Mastering the Strategy of Failure

by Dr Greg Chapman, MBA

There is a saying:

“If you owe the bank $100,000, you are in trouble but if you owe the bank $100,000,000, the bank is in trouble”

In this time of economic turmoil, the same goes in business. If you are a small business that employs, say five people, and you lay off one, ie 20% of your workforce, apart for the unfortunate person involved, no one takes notice. If you however employ 5000 people and you need to lay off 20% of your workforce to stay viable, and they belong to a union who funds the government’s re-election campaign, one of two things will happen. If you play the game, you get a bailout. If not, you are vilified in the media.

So the obvious choice, particularly for the largest businesses is to take the money. That works for a while. However, taking the money means that you don’t have to take the hard decisions necessary to have a sustainable business. Almost certainly, one bailout leads to another, where each time the stakes are higher. The management soon realises, they can afford to take risks because they know the government can’t afford to let them fail.

Just look at the auto-manufacturers. Each job is subsidised to the tune of $300,000. Apart from the sheer volume of jobs, why would the government subsidise so many unprofitable jobs? Well if your electoral fund providers would lose their ability to fund your next campaign if the businesses failed, you have to keep paying subsidies, albeit with other people’s money.

The other question to ask is why would the managers of such a business accept these bailouts that, each year, make their businesses more and more unsound? Just looking at the abuse received by the boss of Pacific Brands, you can see why taking the money is easier. However, the management of these companies must know that this is just postponing the inevitable, and in fact putting their businesses in a more difficult position to compete against others who have made the hard choices. Isn’t this against the long term interest of their shareholders?

Yes.

So why does it happen?

This is where we see a difference between small business and large business. In small business, the owners run the business. In a large business, managers run the business on behalf of the owners. Owners know that if the business fails, they have failed and they must bear the brunt of the consequences. Managers on the other hand, know they can leave the business and get another job. All bailouts come with strings, and business owners know that these will erode the value of the asset that is their business. They lose flexibility and control. They become answerable to stakeholders who have different agendas than a profitable business.

Managers know they can still make a good income while the bailout occurs. Their life is easier when they don’t have to stand up to big government and unions. They also know that as the business continues to struggle, as it will with a lifeline that becomes a noose, the government must continue to bail it out. The business becomes worth nothing, and is effectively is turned into a nationalised company worth nothing on the market. The owners, being many and with little influence, given these businesses are largely owned by investment funds, who are more interested in just keeping the business afloat, just watch this car crash from the sidelines.

Businesses can last many years following this strategy of failure, but at some point, the price to avoid insolvency becomes too high even if your re-election depends on it. This will occur at time of economic stress and the government is running out of other people’s money.

While small businesses may resent this support of failure, why should they care? Because their own money is being used to prop up their largest competitors who will undercut them. However unless you owe the bank a $100 million, no-one is going to bail you out!

May Your Business Be – As You Plan It!

Dr Greg Chapman

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success. Visit www.FivePillarsBusinessSuccess.com for your Free copy of my Mission Statements Made Easy Tool.

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The Australian Small Business Blog

The Six Degrees of Separation Myth

WHAT DO SANTA CLAUS, the Easter Bunny, and six degrees of separation have in common? The answer is - people all around the world believe in them. But, since I don't wish to do an expose on Santa Claus or the Easter Bunny, I'm going to leave those icons alone. I want to talk about the six degrees of separation idea. This is the widely held belief that we are all connected to each other through, at most, six intermediary connections or people.

I'm sorry to be'the bearer of bad tidings, but it's just not true. In fact, it is a widespread urban legend. I know, I know - you're thinking, "What? That can't be! It's common knowledge that we are all separated by six connections to anyone in the world." Well, I hate to burst your bubble, but the idea that we are all connected through six degrees of separation is rooted in myth.

The legend originally stems from several 'small world experiments' conducted by Stanley Milgram in the 1960s and '70s. These experiments involved sending folders or letters from a group of people in one part of the country to a specific person (whom they did not know) in another part of the country. The people were told to get the material to someone who might know someone who would know the individual to whom the material was to be delivered to. This process formed a chain of connections linking the people together.

It was, in fact, found that the letters or folders, which eventually arrived in the right person's hands, took, on average, between five and six connections or degrees. This part is true; however, if you look closer, you will discover the problems that exist within the blanket statement that 'we are all connected by six degrees.'

First off, though the average number of links for people who got the material through to the final contact was five or six connections, the majority of the connections that were made ranged from two to ten (the average was five to six), This means that roughly half took more than six and roughly half less than six. Well, you say, that's the average and I would agree that there's nothing wrong with addressing this concept by the average, but there's one small problem. The overwhelming majority of people in all of Milgram's studies never got the material to the intended recipient at all!

In Milgram's most successful study, "217 chains were started and 64 were completed - a success rate of only 29per cent." That's right - a success rate of less than one third of the participants! So, what this means is that 29 per cent of the people in Milgram's most successful study were separated on average by six degrees from the final contact person. However, that means that 71 per cent were not connected at all!

But wait, I'm afraid it gets worse. This was Milgram's most successful study. In another of his studies, only five per cent of the participants completed the chain, which means that 95 per cent of thepeople in the study never made the link to the person they were supposed to connect to at all - ever!

So, why would I, someone who has devoted most of his professional career to business networking, be telling everyone about the Achilles heel of this iconic concept upon which a lot of networking pros hang their hats?

Well, there are two reasons. First of all, I believe this myth creates complacency. The thought that everyone is absolutely connected to everyone else on the planet by six degrees gives some people a falsesense of expectation and thus lulls them into a sense that the connection is bound to happen sooner or later, no matter what they do.

Secondly, and most importantly, the studies' findings indicate clearly that some people are better connected than others. I believe that's important because it means that this is a skill that can be acquired. With reading, training, and coaching, people can develop their networking skills, increase their connections, and become part of the roughly 29 per cent of people that are, in fact, separated from the rest of the world by only six degrees.

The good news in all of this is that it is possible to be part of the 29 per centthrough education, practice, and training. We can be connected to anyone through the power and potential of networking. In fact, by understanding that, we can setourselves aside from our competition by knowing that being able to make successful connections is not an entitlement. Instead, it is a skill that only some actually develop.

As for the 71 per cent of people who are not connected and yet still believe in the six degrees of separation concept keep the faith. You'll always have Santa Claus.

This article was written by Dr Ivan Misner, the Founder of BNI. (No link available.)

The Australian Small Business Blog

Diary of a New Business- 8. The Technology

by Dr Greg Chapman, MBA

When people develop a business they can get tied up in the technology. This is can be very dangerous as it takes the focus from running the business. But the technology was important in this online business, as it was essential to minimise any human intervention which would, of course have increased the costs.

The technology strategy, therefore, was to define in detail, what was needed to make the business work, and then get someone else to design it for me. I did not need to be the expert. I did not want to be the expert! I wanted a technology partner. Someone who was prepared to understand my business, and to give advice on the direction that the technology should evolve.

The technology I am referring to is, of course, web technology. And there were to be two major parts of the technology to consider. The front end was the eMarketing. This included design of an opt-in page, utilisation of autoresponders, email marketing, delivery of audio and video and an eCommerce package.

The other part of the technology was the service delivery in the members area. This required the ability to manage membership, provide individual content, and to deliver media materials according to various levels of privilege.

While what was required was not a first for the internet, putting the two halves together would create some significant technical challenges. And it would not always be possible to achieve the vision without a lot of expensive coding, which would make later change difficult.

This is where finding the right technology partner was important. Someone who shared the vision, and was willing to problem solve to meet the fundamental business needs, whilst delivering a cost effective solution.

My objective in seeking a partner was to establish a long term relationship. So it was essential that the successful technology partner was able to show that not only were they capable of delivering the technology and providing the advice, that they would also be able also to provide business connections to support the business in other areas. In return, for such a technology partner, I knew I would be able to provide them with similar support.

So to find the right partner, I approached a number of web designers with a detailed brief of my needs. One came back and said, they would be happy to build my website, but they were not interested in a technology partnership. So they were dropped from the list straight away. The others were interviewed in some depth before a partner was chosen.

The website was built by www.Snapsite.com.au.

The technology that was developed for this website, was just to be Phase 1. The plan was, once the website was launched, and the membership had reached critical mass, phase 2 for the website would be developed.

There is a risk in trying to make phase one perfect. This results in large delays in launch, huge cost blow-outs, and you may end up spending a lot of time on features that no-one really wants.

It is more important in getting it going than getting it perfect. If perfection was the secret of business success, we would still be waiting for Microsoft to launch Windows 1.0.

Make sure your business strategy drives the technology, and not visa versa.

The next article in Diary of a Business will be: The Implementation Plan

If you would like to post a comment on this article, please click on the Comments link below. Note that the best comment on any article in this blog during March, will receive a Free mp3 Player.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is a Business Coach and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems.

The Australian Small Business Blog