What is good instinct? I would define it as being able to make the right decisions based on inadequate or incomplete information, continuously spot trends in the market and see opportunities ahead of everyone else. For me, this is the quality that separates the high achievers from everybody else.
I’ve met a guy who has a great instinct for business. He never does much analysis, he doesn’t have an MBA, and he doesn’t have MBAs working for him (he likes to keep his costs down). Yet he makes all the right business decisions and makes upward of 50K dollars a month. During his worst month this year he *only* made 25K. He starts and stops businesses with what we would normally classify as “insufficient information”, yet he makes a lot of money. He has a high risk tolerance but his net performance is above market average.
On the other hand, I have friends with MBAs that use a spreadsheet to make decisions, make all sorts of rational analysis and come up with good business decisions. In general, they make a good living, probably around 20K to 30K a month. They are medium to low risk takers with a net performance about market average. The lesson here is that analysis will only take you so far.
My advice?
If you have a good instincts and high risk tolerance, then rely on it. Use you instinct every chance that is useful. But keep track of your wins and your failures – this will hone your skill. Go all the way to the edge but make sure you do not fall.
If you don’t have a good instinct or are extremely risk averse. Then: do your homework, analyze everything, use mentors, use advisors, and get an MBA. Your reward will probably not be as high, but you will come out on top most every time.
If you have good instincts, high risk tolerance and an MBA you should be well on your way to be the next Bill Gates, Warren Buffet, or Carlos Slim. If you aren’t, ask yourself which one of your assumptions is wrong – maybe your instinct is not as good as you think, maybe you have passed on opportunities because of a lower than acknowledged risk tolerance. See what is stopping you and break it down.
In this economic climate where the old rules don’t apply as well anymore, it would be wise to follow your instinct. If yours is lacking, you will have to hone it (and fast), start taking chances, start making choices based on it, see when you can rely on it, and when you cannot. Your spread will increase. If you don’t, you may have a good return on your decisions, but there is no assurance that it will be enough to give you the life that you dream about.
Tuesday, May 26, 2009
Saturday, May 16, 2009
Dream teams
We all desire to have dream teams in our organizations. A dream team is one that is high achievement, high performance and where everybody gives their personal best. Dream teams are those that achieve excellent results consistently. Sometimes dream teams form as a result of a deadline, a company event or a special project. The camaraderie, support and understanding amongst the members create the environment necessary for high performance. The manager roles in this case are to get out of the way and keep the team focused. If you are lucky to have a dream team keep it going as long as possible.
There are some special circumstances that may prove fatal to your team:
There are some special circumstances that may prove fatal to your team:
- 11th hour stress – The team may be great but unnecessarily taxing them will only frustrate the members. If the project has some unrealistic expectations, such as impossible requirements or too short datelines, the stress may get to the team. While some stress is unavoidable, try to set reasonable deadlines, or move the emergency period up front so as to flatten the final spike as much as possible. If the project becomes a death march, the first casualty may be your dream team. Think about project management and executive expectation management.
- Company instability, like reorganizations – Even when the reorganization (use appropriate euphemism here) will not affect the team directly, it is sure to distract them. Try to contain office gossip as much as you can, and keep reaffirming them that their positions are safe (as much as it is true). If their positions are not safe, then give them as much information as possible and help them prepare. They will remember if you work them to the bone before firing them.
- Uneven recognition or compensation – If you are giving out bonuses or awards, make sure the whole team is included – not just the leader or your protégé. Identify their individual contributions to let them know that you were watching. If resentment builds in your dream team, their days are numbered.
Monday, May 11, 2009
Price war
Recently I was helping a small business that is in the middle of a price war with a close competitor. The owner was afraid that they were losing money but didn’t know how much and in which jobs as they didn’t have a cost model for the business. The partners hadn’t talked about what to do if the business viability was seriously compromised.
The cost model was a relatively simple exercise as their business was not a complex one. The first thing they wanted to understand is what clients and which jobs were profitable. Once they were identified, it was a matter of focusing on expanding on the type of transactions and clients that were keeping the company going and making money. If you are a small company, your accountant and operations persons should be able to put together a cost model in a spreadsheet program. If you are a medium to large company you will probably need consultants and some costing software.
Of course, during a price war there may not be an option to focus on the profitable jobs or clients. Your competitor may be trying to increase their business at your expense precisely by targeting those jobs or clients. If you have a strong relationship with your clients you may be somewhat shielded from this scenario, but as other factors put pressure on your clients to reduce their own costs, you may be forced into a price war. Unfortunately, everything else being equal, a price war will be won by the company with the deepest pockets.
One way to try to avoid a price competition is to offer value added services. If before you only delivered your goods, maybe is time to make free installs. Or form some sort of customer rewards program – you don’t even have to do it yourself, there are companies that will run them for you. The caveat here is that the value added must be perceived by the client as sufficiently large as to offset your higher price. And even then, the short term gain (lower price) may be the only factor your client is focusing on.
Another thing to do is focus on new revenue streams. Can your product or service be applicable to other industries/clients? What about new uses for your product? Can your equipment be made to produce different products? If your focus is local, maybe you can expand regionally. The internet can help you reach customers from all over the world. Have you tried to reposition your product as a luxury item? Think Apple vs. everyone else. Luxury or premium brands can and do command a premium in price. What about niche markets? A new revenue stream may give you enough of an edge to survive until the worst is over.
Obviously you have to find ways to cut costs – it is imperative that you reexamine your operations and find ways to be more cost effective. Eliminate product lines that are not profitable today and may never be in the future. Much has been written about this so I won’t go into more detail here.
As important as figuring out ways to improve your cost structure and your business strategy, you also have to determine your exit strategy. Decide how much you are willing to lose before pulling the plug. If you can, set aside the money you are not willing to lose today. Have this talk with your business partners. Be realistic, not every business survives. So it is better to figure out your exit strategy now than when your money is depleted and there is no other choice but to fold.
The cost model was a relatively simple exercise as their business was not a complex one. The first thing they wanted to understand is what clients and which jobs were profitable. Once they were identified, it was a matter of focusing on expanding on the type of transactions and clients that were keeping the company going and making money. If you are a small company, your accountant and operations persons should be able to put together a cost model in a spreadsheet program. If you are a medium to large company you will probably need consultants and some costing software.
Of course, during a price war there may not be an option to focus on the profitable jobs or clients. Your competitor may be trying to increase their business at your expense precisely by targeting those jobs or clients. If you have a strong relationship with your clients you may be somewhat shielded from this scenario, but as other factors put pressure on your clients to reduce their own costs, you may be forced into a price war. Unfortunately, everything else being equal, a price war will be won by the company with the deepest pockets.
One way to try to avoid a price competition is to offer value added services. If before you only delivered your goods, maybe is time to make free installs. Or form some sort of customer rewards program – you don’t even have to do it yourself, there are companies that will run them for you. The caveat here is that the value added must be perceived by the client as sufficiently large as to offset your higher price. And even then, the short term gain (lower price) may be the only factor your client is focusing on.
Another thing to do is focus on new revenue streams. Can your product or service be applicable to other industries/clients? What about new uses for your product? Can your equipment be made to produce different products? If your focus is local, maybe you can expand regionally. The internet can help you reach customers from all over the world. Have you tried to reposition your product as a luxury item? Think Apple vs. everyone else. Luxury or premium brands can and do command a premium in price. What about niche markets? A new revenue stream may give you enough of an edge to survive until the worst is over.
Obviously you have to find ways to cut costs – it is imperative that you reexamine your operations and find ways to be more cost effective. Eliminate product lines that are not profitable today and may never be in the future. Much has been written about this so I won’t go into more detail here.
As important as figuring out ways to improve your cost structure and your business strategy, you also have to determine your exit strategy. Decide how much you are willing to lose before pulling the plug. If you can, set aside the money you are not willing to lose today. Have this talk with your business partners. Be realistic, not every business survives. So it is better to figure out your exit strategy now than when your money is depleted and there is no other choice but to fold.
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