When deciding about the long-term success of your organisation, you perform an intricate balancing act of understanding the alternative directions open to you, the criteria on which you will evaluate outcomes, the outcomes you will prefer and the information that will improve your odds of succeeding.
Sometimes unusual strategic moves become your best decisions – for instance, when you partner with your competitor, and enable opportunity that would otherwise not exist, or you drop long held believes about how to manage people, and suddenly have a workforce that is willing to go beyond what they’ve done before.
Sometimes opportunities are lost through your decisions – for instance when you pass by an acquisition of a business that becomes the new way of how things are done.
Think for instance how Blockbuster failed to acquire Netflix in the 2000s, which now in 2016 has achieved a market cap of US$ 41.31 billion, while Blockbuster was liquidated in 2013. Decisions can result in opportunities lost through what some ascribe to lack of vision.
Clearly strategic decision-making requires a complex set of skills – such as vision, systems thinking, understanding opportunity, aligning to the market – to mention only a few. But, to master strategic decisions we firstly need to master choice.
The dating and “social discovery service app” Tinder offers a good learning ground for understanding choice. In simple terms the first step in Tinder is a choice between ‘like’ and ‘dislike’, ‘yes’ and ‘no’, where you swipe the faces of complete strangers in opposite directions, based possibly on how symmetrical their faces are and the absence of clear signs of psychopathic traits online.
This first step is based on simple heuristics, ‘mental short cuts’, that help you to, based on minimal information, select between what is acceptable and less acceptable. In strategic decisions, executives also use short cuts such as choosing best first option, meeting minimum criteria, or adoption because it reminds them of a successful similar moment in the past.
Whilst these types of heuristics can reflect common bias, they also help executives to save time and determine criteria of acceptability. Therefore strategic decision need to hinge on a clear and joint understanding of what are acceptable behaviours and outcomes and what are not.
The second thing that happens on Tinder is that someone may match your interest. This creates an important filter between where you are able to play and where your offering will not be valued. A mistake many top teams make in their strategy sessions is to plan in isolation, forgetting the constraints of where the company is wanted and where not.
A company cannot be all things to all people, and should also not create plans separate from the changing needs of the market. Strategic choice therefore requires an understanding of where you can really add value, and where others should rather work.
After a match has been made on Tinder further vetting of suitability takes place through short communications, phone calls and ultimately the meeting in person, where the biggest consideration is whether the Tinder profile matches the face of reality.
This process is one of reducing uncertainty. It is a subconscious and conscious comparison of expectations. Likewise the executive decision makers require reasonable expectations of returns as decision criteria. With that they need to be sure about the guiding principles that govern their choices – what they are willing to do or accept as embedded in their values. If integrity is such a value, the options in strategic choice become more focused, and the effect of uncertainty reduces.
Next, on Tinder there comes a moment where one of the parties decides to move forward or not. This follows from understanding whether to explore more options or to establish direction and action. Business leaders too have to reach a point of either choosing to create more options and choose a strategy that is better than the one before, or to move forward with the current and see how things evolve.
To know the difference between these two directions they need to have a clear understanding of the vision of the ultimate outcome of the company, and keep this foremost in their minds.
As all companies that don’t reinvent themselves come to an end, the conversations in the organisation should be permeated with a need for purpose, a reason for being, and why you are in business in order to be able to almost instinctively understand which direction will work.
Finally on Tinder and in business there are moments of extraction, when one has to say good bye to good intended strategic plans. Many executives fall to the bias of endowed progress, putting more into failing strategies because of all the effort that had already been put in.
Strategy entails several options such as immediate entry or exit, delayed entry or delayed exit, unexpected options, or getting the best of all worlds. Decision-makers need to know when to step back and cut losses and when to push through and not give up.
The difference lies in on the one hand understanding that we cannot always see how the activities of today may enable the opportunities of tomorrow and on the other hand to know that a well-developed intuition is an important source of information even for strategic decisions.
1. Rule of infinite options
When making decisions understand that there are infinitely more options than you can think of, but choosing the best available option will probably suffice.
2. Rule of guiding principles
If it is against your core values, don’t do it.
3. Rule of deciding to decide
It is better to take action through decision than to not take action at all.
4. Rule of relevance
If your strategic choices are inward looking rather than outward looking and forward looking, they will fail.
By improving the way we choose we can ultimately enhance our strategic decisions and trajectory of our firms. There will be mistakes and there will be lessons learnt, but by knowing the criteria of good outcomes, where you can really add value, aligning values and purpose, and tapping into both the best information and your intuition, there is no need why better things may not be realised.
You Are Your Own Client
Before you can build a start-up that takes over your industry, you need to treat yourself as your own best client.
In business, when you have a client, the relationship is formalised into a structured one where there are defined expectations and regular meetings. For example, if you are a consultancy and have a one-year contract to deliver services to a client, the relationship will be formalised, structured and possibly include monthly status meetings. Some may be report-back meetings while others may be briefing meetings.
Your client will receive a monthly invoice and there may be quarterly reviews of the work you have done. Your general mindset is one of service to the client because they are important and worthy of the effort. Crudely speaking, most service-provider arrangements work in a similar way because the structured model works.
In contrast, as entrepreneurs, our relationship with our own business is often far more chaotic or ‘organic’ than formal. My contention is that it is also much less effective. When I work with SMEs, one of the first things I do is encourage the entrepreneur to treat his or her own business as a client by formalising meetings, ensuring that there is a feedback loop and having a service-provider mindset. By making these philosophical and structural changes, you will create a far more efficient and well-run business.
There are four aspects to any business which, in my view, should be formalised.
It still astounds me how informal the meetings are between partners in SMEs, especially when they operate from the same office. There are no set times, no agendas and no outputs required. The fact that you might sit in the same office or chat regularly is the problem because it’s interpreted as proper communication while it’s actually a very undisciplined and unstructured process. Casual chats do not ensure that all the requisite items or issues are being properly discussed and dealt with.
The often-given excuse for not holding weekly, biweekly or monthly meetings with team members at the same date and time is that the business is fluid and the entrepreneur needs to be responsive to their clients’ urgent needs whenever these might occur. And so non-rhythmic meetings are occasionally inserted into the gaps in between the chaos.
The discipline that I try to imbed in the SMEs I work with is to hold rhythmic meetings at a certain time and day every week, month or quarter. Should there be a need to cancel this meeting for whatever reason, it should be rescheduled. The simple discipline of rescheduling and not cancelling allows for a compromise between the practical reality of an entrepreneur’s life and the discipline required to build a sustainable business.
Agendas are often seen by entrepreneurs as an icon of the structure of the corporate world. They smack of rigidity, stuffiness and boredom so they are often discarded and replaced with warm and fuzzy chats. In reality, in order for it to be an effective use of time, every meeting requires a structure, outline or agenda.
This can be a comprehensive agenda similar to that used by corporates or as simple as each person in the meeting talking about their three top-of-mind issues. What is important is that there is structure and outputs, otherwise the meeting’s output is merely that it’s nice to know. The output from a meeting with a formalised agenda is that it’s nice to do.
4. Product review
When last did you, as an entrepreneur, formally ask yourself if your products are still relevant and effective in the market? One of the greatest oversights made by SMEs is not regularly reviewing the appropriateness of their existing products or services. In a high-growth, chaotic environment that is attuned to constantly producing new products, existing products soon become the ugly stepchild, only getting attention when the client cancels the contract because your competitor has a faster, shinier and cheaper iteration of your product. An incredibly important discipline in any business is the regular and formalised review of products and services.
We resist structure as entrepreneurs and the price of that resistance is ineffective and inefficient businesses. By simply treating ourselves as we would our clients, we are able to imbed a level of structure to our businesses that will create a far more effective and enduring business.
What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?
Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.
While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.
Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.
What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.
The illusion of holding more than 50% of the shareholding in a company
- Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
- Examples of decisions that require a special resolution include:
- Amending a company’s Memorandum of Incorporation
- Approving the issuing of shares or granting of other similar rights
- Authorising the basis for determining directors’ salaries
- Disposing of company assets
- Mergers and acquisitions.
So, what does this mean for you and your company?
- If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
- Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
- If you intend to merge with another company, you will not be able to pursue this without a special resolution.
- If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.
Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.
There’s More To Team Management Than Leadership
When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.
The staff that work for you determine:
- How happy your customers are with your business
- The quality of the things that you sell
- The costs that you incur to sell your products and services
- Your risks – the things that can go wrong and how much it costs you
All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?
At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:
- Giving too much or
- Getting too little
- Then this is unfair, and they won’t work well (poor productivity – how much they produce).
The manager needs to:
- Know what people are thinking about what they are giving and getting and
- Manage the giving or getting side
- So that people become more productive
In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.
How do you increase happiness without money?
- Job security – knowing that you will still have a job next year – and that you will get paid on time.
- Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
- To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
- To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!
Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.