The three inevitable stages of successful entrepreneurial activity

The three inevitable stages of successful entrepreneurial activity

Sep 27, 2021 | Customers, Innovation, Small business

Every business starts small. The biggest on the planet all started somewhere, in a garage, dorm room, lab, somewhere between the ears of the entrepreneur.

Most fail, or at best deliver a return that would have been dwarfed by the interest on the same investment in a bank account.

Some however, do succeed, occasionally in spectacular fashion.

We all see the ones that do, they are shoved down our throats all the time as the heroes, the ones who made it, and we are asked the question, if they can, why can’t you?

There seems to me to be a pretty consistent sequence of growth, a sequence that holds true across all sorts of products and services, geographies, technologies, and circumstances.

Cheering.

This is the first stage, it is all enthusiasm, cheering from the sidelines, jumping up and down, wishing for stuff to happen. What it is about when you are in the midst of it all is hard grind, chaos, and cash.

At the beginning, you work your arse off, seemingly 24/7, with no letup. Everything that gets done depends on you doing it, you do not do it, it does not get done. Simple. It is messy, usually chaotic, as pressures come from every direction, your attention is demanded by each, which is why the 24/7, and still there is little forward progress.

Then there is cash. As you start, nothing is more important than cash. More start-ups go broke for lack of cash than every other reason combined. Managing your cash is simply the most important thing you must do.

Planning & doing.

Assuming you survive the cheering stage, you will have come to the point where you have a little more head time to be used considering ‘what next’. You probably have a small number of employees, and perhaps some outsourced services, like accounting and IT.

Answering the ‘what next’ question will be eating at your guts, as for sure you do not want to continue as you have been. Your kids are growing up without you, your family seem to be strangers, you have not had a weekend with your mates for ages.

So, you look forward to a different future and stumble into some planning. It is never as easy as filling in some generic template, of which there are plenty making alluring promises. It is more about the graft of figuring out how to accumulate and allocate the resources necessary to grow. While the game is still about cash, it has also become about profit, what is left for reinvestment at the end of the month, quarter, and year.

You plan your products and services, the foundation stuff you need to get right, like the legal and regulatory things that must be done, understand the financial and strategic pressures that are present, and settle for the moment on a business model that guides how you will turn your chaos into sustainable profitability.

However, a plan, no matter how good it may be at telling the future, envisioning new products, markets, and customers, needs one further ingredient.

It needs to be implemented.

Plans that do not get implemented are usually called dreams. You will also recognise the realty of the muttering of generals throughput the ages that while planning is essential, nothing ever goes exactly to plan, so you must be ready to be agile tactically, while consistent strategically.

Building & growing.

The essential ingredients to building and growing an enterprise, on top of the financial resources that enable that growth are threefold:

  • People to do the work,
  • Processes for people to follow, and over time, optimise,
  • Retention of the hunger and freedom that enables innovation.

The great paradox, and downfall of many if not most successful businesses is that they get the last one wrong, as they optimise risk out of their processes in favour of certainty and continuity of the status quo.

The task of being the entrepreneur has changed from one of management, to one of leadership. You are no longer engaged in tactical activity, which is being done by others in a manner that is transparent to overview, and with KPI’s based on outcomes. The tasks now are about the people doing the work, from the daily tactical stuff to the functional management. Your role is to lead all these people and ensure that the processes being deployed deliver on the plan. It is all about the productivity of resources deployed, people and financial, that is delivered via the processes that evolve.

Anyone who thinks this is easy has never done it.

Anyone who stands on the sidelines and cheers for you might be a cheerleader, supporter, and beneficiary, but they are not a coach. A coach delivers the models and means by which the success is generated, which is much more than cheering, as it involves getting dirty from time to time, being always challenging, and ensuring you are looking beyond the tactical that threatens to always consume you.

At each point in this growth pattern, there is a single question that you can ask that will give you an answer to the question of growth potential contained in any tactical decision:

‘Does this scale?’

Many small business owners do not ask this question, so end up selling their time for money, and there is only a limited time in any day. Therefore, if you are about to invest in tactical activity of any type, ask that simple question. If the answer is yes, fine. If it is no, think again.

When you are looking for a coach with the scars to prove experience, browse through the posts on this StrategyAudit site, and then you might want to give me a call.

Is pain always the best catalyst for rapid change?

Is pain always the best catalyst for rapid change?

Sep 22, 2021 | Innovation, Strategy

In the absence of pain, it is easier to do nothing, and just let things evolve.

This is human, we do not invest ‘just in case’, we invest to reduce pain, or more carefully, to leverage an opportunity. This is why big companies & bureaucracies are slow at reacting, the individuals who can lead change, those at the top feel little pain, in fact, accepting risk is dangerous, and invites pain into the room, so risk is avoided.

Look at any major event in history, the pain associated with it leads to change. Any war, epidemic, coup, they all lead to change. Often the change may have happened over a long time frame in the absence of the pain, but in its presence, the time is suddenly compressed.

Just look at the speed that mRNA vaccines have rolled out of labs and into peoples arms over the last 18 months.

The science of mRNA has been evolving slowly for decades. The first suggestion that RNA molecules that drive the synthesis of proteins, move around in a cell was made in the early fifties, and messenger RNA (mRNA) was discovered in 1961.

The first successful trials with mice of an mRNA vaccine were done in the early 90’s. However, the idea was not the target of significant investment, as it seemed alternative approaches were more promising. Over the last decade as the development of CRISPR technology made mRNA techniques potentially more stable, there was renewed scientific interest.

By early 2018 there was a body of scientific exploration that indicated that there was a significant opportunity for mRNA vaccines to be successfully deployed against a range of viruses.

Then along came Covid.

The rate of development accelerated dramatically because of the rapid and huge investment of both public and private money. By mid-2020 both Pfizer established in 1849, and Moderna established in 2010, were conducting human trials of a synthetic version of the messenger molecule that moves RNA from the nucleus of a cell to the outer casing of that cell, delivering protection from the virus.

Since then, there has been the biggest human trial in history going on, with millions of participants from whom data is being collected, enabling the rapid refinement of these vaccines.

This is exactly the process that has happened many times over history. A crisis of some sort compresses geometrically the time that would normally be associated with a significant change. However, the seeming rapid deployment of pain relievers usually happens after a long gestation of the basic science that delivers the antidote. mRNA did not happen overnight, the development from an idea to a testable molecule took decades before the vaccine could be developed and commercialised.

Pain causes rapid change as we seek aggressively to relieve it, disregarding the usual barriers, and accelerating the deployment of the science in products that relive the pain that are improved in real time.

As an aside, I would have thought the fires and floods of early 2020 in eastern Australia would have been sufficient pain for the message of climate change to penetrate the  collective brains of our political ‘leaders’, but it seems not. The final catalyst to action on this front will have to be really nasty indeed!

Header sketch. Francis Crik. The header is an informal 1956 sketch of the role Francis Crick imagined was played by RNA in the transfer of information in a cell. The presence of what became known as ‘messenger RNA’ was confirmed several years later.

Note: my understanding of the development process of mRNA is rudimentary at best, I am a marketer not a scientist or biologist.

How can Australian manufacturing leverage Wright’s Law?

How can Australian manufacturing leverage Wright’s Law?

Sep 20, 2021 | Change, Innovation, Operations

Moore’s law is well known, understood, and has stood the test of time since published by Gordon Moore in 1965. Wright’s Law is less well known, and has also stood the test of time since the mid 1930’s.

Formulated by Theodore Wright, a pioneer aeronautical engineer, Wright’s Law describes quantitatively the relationship between volume and cost. It provides a reliable framework for forecasting cost declines as a function of cumulative production.

It states: For every cumulative doubling of units produced, costs will fall by a constant percentage’.

In various manufacturing operations I have been associated with, and many I have observed, I have seen this in action, but until recently I was unaware of Theodore Wright.

In effect, Wrights Law reflects the outcome of ‘learning by doing’.

Wright observed that for every doubling of output from the Curtiss-Wright Aeroplane factories, the production labour costs dropped by 10-15%. Other sources of cost reduction that together give a consistent cost reduction relationship are process standardisation and optimisation, labour specialisation, network effects, machine availability and efficiency, all things in the modern engineering toolbox.

Look around now at what is happening to the cost of Solar panels, Lithium-ion batteries, industrial robots, and what has happened to cars over a very long period.

Intuitively, Wrights Law stands up, and there is plenty of empirical evidence that supports Wrights 1936 thesis.

As Australia embarks on a path to some level of sovereign manufacturing capability, it will pay us to observe the realities of Wright’s Law.

This means we should find a way to judiciously apply patient funding to manufacturing operations that offer the opportunity to reach the volume inflection points that lead to a sustainable manufacturing base of key manufactured products.

We have thrown away many such opportunities, let’s not repeat the mistakes of the past.

As an aside, we now have another federal industry minister after the (necessary) resignation of Christian Porter yesterday. The now incumbent temporary minister Angus Taylor, is unlikely to do anything useful, but someone has to warm the seat. Being the eighth ‘seat-warmer’ in a government formed in 2013, 7 of whom would not know an ‘industry’ if it whacked them on the head  is hardly an ad for consistent policy and investment confidence.  Sadly this is in a time where both are desperately needed.

Header photo courtesy Wikipedia.

 

 Has the ‘manufacturing piper’ now been paid?

 Has the ‘manufacturing piper’ now been paid?

Jul 30, 2021 | Governance, Innovation, Strategy

 

The old saying that ‘he who pays the piper calls the tune‘ is almost always true.

The piper in this case has been the orthodoxy prevailing over the past 40 years in Australian manufacturing.

I have been actively observing the trend towards outsourcing for a long time, deeply concerned that as a country we were collectively making a huge mistake, by focussing on lowering costs by outsourcing. By slicing off the things that are not deemed to be ‘core’ in some way to your profitability, you can reduce costs while maintaining revenue.

I guess it is much easier than being truly creative, taking risks, betting on a future different to the present.

As a result, manufacturing businesses in this country have progressively outsourced manufacture of sub-components, then whole components, then manufacture and assembly of finished products, and finally, because the manufacturers in China, Vietnam, or Thailand are closer to the technology, the design.

All Australian manufacturers, those few that have survived so far, are left with is a brand, with nothing to support it.

A brand without the supporting ‘brand infrastructure’ is a bit like a heavily inflated balloon. At some point a bugger with a pin will come along and, ‘bang’, you have nothing left.

The bugger with the pin proved to be a virus.

Supply chains have been ‘kneecapped’ and there is suddenly a recognition of the need for ‘sovereign manufacturing’.

Being driven by short term profit at the expense of long-term commercial sustainability has been a dumb choice.

I understand how it has happened.

Along with outsourcing manufacturing, we outsourced good old common sense to the educated but inexperienced crowd who applied IRR (Internal rate of return) and RONA (return on net assets) models shoved down their throats in MBA classes. These led to incremental investments in little, short term things at the expense of longer term and less certain but potentially bigger returns, to satisfy IRR hurdles. Reductions in the denominator in ROI calculations by flogging off productive assets made them look good by increasing RONA numbers.

They forgot that cash, and intellectual capital are not ratios, you either have them or you do not. Without cash you will be dead tomorrow, without the intellectual capital underpinning operations, you will be dead by a slower route, but just as dead.

Covid has awakened us to the effects of those decisions made over an extended period. Question is, do we have the resources and resolve left to start playing a different tune, one that common sense rather than capital ratios dictates?

I truly hope so for the sake of my grandchildren.

 

Header cartoon courtesy www.Gapingvoid.com 

 

 

 

Where do your ‘edge’ opportunities hide?

Where do your ‘edge’ opportunities hide?

Jul 19, 2021 | Change, Customers, Innovation

Edges are often fuzzy, but are where the action happens, in nature and in business.

At the edge, there is less homogeneity, more opportunity for the different and interesting to be seen, trialled, and if successful take hold. By contrast, in the ‘middle’ there is little but homogeneity. It is why large businesses have trouble with innovation, their model is to do the same thing repeatedly, optimising it continuously, removing the opportunity for the unusual and unexpected to influence the way things are done.

If you think about where the ‘edges’ are in your business, they seem to fall into three categories:

The technology edge: where the existing technical status quo bumps up against development happening elsewhere. These days this is remarkably common. I once found a simple Bill of Materials program based on MS Access for a client. It successfully managed his inventory, costs, and associated information in the form of a program designed to manage the recipes and inventory in a restaurant. It worked perfectly well in an entirely different environment; the names just needed some changing.

The customer edge. The point at which you initially interact with your new customers and engage with potential customers is an edge. The interpretation of your value proposition changes depending on the context, and the challenges faced by people inhabiting a niche you may not have seen or considered relevant.

The core/non-core edge. This is an ‘internal’ edge. What is seen by the leaders as core and what is non-core to a business. The debate about what is core, and what is non-core capabilities, and competitive advantage started by the outsourcing movement 30 years ago remains. Enterprises seek operational excellence and differentiation by innovation at the same time. Often these are mutually exclusive objectives. I have seen businesses move one way and then another, as the competitive environment around them evolves. It can be argued that we are on a significant inflection point in the core/non-core debate currently. Supply chains are being disrupted by climate change, Covid, increasing complexity and the resulting reduction of item invoice price as the determining factor, and the growing awareness of the value of sovereignty.

To find an ‘edge’ opportunity, ask yourself four simple questions, continuously, during the strategy development and review processes:

      • What are the challenges our different types of customers face?
      • What could or should our solution include?
      • Which of our capabilities may be useful elsewhere, and by who?
      • Which of our assets would others value, and why?

You might uncover something surprising that delivers a new lease on life.

Wikipedia’s birthday.

Wikipedia’s birthday.

Jan 15, 2021 | Collaboration, Innovation

 

Today, January 15, 2021 is the 20th anniversary of the launching of Wikipedia.

It would be easy to pass it over, but few innovations amongst the millions over the past 20 years, would have had such an impact on so many people as Wikipedia.

The evolution of Wikipedia has democratised knowledge in a manner only approached by one other innovation in history I can think of: the printing press.

I can remember being envious of those kids at school who had Britannica on their bookshelves. It was way too expensive for my parents to buy, and besides, it was out of date the day the latest version was published.

The creation of Wikipedia came out of the fertile, original mind of Jimmy Wales.

Working in finance, Wales played around with early web portals and video games, recognising the power of the net to connect people. In the mid-nineties, he was fascinated by the idea of a web-based encyclopedia, replacing the hugely expensive monolithic offerings then available. In 2000 with a couple of friends, and funding from his modest success with the web portals, he founded Nupedia, which aimed at consolidating articles written by experts voluntarily, and peer reviewed, with advertising as the revenue generator needed to make a profit.

It bombed.

The academic status quo standards for peer review almost ensured that submitting an article for the review was akin to waiting for feedback on an academic paper submitted for review, a lengthy and undefined time, with no chance of a no revision acceptance.

In early January 2001, as an experiment, Wales and co-founders Ben Kovitz and Larry Sanger created a ‘wiki’, at that time a new technology, that aimed at removing the academic barrier by opening articles to anyone to review and edit in real time.

The academics involved with Nupedia would have nothing to do with it, but such was the response, that a week later, on the 15th, the Wiki, by then named Wikipedia, was launched on a separate domain.

The idea of an open source, editable encyclopedia had its challenges, some of which remain today. However, the original vision of Wales and Sanger to ‘Imagine a world where every single person on the planet is given free access to the sum of all human knowledge‘ has been largely realised.

Wikipedia continues to evolve, managed by the Wikimedia Foundation, a non-profit organisation founded for that purpose by Wales in 2003. Wales remains a critical voice in its management.

Can you imagine the last year, disconnected, without Wikipedia as a source?

Happy 20th Wikipedia.