Business, what’s it all about?
Business life is complicated, its full of budgets, meetings, presentations, developing new products and services.
If you strip away all these complications what is it we fundamentally have to concentrate on?
There is no point in being in business unless it makes money for you or for your shareholders, there has to be a return on investment. In addition its no good if you don’t get better every year because this is what attracts investors. Of course no company can hope to grow ad infinitum but there are plenty of examples of businesses that have been long term successes.
So if we accept that growth and profit are pre-requisites what do we have to concentrate on and what makes the difference between success and failure?
Universal Business Model
In order to grow year on year we must have a market that is not saturated, ideally one that is growing. The thing is, if its such a great market you will not be alone, there will be competitors. To maintain market share in the face of competition you need to be better on price or quality of product or service and whichever element you concentrate on will attract a section of the market you play in. Your performance in the market place will also be dependent on your branding, marketing and reputation management, let us just term this external communications effectiveness.
The remaining thing that can make the difference between success, mediocrity and failure for your business is people and their contribution. How effective is it in the direction you want them to follow. The people issues, under performers, prima donnas and politically fuelled hidden agendas can all suppress your business’ ultimate performance, lets call this simple internal communications effectiveness.
There is one other thing, your business’ appetite for risk. A high risk appetite will result in more volatile performance, a low risk appetite will bring stable but slower growth.
So if we list the parameters:
- Return on Investment %
- Annual Growth %
- Risk Appetite %
- Market Penetration %
- Price Differentiated %
- Quality Differentiated %
- External Communication Effectiveness %
- Internal Communication Effectiveness %
So here are 8 parameters that can be expressed as percentages for ease of understanding. Can it really be that simple? Well yes and no, it is that simple but there is no recipe for guaranteed success and if these 8 parameters could be reliably modelled we would have something priceless in the business world. The problem would be if success could be made formulaic, there would be more successful competitors and the whole environment would change. So for now, please indulge me.
Flying a Business
For a new business you will have to set your desired starting parameters, for an ongoing business you should be able to distill an approximation quite easily.
Its a bit like flying a plane, hopefully for your ongoing business, these parameters will give you some semblance of stable flight. The fun starts when you want to make a change in direction, speed or altitude. So for the business lets say you want increased Market Penetration. You set the dial but nothing seems to change, this is like setting a course but not changing control surfaces. You have a choice here, do you increase the Price or the Quality Differentiation quotient. Lets say we decide to differentiate on Quality, so we slide the control up. Does the market react instantaneously? No, it takes time for reputation to spread and our External Communication Effectiveness needs to be good to leverage from this. Increasing it costs money and this affects the Return on Investment. So lets change to differentiate on price. We decide to reduce the price of our products or services to gain market share, we still have to increase our External Comms but less so, news of lower prices tends to propagate in market places very quickly. Of course your competitors are likely to counter by entering a price war or by flooding the marketplace with the message that your products or services are not as good as theirs hence their lower cost. Lets say we do increase market share by lowering price, our shareholders want to see a better return than before so we need to reduce operating costs, this may result in having to accept an increased Risk Appetite or it may impact on Quality.
The point I am making is that even if business could be characterised by 8 simple and understandable parameters, they would be interconnected in a very complex way and furthermore those interdependencies would also be affected by external factors, market conditions, international exchange rates, trade embargoes and so on. Coming up with an empirical model would be interesting though wouldn’t it?
The Ubiquitous 5 Year Plan
Have you ever wondered why every company has a 5 year plan that they created last year? Have you ever known of a company being in the 4th year of their 5 year plan? No because every plan, every course set has to be modified to counter a myriad of changes.
Learn to Control One Parameter
Is there at least one parameter of the 8 that we can try to get under control? I believe there is, Internal Communication Effectiveness. Get this right and at least all of your problems will be external or systemic. Is there an easy way to get this under control? Yes, train your people on emotional intelligence, instil values of respect for the individual and integrity. Do some personality awareness training like 4 colour profiling, let them understand how different people process and communicate information. Let them know that there is no one right personality type. It takes all sorts. Also don’t let them walk away complacent that they are predominantly Blue or Red, sure they may have natural tendencies but to really move your business into overdrive every person in your organisation needs to be adaptable, to have the ability to understand and mirror all personality types, be a rainbow.
Fly Your Business to Success – You are cleared for take-off
Once you have this move on to the others, just like you would a plane in flight, no big control inputs, a light touch of the controls, feel the effects of changing a parameter and try your best to navigate your business to success. It won’t be easy but the rewards for you, your shareholders and employees will make the effort put into mastering it all the more worthwhile!