The economy has turned- or has it? People are spending- or are they? With all of these turbulent thoughts, how do you make sure your company is on an even keel- or improving?
Continue reading Forget Ready, Fire, Aim- that’s old school!
With homage to Arthur Lipper, a mentor and friend
While running a medical device manufacturer (this is a vagary in our regulatory environment; in any other country this venture would have been a pharmaceutical operation), we routinely analyzed our operations and updated our business plans. We had an outside Board, who provided us with invaluable insight- and a counterbalance to our (inherently inward bound and) parochial focus. Whenever we considered a new option or product addition, Arthur always asked, “What are the barriers to entry by our competitors?” That valuable lesson (among many others provided by Arthur, Bob Boyle [a’h], and Bill Weissert to us) is one I want to share with you today.
Continue reading Barriers to Entry
Yesterday (Part 1), we discussed why we need risk assessment- and alluded to why we fail this process. We really do not understand risk, at all. The chance that a nuclear reactor will experience catastrophic failure in any given year is pretty low; but the probability of a nuclear accident happening anywhere is much higher. The same is true when one considers a terrorist attack or even possibility of another BP oil spill. And, the wild card in every calculation is human error (or stupidity).
Continue reading Risky Business: Part 2
I said I was going to discuss risk last week; today seems like the perfect day to do so. Yesterday was the anniversary of the (almost) Iranian Revolution. The younger generation (about ½ of all Iranian citizens) were dismayed at the election “results” (not likely to have been as advertised), and for a few weeks, took to the streets and tried to change the way the country was governed. It failed (at least as of today). Most of the leaders understood there was risk to this position; I am not sure they understood that risk meant that their government would callously kill them. Likewise, the Tiananmen revolution in China- it’s not likely that these folks expected 3000 to be killed. Or, to date things back further, the students from 1968 did not believe that the Chicago police would “billy-club” and beat them. These are political- not technological- risks.
Continue reading Risky Business: How we perceive risk- and how we must do MUCH better (part 1)
For the past 60 days or so, one of the prime topics of conversation has been the BP oil spill. This situation (fiasco? debacle?) is a great way to being discussion about our perceptions of risk (poor, at best). But, I will leave that concept for another day. Instead, I will discuss our ability to analyze our abilities to determine success.
Prior to 20 April, we thought we have solved the problem of deep-water drilling. After all, we were recovering billions of barrels of oil from the Gulf of Mexico for a long time. Had we written our history books on the 19th of April, they would all laud our ability to solve these problems.
Likewise, until 2009, Toyota was considered a technological marvel, a paragon of attention to customer needs. Books HAVE been written about its success. Alas and alack, they were a day early and way off the mark. (Actually, in Toyota’s case, they were not off the mark for most of the period. Instead, Toyota changed its business rules and concepts- to the detriment of its brand.)
This is exactly how we analyze most things. Those of us who start companies (or are hired to run them) all take great comfort in how well things run (generally). And, when they run well, we crow about how well we managed to design our business models. Unfortunately, many of these businesses are more lucky than well run. Moreover, because it is not clear how much luck played a part in the venture’s success, it is hard to assess “lessons learned”.
No, we learn far more from our failures than our successes. I admit, some of our failures could be due to luck. But, because we failed, we analyzed. We determined (assuming we were totally honest) what role everything played in our demise. And, then, we developed new systems to insure that a repeat performance was not among our future repertoire.
We may not all be guilty like BP/TransOcean/Halliburton. (I list all three because each one contributed to the disaster; the ultimate culpability will be determined later). To be honest, the biggest problem was overconfidence. We had been doing it forever; we were really smart and could start looking for ways to make more money by cutting corners. Oops- not true.
This is exactly what Toyota did. It’s what our mortgage bankers did. And, it’s what we could do just as easily. We need to take the time to analyze all potential failures- each time we change a process- business or production or technical.
As another example, many years ago, we hired an individual who was talented- and overqualified- for the position advertised (and for which he was ultimately hired). But, he was desperate for work (we were a technical firm in a small town; entities such as ours were not prevalent in the area, and he loved the area). So, we hired him.
As his experience with us (and ours with him) developed, we gave him more leeway and authority. He was working on our team to develop a new method to pasteurize (sans heat) apple cider. Our bench testing and our pilot plants all showed that our design was on the mark. We gave this individual the chance to scale up the process and oversee its installation at the actual facility.
It wasn’t a big project (as our projects went), but the next phase was worth about two to three times his salary. He was thrilled. And, he made a mistake- one that cost us about four times his salary to fix (and to vex us until we completed the redesign/reinstall).
He- and several of us- effected a complete post-mortem, after the client was satisfied. We determined where the errors were made, why the choice was incorrect, and what we could learn from this for all of our designs.
The key point is that individual managed to become the COO of one of our operating companies. He knew the costs of failure, learned to examine “obvious” facts that are often wrong, and how to anticipate and correct deviations.
That never would have happened if his project management had proceeded without a hitch. And, from that error, we learned much and he learned much, so much so that he helped us generate more than 50 times his salary for the next decade.
Continue reading Our success may be due to luck- so we learn way more from failures.
For the past 60 days or so, one of the prime topics of conversation has been the BP oil spill. This situation (fiasco? debacle?) is a great way to being discussion about our perceptions of risk (poor, at best). But, I will leave that concept for another day. Instead, I will discuss our ability to analyze our abilities to determine success.
Prior to 20 April, we thought we have solved the problem of deep-water drilling. After all, we were recovering billions of barrels of oil from the Gulf of Mexico for a long time. Had we written our history books on the 19th of April, they would all laud our ability to solve these problems.
Likewise, until 2009, Toyota was considered a technological marvel, a paragon of attention to customer needs. Books HAVE been written about its success. Alas and alack, they were a day early and way off the mark. (Actually, in Toyota’s case, they were not off the mark for most of the period. Instead, Toyota changed its business rules and concepts- to the detriment of its brand.)
This is exactly how we analyze most things. Those of us who start companies (or are hired to run them) all take great comfort in how well things run (generally). And, when they run well, we crow about how well we managed to design our business models. Unfortunately, many of these businesses are more lucky than well run. Moreover, because it is not clear how much luck played a part in the venture’s success, it is hard to assess “lessons learned”.
No, we learn far more from our failures than our successes. I admit, some of our failures could be due to luck. But, because we failed, we analyzed. We determined (assuming we were totally honest) what role everything played in our demise. And, then, we developed new systems to insure that a repeat performance was not among our future repertoire.
We may not all be guilty like BP/TransOcean/Halliburton. (I list all three because each one contributed to the disaster; the ultimate culpability will be determined later). To be honest, the biggest problem was overconfidence. We had been doing it forever; we were really smart and could start looking for ways to make more money by cutting corners. Oops- not true.
This is exactly what Toyota did. It’s what our mortgage bankers did. And, it’s what we could do just as easily. We need to take the time to analyze all potential failures- each time we change a process – business or production or technical.
As another example, many years ago, we hired an individual who was talented- and overqualified- for the position advertised (and for which he was ultimately hired). But, he was desperate for work (we were a technical firm in a small town; entities such as ours were not prevalent in the area, and he loved the area). So, we hired him.
As his experience with us (and ours with him) developed, we gave him more leeway and authority. He was working on our team to develop a new method to pasteurize (sans heat) apple cider. Our bench testing and our pilot plants all showed that our design was on the mark. We gave this individual the chance to scale up the process and oversee its installation at the actual facility.
It wasn’t a big project (as our projects went), but the next phase was worth about two to three times his salary. He was thrilled. And, he made a mistake- one that cost us about four times his salary to fix (and to vex us until we completed the redesign/reinstall).
He- and several of us- effected a complete post-mortem, after the client was satisfied. We determined where the errors were made, why the choice was incorrect, and what we could learn from this for all of our designs.
The key point is that individual managed to become the COO of one of our operating companies. He knew the costs of failure, learned to examine “obvious” facts that are often wrong, and how to anticipate and correct deviations.
That never would have happened if his project management had proceeded without a hitch. And, from that error, we learned much and he learned much, so much so that he helped us generate more than 50 times his salary for the next decade.
Continue reading Our success may be due to luck- so we learn way more from failures.
As a chemical engineer (ok, among other specialties, but this is my first love and it affects how I approach almost everything in my life- business and personal), one of the first things we learn is material balances. This formula:
Continue reading Continuously Re-evaluate Your Basis
I heard this quote (Mohandas Ghandi) earlier this week and it reminded me that this was how many of the new products/ventures with which we have been involved progressed. It is something to take to heart- and use as you grow your venture or introduce a new product.
I will provide an example, with certain information omitted. A few years ago (ok, let’s not get TOO accurate) we developed this household consumer product . It was a pretty novel idea (if I say so myself). But, no one really paid attention to the venture OR the product. After we got a little publicity, a few consumer firms actually called to say that we were crazy. I admit, we were (are?) a cocky bunch, so it did not faze us much, but it was hard to take as it kept coming, even from some of the large chains where we were hoping to have the product shelved and sold.
By the end of the first year, the product (we were managing this for our client) was generating about the sales volume we had projected (we were a month behind in our projections. And, all of a sudden- we found that one of the companies that told us we were nuts- was coming out with a competing product.
The good news is that ours was better. Our tests showed that our product (a cleaning item) provided about a 10% increase in whiteness, compared to theirs. We used that as part of our campaign. We even made an improvement in the packaging (which increased the shelf life of the product), which helped us out. But, our competitor actually matched this change. (Our product was not patented; it was very hard to reverse engineer.)
By then end of the second year (when our involvement was scheduled to terminate), our client had 80% of the market share- and exceeded its goals for sales, as well.
The lesson is you should use the time when the marketplace ignores you to insure that all your ducks are in a row, the testing matches your goals, and you are developing your organization. You will need this to bolster your egos when you are being derided. But, this lead time (especially if you are small entity) gives the time to fine-tune your business processes for the coming battle, when you do have competitors. And, as you refine and calibrate your processes for the changes in the market place, you can insure your ultimate win.