Business musings

“Your business model has a limited shelf life and you’d better start looking at alternatives if you still want to be in business in 10 years time!”

Have you ever heard those words and would you ever wish to hear them? Would you actively seek out conversations with people likely to utter words to that effect? My guess is that your answer would be a resounding “No!” on all counts.

Seeking out conversations with people who are likely to challenge your organisation, your ideas and your plans may seem like a strange and slightly masochistic way to spend your time. As a leader however, you have a responsibility to look ahead and to find approaches that ensure the continuing success of your business. This responsibility includes reaching out to, and gaining insight from, those who see the world from a different perspective to both yourself and your leadership team.

Rita McGrath, author of the paper Business Models: A Discovery Driven Approach, raises the importance of what she has coined “critical conversations”:

There is a human dimension to competing on new business models that we are…beginning to understand. Encouraging leaders to question the viability of a business model, and to have the right conversations with those who might challenge it, will become increasingly important.

While McGrath’s paper is focused solely on business modelling, I believe the idea of critical conversations can be more broadly applied.

What are critical conversations?

The word ‘critical’ has a number of quite different definitions. Whilst McGrath does not explore in detail the nature of such conversations and it is difficult to elicit the exact definition that she is using, I believe that, in this context, critical can be understood in almost all senses of the word. According to several dictionary sources, critical can variously mean:

Characterised by skillful judgment and careful evaluation
Involving an analysis of the merits and faults of a given work
Incorporating a detailed and scholarly analysis and commentary
Of or pertaining to critics or criticism
Expressing adverse or disapproving comments or judgements
Forming or having the nature of a turning-point, transition or important juncture
Being in or verging on a state of crisis or emergency
Urgently needed
Having decisive or crucial importance in the success or failure of something
Absolutely necessary, indispensable or vital

Seeking out conversations that embody and embrace all of these ideas brings an interesting and challenging richness. In essence, critical conversations should give you insight into:

• Factors that could cause your business to succeed or fail
• The merits and faults of your organisation, business model and strategy
• Key threats to your business
• Opportunities for your organisation
• Emergent factors that have the potential to disrupt the status quo
• Situations that could become disastrous

Ignore them at your peril

Critical conversations have the potential to be deeply uncomfortable and challenging, so why on earth would you want to put yourself through them?! Like it or not, the fact that they are uncomfortable, difficult to hear, and challenging is precisely the point!

As humans, we naturally seek out those who have similar views, interests and beliefs to us and this is no different in business. Information, beliefs, attitudes and behaviours that are inconsistent or that do not fit together create an unpleasant state of psychological tension known by psychologists as ‘cognitive dissonance’. Because we dislike how dissonance feels, we naturally seek to minimise our experience of it by reducing inconsistency; Dieter Frey and Marita Rosch (creators of the selective exposure hypothesis) even found that we will deliberately and selectively avoid exposure to information that could cause dissonance.

As a result, we develop blind spots—factors that are obvious to others become seemingly invisible to us. Organisations are no different. Think the Global Financial Crisis for a perfect example.

Critical conversations are about minimising your blindspots. Although these conversations are likely to cause tension and discomfort (at least in the short term), they are all about enabling you to anticipate the black swans of this world, to discover the unknown and to better understand both the present and the future by viewing it through the eyes of others.

A lesson from the high seas

Allow me to illustrate with a story. My family are avid sailors. I grew up learning to sail and am a qualified sailing instructor. Whilst Debbie and I have been somewhat spoiled by the fair seas and blue skies of the Mediterranean, my brother is currently sailing across the Atlantic and my parents regularly skipper their own yacht.

When you’re out sailing, you can only see as far as the horizon. There are some sailors who believe this information is all they need to stay safe—let’s just say that I’d rather not be on a boat with them! Yes, these sailors can monitor the wellbeing of their crew; assess their clothing, waterproof and safety equipment requirements; decide how much to reef the sails given the current conditions; steer their boat; and monitor the horizon. But if that’s all they’re doing, they’re a danger to themselves and their crew! (I hasten to add at this point that none of my family would fall into this category.)

Weather can change quickly and things can appear over the horizon remarkably rapidly. Using only visual clues gives a sailor little in the way of warning time—a couple of hours at best.

In addition to visual monitoring, an experienced sailor will also use their charts and maps to guide them; check tide tables, GPS and radar; monitor wind speed and direction, atmospheric pressure, cloud formation, and wave structure; listen to regular weather forecasts; and monitor the radio for coastguard announcements and distress calls.

Together, these factors come together to enable a sailor to predict—with reasonable certainty—what is going to happen over the next 12, 24 or 48 hours, if not longer. Rather than finding themselves at panic stations, with no time to turn back, when they spot a major storm on the way, an experienced sailor has already made allowances. They may even have set off early for a different port. By the time the storm hits, they’re already tucked up in harbour. In contrast, the sailor who relied only on their view of the horizon may already be lost at sea.

For me, this is a lesson for both life and for our businesses. Critical conversations are much like tide tables, radar, weather forecasts, cloud formations and radio announcements. They enable you to see what someone else sees and to spot both trouble and opportunities before it’s too late to adjust your course. Although these conversations can be easy to avoid and ignore, particularly when you already have a strategy in place and a destination in mind, seeking out critical conversations will hopefully ensure that you never hear, “I could have told you so!”

So who should you converse with?

The short answer? Those who see further ahead or who see the world from a different perspective to yourself.

More practically, McGrath suggests there are three types of people with whom conversations are likely to yield valuable insights:

• Leading technologists within your firm or those working on designing next generation concepts. It is their job to be gazing into the future and to tease out and develop future concepts. More often than not, technologists will realise future possibilities well before you do—they may see existing markets disappearing before their eyes or new markets emerging. However, as McGrath points out, technologists and designers often do not actively share what their insights mean for your business, so you will need to seek them out and ask critical questions.
• People who are knowledgable about oblique competitors and substitutes. McGrath cites the example of an entertainment company—typically, entertainment requires that customers spend their time in a particular way and anything else that consumes their time will compete for their attention and therefore for sales. By understanding those competitors and substitutes that do not compete head-to-head with your organisation but nonetheless have the potential to unseat your influence gives you a much broader perspective and places you in a much stronger position.
• People who aren’t your customers today but could be yours or someone else’s tomorrow. According to McGrath, these are generally customers who are “too poor to afford your offer, or who are geographically remote or otherwise somehow not in [your] firm’s immediate line of sight”. Although these people do not directly influence your organisation today, this does not mean that they will not influence it in the future. Understanding their needs and opinions may also offer a valuable learning opportunity for today.

I’d like to add several other sources:

• Your employees. Although many employees are not paid to give their opinions, they are nonetheless likely to hold them. Those employees who interact with your customers every day probably know your customers far better than you do. New graduates and recruits often have an uncoloured and excited view of the future. Many of these people are able to offer a different and important perspective.
• Relevant bloggers and thought leaders. Reticent and retiring these people are not. They spend vast swathes of time reading, learning and looking at things from a bird’s eye perspective. It is their job to develop opinions and they usually don’t mind sharing them. In some cases, they may know more about where your business is headed and customer opinion than you. At other times, they will be able to see and anticipate unexpected trends, events and factors long before they begin to have a noticeable effect.
• Futurists and futurologists. Futurology is defined as “the science and study of sociological and technological developments, values and trends, with a view to planning for the future” and Wikipedia observes that it is often concerned with the three P’s and a W: Possible, Probable, and Preferable futures, plus Wildcards. Whilst it can be expensive to hire futurists, many organisations and individuals publish books, reports, blogs and other insights—although not conversational these can certainly serve as sources of insight. Conferences and events, such as those held by TED, are also a great place to meet and converse with people looking to the future.
• Experts in industries that are not directly related to your own. It may sound like a strange idea to deliberately look to industries that, on the surface, appear to be largely irrelevant to your own. However, by keeping an eye out for disruptive innovations that have the power to change the way we all work or to directly impact your own industry, you ensure that you stay ahead of the game. Not only that but even unlikely industries can have shared characteristics and yield valuable insights.

How should you hold a critical conversation?

To hold a decent critical conversation requires emotional and intellectual maturity. Your aim is to question, listen and hear with an open mind. It really doesn’t matter at this stage if you agree or disagree with the responses. Even opinions with which you vehemently disagree can be an important window on the future—they may even turn out to be right. Treat the person you’re talking to a little like a mystic or oracle—although you may not always understand the relevance of what they are saying, stay open-minded and take the time to work out what it means for you.

Ask open and challenging questions. Ask dangerous questions. Ask questions that challenge the status quo. Ask questions about the future.

You are looking for the unknowns. Factors that are almost imperceptible but vital to your success. Just because something is out of sight for you, doesn’t mean it is for others—you only have to consider Blockbuster versus Lovefilm, or Kodak versus digital, for practical examples of this in action.

After your conversations, take time to reflect, filter and understand. Engage with their content wisely. Not all critical conversations will be right and not all of them will agree with one another. Remember your lessons from GCSE history—assess your source! Consider every insight and learn from those opinions you believe are relevant. Discuss the insights with your management team and encourage them to engage in their own critical conversations.

Turning insight into action

If a conversation is truly critical, it will inevitably require both change and action. As a team, you will need to decide what the insights mean for your organisation:

• What changes do you need to make?
• What does it mean for your strategy?
• What does it mean for your business model?
• Do the insights change your goals/markets/products/services/people/partners?
• How does what you’ve learned translate into action?
• How are you going to implement change?

The true value of critical conversations lies not in their insights but in the impact of the resulting action that is taken.

Interestingly, action brings us full circle to the main focus of McGrath’s paper: using a discovery driven (rather than analytical) approach—one that involves “significant experimentation and learning”. It’s likely that your critical conversations will raise many questions and there will still be many unknowns—taking action is not about knowing the right answer or getting your implementation and ideas right first time. Instead, move forward with a discovery driven approach: develop assumptions, prototype and test, rework and rebuild until your organisation and your business model work. And then do it all over again.

And for those of you who like the research…

McGrath, R. (2010). Business models: a discovery driven approach. Long Range Planning. (43) 247-261.

Browsing Twitter yesterday, I happened across a tweet that intrigued me.

Following the trail, I found myself at TED watching a video of a short talk given by Eric Berlow. An ecological networks scientist, Eric approaches problems with a network or systems perspective to connect the dots amongst problems, concepts, people, projects and more.

In a highly succinct and lucid talk, Berlow demonstrates that complex doesn’t always equal complicated and shows how visualising vastly complex situations, systems and connections can actually lead to surprisingly simple answers and insights. He even distilles and crystallises an infamous Powerpoint slide that was designed to portray the complexity of American military strategy in Afghanistan and of which General Stanley A. McChrystal is said to have remarked, “When we understand that slide, we’ll have won the war!”

If you have a spare 3 minutes (the talk really is that short!), I’d really encourage you to watch the video.

For me, the stand out quotes from Berlow were…

The more you step back and embrace complexity, the better chance you have of finding simple answers. And it’s often different than the simple answer you started with.

…Simplicity often lies on the other side of complexity, so for any problem, the more you can zoom out and embrace complexity, the better chance you have of zooming in on the simple details that matter most.

You may be wondering however why I am writing about this on a blog entitled ‘Business Musings’. Well, for me, what Berlow is saying really does apply to business. Matt and I have oftentimes found that the more one steps back and embraces complexity in strategy, marketing, performance improvement and more, the clearer the situation becomes. With complexity also comes an increased likelihood that you will find an answer that delivers the outcomes you are looking for.

Chatting to Matt earlier, he cited the example of sales being a frequent focus of financial objectives and concerns. When targets aren’t being met and a business isn’t growing at the rate you hoped it would be, it’s tempting to assume that you simply need to drive more sales and for your sales people to work harder. Their targets have been set, they must achieve them!

However, this can be a simplistic and naive outlook. In reality, although a failure to reach sales targets could be due to the underperformance of your sales people, there are a whole host of other factors that might be influencing this outcome. It may be that your target market is declining or your market has shifted such that your product or service no longer meets the needs of your audience; a new competitor or a substitute product/service may have appeared in your marketplace making it difficult for you to compete; your marketing may be failing to generate an adequate number of leads or to encourage trust and loyalty to your brand; your branding and positioning may have become outdated or may no longer be relevant to your market; or it could be that your sales targets are in fact inaccurate. And that is just a handful of the factors that could be involved. To paraphrase Berlow’s vocabulary, by focusing only on the sales and finance ‘nodes’ in this situation, you risk missing the fundamental root cause that is in reality your key to success.

In almost all business situations, it’s vital to examine the broader situation, to consider a host of contributing variables, and in the end to hopefully arrive at a clear, accurate and potentially simple solution. Whilst embracing complexity doesn’t necessarily guarantee either success or simplicity, I would personally take complexity over a simple but fatally flawed outlook any day.

Let me ask you a question…

What’s next for your business?

It can be tempting in the tough times to put your head down, and just try to get through each day hoping that you come out the other side.

But, on the other hand, why waste a good crisis?

It is actually times like these that we should be looking up, not down.

By taking stock, reviewing what we are in business for; by asking the questions around where we want our businesses to be in 5 years time, and what it will look like, we gain a new perspective on our current struggles.

What are we struggling for? Why is our business here beyond just surviving?

By answering these future based questions, we gain insight and challenge for the now, as well as strategic direction to aid decision making.

So, if it is only just for a morning, lift your head up and look ahead. It can have a powerfully motivating effect on both you and your staff.

A recession could be an opportunity for your business

It might sound like a strange statement but could it be true? I am not saying that a recession is something to look forward to, nor am I saying that it is not without its considerable uncertainties or risks. However, there may be opportunities available that would normally be out-of-reach in a stable marketplace.

Here are some opportunities to look out for…

1. Increase your market share. If you keep marketing and working on building your business when everyone else is running scared, you could capture a much larger share of the market than would otherwise have been possible.
2. Use the external pressure to develop a highly efficient and effective business. Use the economic pressure as an incentive to re-assess processes and systems thereby cutting out wastage and inefficiencies; this will enable you to cut costs and deliver a more efficient and effective business. However, ensure you continue to build strong customer service into your processes and don’t cut down at the cost of your product or service quality.
3. Look for opportunities to diversify into new markets thereby spreading your risk and increasing your revenue. This doesn’t necessarily mean expensive new product development. Could your product be sold in new markets you haven’t tried before with a little bit of re-positioning? Maybe you have the skills to offer new services with very little effort? It may just add a little stability to your business. Be careful about the more risky moves. I’m not saying they’re not worth considering but don’t jeopardise your existing business for the sake of a riskier alternative.
4. Buy your competitor’s assets if they go into liquidation. Select your competitors carefully, but making an offer for selected assets, such as their customer list or any intellectual property they may own, could be an opportunity that only comes up once in a lifetime. Think about this in advance: pick them now, then keep an eye on them. Companies House offers a monitoring service for £0.50 a year per company so you will get an email about any documents are filed by your competitors. You could also set up Google Alerts.

There has been a lot of talk recently about businesses having to fight to survive, but is this really the right approach in this current economic climate? Is it ever the right approach whatever the economic climate?

Fighting to survive

Often ‘fighting to survive’ is understood as working in the same way as usual, only harder. Working harder, selling more, but without fundamental change to the way in which this is done. And, in the current economic climate, whilst trying to do all this on a cost-cutting budget.

Sadly for many businesses this doesn’t work and the approach actually damages the business rather than helping it. Fighting to survive, without change, releases very little, if any, untapped potential within the business.

The Darwinian Approach explains why this is the case.

The weakest businesses in a marketplace struggle to survive
Even without a changing environment, we still see natural selection in action: the weakest businesses die or are killed by predators/competitors.

An unchanging business in a changing environment dies
Businesses operate in an always changing environment. Most of the time businesses can get away with slow evolution, or in a strong market, not evolving at all. However, when a market changes rapidly it often isn’t enough to do that. Nor is it enough to just fight by doing the same things as the business has always done.

How can we use the Darwinian approach to create a new strategy for survival?

1. Survival of the fittest: building a strong business. A business is the sum of its parts: its people; its processes; its product/services; its culture; its financial position; its marketing; its customers etc.. The business needs to be strong to survive. Some are already strong; but all can be stronger.
2. Design your business for evolution and change. A strong business is always growing, always developing and always moving forwards – in every area. If a business isn’t doing this, it’s going backwards. This is often about the culture of the corporation, and about the leadership who drives the movement. There does need to be someone in the centre who has the authority and ability to sponsor change – without that there is no permission for the organisation to change. It is about designing and building an organisation with the cabability to change. If this isn’t happening already, change is possible: it won’t be an easy journey but it is vital for survival.
3. Understand the changing environment. Awareness of what is going on around you and enough distance and awareness to make intelligent decisions about how it will effect your business is critical. It requires looking ahead and around, then taking space to think, consider and understand. Only then can you respond.
4. Respond: strategy and implementation. Strategy can be developed only from taking a holistic view internally and externally and deciding on a waypoint (it’s not a destination as you never actually stop journeying). Implementation comes from understanding the implications of that strategy and planning your journey, being ready to react and revise along the way. Without effective implementation there is no movement or change.

In the present economic climate, as markets change in unprecedented ways, adaptation of businesses to the environment is vital. Without adaptation, re-positioning, understanding the changing environment and reacting accordingly, businesses will struggle to survive. Business evolution is paramount.

As businesses are starting to report a slowdown in sales and a weakening in their financial position, there has been a lot in the news about a serious recession pending for the UK, especially after the report from the British Chambers of Commerce.

So, how should you respond? Do you know how you can make your business stronger and more competitive and therefore better able to deal with a recession? Markets shrink in a recession so where there were lots of people wanting and willing/able to pay for your product or service before, there are now less people able to purchase what you have to offer. That means you are going to have to change your strategy to win the remaining customers and fight off your competitors.

Here are 5 steps to prepare your business for a recession…

1. Plan for the future
   Don’t just meander along hoping for the best – plan! Your business will work best if you know where you are trying to go and what you are trying to achieve in the next 3-5 years. It doesn’t have to be a long, detailed or ‘impressive’ strategy, but it does require thought!
2. Draw up an action plan on how to get there
   You will need decide on short, medium and long term actions out of the strategy you drew up. These are specific actionable things that you can start working on, starting immediately. There will be both big things that you can do to improve (break these down into manageable parts) and also lots of little things. Don’t forget to prioritise.
3. Forecast your money
   Prepare a 3-year financial forecast or get someone to do it for you (like your accountant). Add in your costs and expected benefits from the action plan above. Even with a positive economy businesses often over-estimate sales, so be careful. Try cutting your revenue in half and see what it looks like; how would respond if that actually happened? Try cutting it in half again. Keep updating it monthly so you can see where you are against your plan. This will give you early warning of when you might run into problems. If things get really tight, then move from a monthly cashflow forecast to a weekly one, and watch your money like a hawk. When you see a problem do something about it in advance – don’t just wait for it to hit you!
   
4. Spend time working on your business not in it
   In order to implement your plan you will need to starting working on your business. It’s the difference between say, restoring and renovating a house and just cleaning it. It can be hard work and uncomfortable knocking walls out, getting a plasterer in etc. but you end up with a much better house at the end of it. Don’t fall into the trap of just doing continual maintenance work when  actually there is significant change that needs to happen. Don’t get me wrong, maintenance is important but it won’t significantly push your business forward. Your business needs to be the best it can be in every area. If you don’t have time to do this, then you either need to make time or find someone to work with you to implement the action plan.
5. Don’t stop marketing, just do it better
   As things start looking tight many companies start to reduce their marketing budgets. Proceed with caution on this one. You should do a separate 12-month marketing plan that links into both your strategy and your general business action plan. You might not know how effective your current marketing actually is; measuring its effectiveness can be hard but certainly not impossible. Marketing shouldn’t just be seen as a cost – it should bring in more business in monetary terms over the year than you spend on it. It is worth noting there are no silver bullets when it comes to marketing; it is about a consistent, focused approach in line with your branding and strategy (hence the plan!). By all means, put your marketing effort under the microscope and work to make it more effective, but don’t just cut it to cut costs; there is a real danger that you’ll end up cutting yourself off from your life blood – your customers!

Though it would seem that there are difficult times ahead, don’t panic and don’t give up. Times like these can actually be a real opportunity. Whilst you might worry about what is just around the corner, the fact that you are looking at what you can do about it now puts you in a much stronger position than most. This could be your opportunity to build a stronger, more resilient organisation and to outshine and outperform your competitors.