Welcome to the February 2020 edition of our Small Business Advice - designed to provide you with food for thought.
Find a quiet corner, grab a coffee, and make time to take stock and contemplate. Our aim is to provide enough varied content to be able to think differently about your business, to look to the future, and to generate some of your best ideas.
This month: The importance of staying current, managing your evolution, and the dangers of misinterpreting trends.
PUTTING YOUR BEST FOOT FORWARD
Some very worthwhile insights here on the effectiveness of the marketing spend at Adidas – all the more surprising for the lack of structure and formal analysis at such a large company. If you needed any convincing about the importance of the right metrics and focus then this will certainly help.
Adidas have spent four years improving their marketing decision-making. By having the right metrics in place and really understanding what is driving the business, it has led them to some surprising findings.
Amongst other things, they discovered that they were focused too much on digital because the assumption that digital advertising drove digital sales was wrong. They were also too focused on efficiency rather than effectiveness. Not only that, but they discovered that loyal customers were not the sales driver that they thought they were.
Small Business Advice
Getting the balance right between efficiency (minimising inputs) and effectiveness (maximising outputs) is crucial if you are to avoid a race to the bottom in your business.
Look to maximise the effectiveness of your spend whenever you can – to make it an investment rather than a cost. Only look at efficiency in those areas that are unavoidable and commoditised.
Small Business Advice
Never make an assumption – even if you are convinced that it is correct from the benefit of experience. Always use the data to objectively evaluate a decision – and use as broad a data set as you can.
In the Adidas example, they realised that digital advertising did not just drive digital sales – but you will only see something like this if you include data from across the whole business and not one silo.
Small Business Advice
Know your sales drivers with certainty. This is fundamental to the health of your business and your future opportunities. In the case of Adidas, the belief that loyal customers were the main driver of sales was wrong – it was actually new customers.
Getting to the lowest level of detail will help you to squeeze out as much insight as possible. Really understanding your sales will help you look at your decisions with fresh eyes.
FOGGY MEMORY?
An almost unbelievable example here of the dangers of not staying current on processes that only happen occasionally.
During the overhaul of their nuclear weapons, the US realised that they had lost the capability to manufacture a key component of the warheads – known as Fogbank. 10 years had gone by since the last overhaul, and in that time the process had never been carried out. Experts retired or moved on, and no one had the training or on-the-job experience to replace them.
If this can happen to something as strategically important as nuclear weapons, it can certainly happen to you.
Small Business Advice
It is vital to actively manage the knowledge and experience in your business. Document key processes, have active succession plans, and formal training programmes. Above all, make sure that key tasks are carried out regularly.
This is just as true if your business has no employees. It is amazing how quickly you will forget important information that you think you will remember forever. How many times have you set up a new password, made it memorable, and instantly forgotten it? Don’t let that happen to the many important aspects of your business.
DRIFTING IN TO TROUBLE
This sometimes technical article deals with a concept known as the drift towards danger. The tendency over time for practices to drift away from their original design to something closer to how they work in reality – what you might see as a form of evolution.
The challenge is that in some cases, the move to something more practical will make sense. It will be a more efficient way of working. Sometimes, however, the original process was designed to include certain steps to ensure safety. If these steps are omitted – and nothing bad happens – they will likely remain omitted. This is where the danger lies. Sooner or later the lack of the safety step will have a serious impact that could have been avoided if the original process had been adhered to.
This is particularly important when the process includes some unlikely but potentially very serious problems. Problems that businesses face a lot of.
Small Business Advice
It is important to give your business the space to evolve naturally, but it is just as important to review it periodically to evaluate if that evolution has been beneficial.
Changes to your business can occur because of laziness, a mercenary focus on the bottom line, or in the pursuit of genuine efficiencies – and finding out which is key to keeping your business on the right path.
This is applicable to all businesses operations and processes – the outcomes will be suboptimal if you allow decisions and actions to drift without the proper care and attention.
This is where your planning needs to be smart. Give your business the space to breathe and grow, but build in deliberate points of reflection to be able to tweak the direction as necessary.
WIDEN YOUR FILTER
A great insight in to one of the principles behind Little Big Data® - namely analysing every bit of data that we can find even if on the face of it most of it seems to lead nowhere.
We analyse absolutely everything in a business – and we throw a lot of it away. – This is the only way to guarantee that you will eventually find the hidden nuggets.
Small Business Advice
Widening the analysis you do for any decision is vital. Incorporate as many data types, sources, and business areas as possible. This opens up all of the possibilities.
Shutting down the dead ends and moving on is just as important, but you need to choose the right time to make that decision. Too soon and you risk missing a crucial opportunity. Hold on too long, though, and you risk throwing away additional effort in the wrong direction.
Small Business Advice
Never hold on to a course of action just because you think to stop will be to waste all of the effort and resource invested so far. It is never wasted – it all moves you forward in some way and opens up new possibilities.
A TRENDY COINCIDENCE
A timely reminder about being careful with trends and observations. They don’t necessarily imply the meaning that they first appear to.
This analysis shows that attributing teachers to outcomes in student ability yields almost the same results as attributing to student height – ie something that is independent of the teacher’s effect. In other words, maybe the original observation is a coincidence and not a cause.
Small Business Advice
When evaluating your business data, you need to consider the reasons and explanations behind a trend. Don't take it at face value.
Test it from all angles and find the “why” before drawing any conclusions that you would base decisions on.
A FINGER IN TOO MANY PIES
For regular readers of this business advice, you’ll know that M&S is currently providing a masterclass in forecasting. Unfortunately it’s from the perspective of what not to do. In the latest instalment, we now have the opposite problem to last time – having too much inventory on hand that goes to waste.
This may be the same root cause, but the problem is at opposite end of the forecasting errors scale. By overestimating the demand for both men’s skinny jeans and mince pies, M&S margins were impacted when the additional inventory became worthless.
Once again, forecasting demand is one of the most important areas to get right – it should be done with care and constantly reviewed for improvement.
Small Business Advice
If you are trying something new, don’t overestimate the rate of take-up in the market. Instead, try to err on the side of caution.
Just because something has sold well previously doesn’t mean the momentum will continue. Look for signs of a change in the underlying conditions - such as competition levels, consumer trends, or external factors weighing on your customers.
Small Business Advice
Good forecasting is a multi-stage process.
Always start with a basic data-driven forecast, then layer over as many pieces of commercial intelligence as possible. Each additional layer will further refine this crucial decision-making tool.
ROCKET FUEL
Find out what happened when turned the tables on Richard Chanter of Growth Rocket. More used to being the interviewer than the interviewee, we were lucky enough to benefit from his insight. All of the cumulative learnings he has picked up from small business entrepreneurs along the way.
Covering everything from the importance of trying, the value of inspiration, and the characteristics of successful entrepreneurs, Richard’s unique position gave us many pearls of wisdom.
If you’d like to benefit from a sounding board for these - or any other - ideas for your business, why not contact Corner Finance at info@cornerfinance.co.uk or visit us at www.cornerfinance.co.uk
March 2020 Small Business Advice
January 2020 Small Business Advice
