If you are of a certain age (on the wrong side of 50), you probably remember the Facit calculator. It was a thing of beauty. It was adorned with all sorts of dials, buttons and switches that made it look fantastically futuristic by 1950s standards. If a Cadillac had somehow mated with a Royal typewriter, the Facit calculator would have been the result.
But underneath those spiffy looks, the Facit was a resolutely analogue device. And as such, it arguably had more in common with an abacus than any modern conception of the calculator. So when the digital calculator arrived on the scene, the Facit’s days were numbered.
Yet the company that produced it (Facit AB in Sweden) refused to address this existential threat.
In fact, engineers at Facit all walked around with cheap Japanese pocket calculators that they used to double-check the accuracy of the mechanical calculators rolling off their line.
Refusing to Change
A clearer sign that one’s product had become obsolete could scarcely be asked for. But when faced with this evidence, Facit did… nothing. It kept operating in exactly the same way as it had a decade earlier. Consequently, it went from being a market leader to largely irrelevant in a span of six months.
At the other end of the spectrum, we find another Scandinavian brand: Lego. The Danish company has rebounded spectacularly, but for a while there, it was touch-and-go. In contrast to Facit, Lego very nearly innovated itself out of existence.
In the late 1990s, Lego was convinced that brightly-coloured bricks and square little Lego men were passé. Kids wanted TV shows, video games and action figures, didn’t they? So Lego did a silly thing — it decided to try and cater to the capricious whims of the most fickle demographic on the planet: ten-year-old boys.
The result can only be described as rampant and reckless innovation. Lego abandoned most of what it did well and tried to reinvent its offerings from the ground up.
It had some hits (such as Bionicle and Lego Star Wars) but it also had a plethora of failures — too many to handle. For a time, it genuinely seemed as if Lego might go under. It was only when the company figured out how to balance innovation with its inherent Lego-ness that it managed to reverse its fortunes.
Exploration and Exploitation
Striking this balance isn’t easy. According to Knut Haanaes, a strategist for the Boston Consulting Group, it is something most companies struggle with. The majority of businesses lean too heavily in one direction: They either innovate too much, or not enough.
“To me, the real solution to quality growth is figuring out the balance between two activities: Exploration and exploitation,” said Haanaes at a TED conference in 2015.
“Exploration is about coming up with what’s new. It’s about search, it’s about discovery, it’s about new products, it’s about new innovations. Exploitation is the opposite. Exploitation is taking the knowledge we have and making good, better. Exploitation is about making our trains run on time. It’s about making good products faster and cheaper.”
The Balancing Act
Both are necessary, but they need to be balanced carefully. You make money by finding an opportunity and exploiting it. In the short term, it is low-risk and lucrative. However, the goldmine will eventually run dry, which is why you need to search for new opportunities even while you’re exploiting an existing one.
The logic behind this is obvious — especially in an era where products become obsolete in about the same space of time that it takes Usain Bolt to complete the 100m dash — yet few companies manage it.
“Only about 2% of companies are able to effectively explore and exploit at the same time, in parallel. But when they do, the payoffs are huge. So we have lots of great examples. We have Nestlé creating Nespresso, we have Lego going into animated films, Toyota creating hybrids, Unilever pushing into sustainability — there are lots of examples, and the benefits are huge,” says Haanaes.
A big reason companies struggle, says Haanaes, is what he calls the ‘perpetual search trap.’ “We discover something, but we don’t have the patience or the persistence to get at it and make it work. So instead of staying with it, we create something new. We see this in the public sector as well. We all know that any kind of effective reform of education, research, health care, even defence, takes ten, 15, maybe 20 years to work. But still, we change much more often. We really don’t give them the chance.”
It’s a tendency that’s very prevalent amongst start-ups, but even large companies can make this mistake. Compared to exploration, exploitation can be boring, but it’s crucial if you want a business to grow.
The Success Trap
“Facit fell into the success trap,” says Haanaes. “They literally held the future in their hands, but they couldn’t see it. They were simply so good at making what they loved doing, that they wouldn’t change. We are like that, too. When we know something well, it’s difficult to change. Bill Gates has said: ‘Success is a lousy teacher. It seduces us into thinking we cannot fail.’ That’s the challenge with success.”
How do you prevent your company from falling into this trap? Haanaes suggests the following:
1. Get Ahead of the Crisis
If you see a storm brewing on the horizon, change course. Netflix used to deliver DVDs to people’s homes.
Today it is a streaming service. It realised that DVDs were going the way of the dinosaur, and decided to reinvent itself long before its existence came under threat.
2. Think in Multiple Time Scales
According to Haanaes, you need to simultaneously look at the long and short term.
“Taking a one-year perspective and looking at the valuation of a company, innovation typically accounts for only about 30%. So when we think one year, innovation isn’t really that important. Take a ten-year perspective on the same company — suddenly, innovation and the ability to renew accounts for 70%. But companies can’t choose. They need to fund the journey.”
3. Invite Talent
“I don’t think it’s possible for any of us to be able to balance exploration and exploitation by ourselves. I think it’s a team sport. I think we need to allow challenging. I think the mark of a great company is being open to be challenged, and the mark of a good corporate board is to constructively challenge,” says Haanaes.
4. Be Skeptical of Success
“It’s useful to look back at the old triumph marches in Rome, when the generals, after a big victory, were given their celebration,” says Haanaes.
“Riding into Rome on the carriage, they always had a companion whispering in their ear: ‘Remember, you’re only human.’”
When things are going really well, it’s all too easy to buy into your own PR. Don’t let success lull you into a false sense of security. No organisation is too big to fail. We live in an era of constant disruption, and no industry is off limits.
Knut Haanaes’s excellent talk, Two reasons companies fail — and how to avoid them can be found on the TED website.
How To Have Your Store Run Smoothly Without You (So You Can Take A Well-deserved Break)
Below are some tips that can help ensure the smooth running of your store even when you’re not around, and let you take that break without the stress.
It can be hard for business owners to take time off from their retail stores – whether that’s because they’re too busy, need to be around to make decisions, or simply feel they can’t relax without knowing how the business is tracking. But taking a break can be incredibly important, if not sometimes necessary. And as we head into the busiest retail season of the year, taking a break now before the rush could be the best thing you do – for yourself and even for your business.
Below are some tips that can help ensure the smooth running of your store even when you’re not around, and let you take that break without the stress.
1. Make the most of technology that lets you keep an eye on your store from anywhere
The beauty of living in this modern age is that there’s an abundance of tools that can help you run your store even when you’re away. To do this, cloud-based software is the way to go. Using a cloud-based solution to run your store means that you will no longer have everything housed on your computer server in one place. Instead, you can access files, sales and stock data, financials, business reports, customer and even employee data from anywhere, in real-time, and from any device provided you have an Internet connection.
The other beauty of cloud-technology is that it’s usually relatively inexpensive compared to more traditional systems. If you haven’t done so yet, look into some cloud-based software options, such as point-of-sale and inventory management, accounting and finance, customer management, and employee management and scheduling.
2. Develop a store manual
Create a manual that your staff can turn to when you’re not around. Document procedures, contact information, and anything else that will help your employees to know just what to do in your absence. Some of the sections you may want to include in the manual are:
- General store information – What do you stand for? Who are your target customers? Instil this information in your staff. The more they know (and love) your business, the easier it’ll be for them to make decisions in line with your company values. Include details on personnel conduct, pay and scheduling, store access, conditions of employment, store policies, etc.
- Customer service – Have an entire section dedicated to taking care of customers. Include information on conduct, customer service standards, lost and found procedures, and dealing with difficult customers. Also, provide detailed instructions on how to handle theft and shoplifters.
- Cashier procedures – Include information on the operation of your POS software, the types of payments you accept and how your loyalty program works.
- Contact information – Take note of the tools you use in your store (computer, accounting software, analytics, cameras, etc.), and provide basic instructions on how to operate them. These tools likely come with their own manuals, so make sure that employees know where those documents are and how to contact the vendor if required. Include the contact details for the individuals or entities that your store deals with, including vendors, suppliers, business partners, contractors, etc. Also have a list of emergency contacts, such as the local police and fire department, as well as medical facilities in the area.
3. Appoint a second-in-command
Pick a second-in-command (or 2IC) to take charge of the store in your absence. This person should be someone you trust who knows the business.
It’s best to hire someone from the inside — ideally an individual who’s been in the business for a few years (this demonstrates loyalty) and has shown strong leadership skills or initiative.
4. Empower your staff
Of course, the success of your store doesn’t depend on your 2IC alone, which is why it’s important to empower all your employees always do their best, even when you’re not around. This can be accomplished by giving them adequate training and by fostering an open environment that recognises the efforts of each team member. Encourage questions and be sure to give them specific as well as big picture answers so they know exactly how their actions affect the company.
It is important that you clearly define the roles of each staff member. Establish who’s in charge of what and require your employees to be accountable for their actions. Finally, believe in your employees and show them that you do. Trust you did your job right when you hired and trained them and that they’ll be fine even when you’re not there.
5. Do a test run
When should you start planning for your absence? That depends on the nature of your leave and how long you’ll be away. If you’re planning to be out of the office for a few days, then giving your staff a heads up a week or two before would be enough. But if you’re planning for maternity or paternity leave, then obviously your team needs to be notified months in advance.
Still worried? Implement a test run by consciously getting out of the staff’s way for a day or two. Work from home for a while or stay in your office instead of the sales floor and tell your 2IC to handle the store. Consider hiring secret shoppers who can put your staff’s skills to the test and have them report the findings, so you can figure out ways to improve.
With Christmas and holiday season fast-approaching, now is a great time to start empowering your team so you can find the time for a well-deserved break.
Stop Surviving And Start Thriving In Business
It will inform your operations, which will inform your human and asset capital and lastly, the financial investments you make.
To thrive – and not just survive – in business you need three basic building blocks: 1) attract more customers and clients; 2) who spend more; and 3) buy more often. But how do we make this happen in the tight, recessionary environment we find ourselves in South Africa?
Despite the tough economic conditions, businesses can still thrive. In fact, many small businesses have been found to thrive in difficult economic conditions and are known as counter-cyclical businesses.
So how do you turn the tide from surviving, to thriving? You need to start thinking creatively, making informed decisions and being agile in the business environment. Always start with your marketing strategy. It will inform your operations, which will inform your human and asset capital and lastly, the financial investments you make.
Ansoff Growth Matrix
Business leaders continuously explore various growth strategies to retain and grow market share. One of most respected and often used is the Ansoff Growth Matrix. It was first published in the Harvard Business Review in 1957, written by strategist Igor Ansoff to help management focus on the options for business growth. Ansoff suggested that an effective strategy considers four growth areas, varying in risk. This strategic planning tool guides us to understand our current situation, contemplate strategic options and consider the associated risks.
- Market Penetration: Market penetration has the least risk of the four options. Here you are selling more of the same things to the same market. You know your product and market well. The question is, how can you defend your market share and sell more to your existing customer? You may consider special promotions or introduce a loyalty scheme.
- Product/ Service Development: Product and service development is slightly riskier as you introduce a new component into your existing market. The advantage is that you sell to a customer/ client that you know, and they trust you. Ask yourself how to grow your product and service portfolio? You may consider adding new services and products or modifying your existing offering.
- Market Development: With market development you target new customers and clients with your existing products and services. You sell more of the same things to a different market. You can consider new sales channels, online or direct sales. Do a proper market dissection to target different groups of people, considering different age groups, gender and demographics.
- Diversification: Diversification is very risky. Here you consider introducing a new, unproven product or service into an entirely new market that you may not fully understand. You may need new expertise, acquiring another business or venturing into another sector. The main benefit of diversification is that during difficult times only one component or element of the business may suffer.
Related: My Business Is Growing… What Now?
The fifth element: Passion
In addition, I would add one more element critical to business growth: Passion. It is the single component most critical to business success and, combined with any one or combination of the four areas of the Ansoff Growth Matric, it can equip small business owners with all they need to thrive in their business environment. Passion determines your business success, so make sure you have it in heaps to reap the rewards of your hard work.
6 Common Decision-Making Blunders That Could Kill Your Business
Among the logical errors nearly everybody makes is thinking only everybody else makes logical errors.
Humans are often very irrational. If you’ve ever explored behavioural economics or psychology, you may have found a host of examples demonstrating situations when we make objectively bad decisions.
Below are six of the largest decision-making blunders we all make. Avoiding them will dramatically improve your decision-making, your quality of life and success.
1. Sunk-cost fallacy
Of all the ones on this list, the sunk-cost fallacy is the most common. Many of the decisions we make are final or difficult to change. For example, let’s say you invest R1 000 in Facebook, and the price of the stock goes down to R600 the following day. The fact that you put in R1 000 initially is irrelevant to the situation at hand; you now have R600 worth of Facebook shares.
What this means is that once the decision is made and our cost is incurred, there’s no point thinking back. You already put in the time, money or other form of investment. Considering that in any future decision is illogical, despite how tempting it is. Instead, present yourself with the new options at hand — without considering the sunk cost.
2. Narrow framing
Would you take this bet? You pay me R1 000 if a flipped coin lands on heads and I pay you R1 200 if it lands on tails. Most people would say no. We tend to be risk-averse, unwilling to risk something like R1 000, despite the reward being a bit greater.
Now, what if I offered you that bet, but I promised we would flip 100 coins? Each time, the loser pays up. Would you take it then?
Almost certainly, right? The chances that you lose money, overall, are extremely slim. This idea can be applied throughout life. When we’re in situations that will repeat themselves over time, we should take a step back and play a game of averages.
3. Confirmation bias
Another common one in the worlds of psychological and behavioural economy is confirmation bias. It hurts our ability to keep an open mind and shift our opinion. When we have a held belief, we typically look for information that confirms our opinion while ignoring data points that tell the opposite story.
For example, if I’m really excited about a new software product that I just integrated into my business, with ten of my employees as users, I might have made up my mind about the quality of the service before we put it to use. I would then be more likely to listen to the three employees who enjoy it, not the seven who don’t.
There’s almost always information that will validate our opinions, no matter how wrong they might be. That means we need to always look for conflicting evidence and, from there, make judgements based on more well-rounded information.
4. Emotionally driven decisions
When we’re angry or upset, we’re much worse decision-makers. When you have to make an important decision and happen to be in a bad mood, you should hold off. Instead, wait until you cool down and can think more clearly. It will remove the outside influences and let you think more rationally.
5. Ego depletion
This one makes intuitive sense, but it’s one of the most common ways to make bad decisions. The idea of ego depletion is that when we’re drained, physically or mentally, we’re less likely to think critically. Think about the times you’ve been exhausted after a long day of work. In those moments, you don’t want to have to think hard about anything. Instead, you want your brain to work automatically.
What that means is that when you’re tired and faced with challenging choices, you’ll rely more on your instinct or automatic processes as opposed to analysis and thought. That can be extremely problematic in situations that require effort.
6. Halo effect
The halo effect says that once we like somebody, we’re more likely to look for his or her positive characteristics and avoid the negative ones. This is similar to confirmation bias, but it’s oriented around people.
Related: 10 Stupid Mistakes Smart People Make
For example, let’s say I just hired someone named John, who was great during his interviews. Through his first few weeks, John does a few things well at work, but he also does many things poorly. The halo effect — brought on by his wonderful interview persona — could cause me to ignore his poor attributes and emphasise his good traits.
This can be detrimental to our ability to make judgements about others. We have to realise our biases toward certain people and eliminate them.
These are a handful of the many decision-making errors we’re all prone to. Although it’s challenging to scrutinise your preconceived notions, doing so is worthwhile. It gets easier over time and will, ultimately, make you a more effective decision-maker — personally and as a business owner.
This article was originally posted here on Entrepreneur.com.