Business Progress and Continued Experimentation Overview

You cannot understand too much about anything related to a company’s progress.

The rapid assimilation of the truth assists competitive advantage. In a competition the hare wins against the tortoise more often than not. He who gets to the truth first wins the race. 

 
 
Unfortunately, this tortoise still lost the race.

Unfortunately, this tortoise still lost the race.

the emperor has empirical data

Eventually of course everything will be known to pretty much everybody but before that point a better understanding of key customer insights and market analysis offers a key competitive advantage. A management team that prides itself on being “smarter” about customers without having empirical data for its “intelligence” will lose against a team with better data, earlier — nine times out of ten.


Failing to Plan is Planning to Fail

Furthermore, if the product and key processes aren’t continually perfected with feedback and testing, as per the ‘continuous improvement concept’ mentioned earlier, the enterprise is at risk of losing the competitive race. A core belief of test and refine cycles is essential to arrive at the processes, product, support or market understanding necessary for growth. A business which relies on its own internal wisdom consistently over the results of a dispassionate customer dialogue and testing is screwed, or soon will be.

This is Gamera the monster tortoise. Despite his Godzilla size and fire-jet propulsion he was humiliated by a hare.

This is Gamera the monster tortoise. Despite his Godzilla size and fire-jet propulsion he was humiliated by a hare.


Control your expenses and conserve cash

Failing to control expenses and conserve cash is like leaving your cousin to be babysitted by your neighbor’s pitbull.

Every company should create a plan to see how long the company’s cash will last at any give time snapshot, then take whatever steps are necessary to make sure it doesn’t run out in the foreseeable future. Cashflow projections over one year ahead are about as far as a company can reasonably predict and these should be updated each month based on actuals. Much will depend on the nature of the enterprise because manufacturing, distribution, services etc require different systems.

Controlling costs doesn’t always involve laying people off, but more often it means stopping unnecessary expenditures. Lay-offs are a last resort because loss of experienced and qualified personnel impacts on the company’s effectiveness. Besides fancy cars, companies need to moderate their spending on equipment they don’t need or has little commercial value/return and avoid pandering to inappropriate management ego-trips often masked by imaginary ‘market’ justifications.


Understand your costs

Turn-around experts (those that help struggling businesses) have a joke about the misguided entrepreneur: “We’re losing money on every job,” the fellow concedes, “but we’ll make it up on volume.”

This is a common attitude among struggling companies that don’t know how to calculate their costs or unable to realize how important it is to use effective cost management systems and production control MRPs (Material Requirement Planning).

 

Warning! Acronym Ahead. Danger! 


TQM (Total Quality Management) should be at the core of any company’s ethos. The Japanese concept of “Kaizan” (Continuous Improvement) applies to all enterprises (what’s an enterprise? click here) small, medium or large.

Unless constant cost management is in force, the company can’t know which products or services are boosting the bottom line and which are dragging it down: i.e. whether prices need to be raised or cost centers reviewed.

The lesson: Understanding your costs is imperative. If you don’t know, take a crash course in modern cost accounting or hire someone who can do it for you!


Manage your capital

Success requires much more capital than failure.

 

This isn’t just about the health or receptiveness of access to capital; the company must either make it on the capital it has OR raise more capital. It isn’t necessarily about the underlying growth or lack thereof, rather, it’s more about the management of working capital, the life-blood of any enterprise, and so often the cause of failure. If initial capital has been underestimated, or care is not exercised in nurturing existing resources, the funds needed to survive are insufficient, then it’s “game over”.

Imagine a growth market where companies are trying to gain market share whilst (yes, I said ‘whilst’!) attempting to re-define a market of, say, five players down to two “winners”. The availability of capital and access to it will have a disproportionate influence on the outcome. Equally, in a falling market, where the prudent stewardship of capital will determine survivors, increased liquidity through reduced current assets such as debtors and stocks, will give an uninformed management a false impression of the level of free cash reserves. Every enterprise needs a capital strategy for well-being and growth but many fail because they lack the on-going skills of money-management and understanding the nature of cashflow versus profit.

ShopSquawk uses an example of the “Monopoly Game” when counseling budding entrepreneurs. Picture the common Monopoly game having been in progress for some time with four people when one actor becomes bankrupt. The remaining players invite you, the entrepreneur, to join their game and offer free start-up capital of the usual $1,500. How long do you think you will survive? The answer is, inevitably, not long because the established players have already carved up the market. Thus all you are likely to achieve is two or three rounds of the board, paying out much more than you are receiving in. This is the classic loss-making scenario when cash reserves drain to zero.

That was a short lesson, wasn’t it?