of the time it will take to have the product in its final form. Sound confusing? It really isn’t…
You see the main advantage us SME’s have compared to our behemoth counterparts is the ability to move quickly. While the multi-nationals of this world have new product development procedures to follow, we can dream up a new product and have it in the market in a fraction of the time. Sure it may not be in its finalised, refined form but what is the point in committing time and resources to an innovative new product when you’re not sure if your market is even interested in it?
So give the 80/20/20 Principle a go in your business. Make the new idea a reality, throw it off the cliff and see how it flies. Get feedback, refine it based on the response you get and maximise your resources to get the best bang for your buck!