Welcome to the October 2019 edition of our Small Business Tips.
How To Use This Update
Our Small Business Advice Updates are designed to provide food for thought.
Find a quiet corner, grab a coffee, and use them to generate some quality contemplation about your business. The aim is to provide enough varied content to give you the opportunity to think differently about your business, to think about the future and to generate some of your best ideas.
DON’T FIGHT THE LAW
This is an incredible blog post with eleven ‘universal laws’ that the author believes to be applicable anywhere. I’ve picked out my favourite five below, together with their relevance to any business owner:
4. Goodhart’s Law: When a measure becomes a target, it stops being a good measure.
On the face of it this is common sense, but it can happen very easily without you even noticing it. Once a measure is widely known and given particular importance, behaviour will change – both consciously and unconsciously – to maximise the results against that one measure. This can be particularly harmful in a business because it is always vital to maintain a balance in what needs to be prioritised and delivered.
It’s important to note that this applies at every level of a business – it could be that a team is measured on a specific target, but it could just as easily be you as a business owner wanting to maximise one particular aspect and unknowingly taking decisions in that one dimension.
The answer here is two-fold – always keep in mind that this may be happening and challenge yourself to recognise it; and design your measures with great care. We always advise having a broad set of targets and a separate set of measures that are not as widely known but which are effective at tracking progress of the business independently.
5. Dollo’s Law: Organisms can’t re-evolve to a former state as it is too complicated.
From the world of evolution but incredibly relevant to your business. Every aspect of your business – no matter how meticulously planned – will have come about through a combination of hard work, judgement, luck, and external forces. It won’t have turned out exactly as you planned because the variables at play are always moving – it will merely be on the general path that you set out for yourself. As a result, it will be impossible to recreate any of those elements – products, culture, teams, brands, niche – once they are gone.
Make sure you think carefully before deliberately abandoning an area or an asset that is currently successful. It is always important to move on and evolve your business, but be under no illusion that such a decision can be easily reversed. It can’t. That doesn’t mean it’s the wrong decision, just that this needs to be factored in to your overall strategy.
6. Parkinson’s Law: Work expands to fill the time available
A very well-known law – particularly to anyone who has completed a 3 month project by working all through the night on the day before the deadline. What is interesting is how this can be applied to other areas of the business too. Without careful planning and management, expenses will bloat as your revenue increases; targets will creep upwards as your results start to improve; and teams can stay busy even as demand decreases (damaging the vital measure of productivity). Fundamentally, a careful plan backed up with real time measures are needed to combat this law – together with an awareness of the phenomenon and careful consideration of where it could surface in the organisation.
10. Mill Mistakes: Assuming the familiar is the optimal solution
When evaluating any particular course of action, decision, or strategy, the natural inclination is to give much more weight to the options that you are more familiar with. This is understandable: being familiar with something gives you a sense of security that it has worked before and that you are experienced enough to make it work. It may also feel like it is the only way that something will succeed.
There is ALWAYS more than one solution to a problem, and being biased towards familiar solutions (whether currently in your business or not) is just another way of limiting your thinking and ultimately your options. Be sure to keep an open mind in the planning stage and evaluate both the familiar and the new alongside each other – letting the data provide you with an objective way to evaluate the options.
11. Hickam’s Dictum: Problems in complex systems rarely have one cause
No matter what size your business is, or how straightforward it may seem to you, it is made up of many moving parts and subject to many internal and external forces. As a result, any problems you face are statistically more likely to have more than one underlying cause. By the same token, planning for a successful future will require multiple opportunities rather than just one large initiative.
Whether you are facing a challenging environment, unsure which direction to go in, or planning to grow your business, you should make sure that you are not just looking for one simple solution or explanation. Digging deep in to the business and exploring all drivers of your performance will help you to identify the real causes and opportunities and from there you can plan appropriately for the future.
DON’T BURY YOUR HEAD IN THE SAND
Following on from the importance of balancing the needs of all stakeholders in your business, comes this article on the demise of Bury football club. In some cases, it’s not just that certain stakeholders are not given enough consideration but the aims of the groups can be wildly different. In the case of a football club, maximising success on the pitch and maximising profit can generate significant conflict and impact decisions. That’s not to say it can’t be done, however, as some other football clubs have demonstrated.
Where this sort of stakeholder conflict becomes a threat to the existence of the business is where it is not managed properly and a consensus plan pulled together to provide balance and a smart strategy. With the right planning, a route can be determined that can deliver success to all sets of stakeholders – it just requires creative thinking, open-mindedness, flexibility, and compromise.
Don’t assume you know the aims of all of the stakeholders in your business – make sure you find out for certain. Ignoring the motivations of anyone will only increase the risk of making the wrong decisions. The aim should be to identify all goals and work to finding the “sweet spot” – the balanced position that will deliver for everyone by creating a virtuous circle.
IN PRAISE OF DISORDER
Do you ever find yourself craving a bit of chaos, spontaneity, disorder? Not only are you not alone, but you are experiencing something that is healthy and important, as this article shows. It covers many aspects of why we as humans like both order and disorder, science and art, the respectable and the mavericks – and in doing so it shows why it is vital that we build an element of change, risk-taking, and flexibility in to our plans.
This is one of our principles of forecasting here at Corner Finance. It is important to have a sophisticated plan for where you are heading and how the financials support that, but that plan cannot possibly reflect everything in the future as so much of it is unknown. Hence, we advocate actively building flexibility in to that plan. Counterintuitive as it sounds, it is entirely possible to have a plan that is both structured and detailed, but which also includes an element of flexibility to be able to react to new opportunities and threats as they arise without derailing the rest of the plan.
When building your plan, always strive to find the balance between rigidity and flexibility, between risk and reward, and between predictability and the pursuit of the new. As the article puts it: “If we get too complacent with our routine, we can’t react when things change, when the tiger suddenly appears on the path that we have walked along a thousand times without mishap.”
Growth – at both an individual business level and a macro country level – has always been thought of as vital to ongoing success. To grow your business has always been the default assumption as to your primary motivation, and to want to do anything otherwise is often seen as a mistake. But what if growth isn’t the right thing for your business at this point in time? This article looks at whether growth is actually always necessary, and whether there might actually be limitations on growth that should be considered.
Our thinking here is simple, but arguably quite radical in the face of the prevailing theories. Serious thought should always be given to the reasons for growth – it is after all just another business decision and strategy that requires the same amount of due diligence as any other. You should never assume that growth is the answer without testing the assumption. If you are clear on your business goals, and growing your business is the most effective strategy to deliver those goals, then that is a considered decision. If you feel you need to grow because everyone is talking about it, that is not.
Similarly, not all growth is the same. You should also factor in to your strategy the type of growth that you need. Increasing in size is one thing, but your ultimate goal could just as easily require you to evolve and refocus on different products or markets but maintaining the same overall size. This is still growth but will require a whole different set of opportunities and actions – one size does not fit all, and you should be absolutely clear before embarking on any period of business change.
THE CUSTOMER IS ALWAYS RIGHT
A major source of inspiration for new product development and improvement is your existing customer base. Noone knows when inspiration may strike or where the ideas may come from, but if you are looking to move forward and develop new products then you need to give yourself the largest number of leads to start with.
Think about your customer base. Not only is this a large number of people, but they each spend a significant portion of their time actually using your products. Multiply these two numbers together and you end up with a huge amount of user experience hours. Why not tap in to this incredibly relevant, experienced, and passionate group of people to provide inspiration?
Taking the product from idea to reality will likely still be best accomplished in-house, but for generating a pipeline of ideas this is hard to beat.
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