The Global Marketplace

I was recently involved with a company that experienced a catastrophic failure of one of their key products.  A couple of interesting observations from the sidelines.

Blame.  I was struck by the time wasted on determining who was at fault with this issue.  Accountability is important, and sometimes people need to be fired, but in this case I believe sheer bad luck was at work.  Fix the problem, prevent it from happening again (if possible) and move on.  The time spent on a crisis, while frequently appealing to our human nature, is time wasted.

Proportionality.  A crisis is frequently an opportunity in disguise.  In this company's case it provided them with the chance to look at their long-term strategy, as everyone's attention was focused and focused hard.  Always be looking for these chances to reinforce what you are trying to do, specifically when your people are wired in.  This is a key business point:  match strategy with human nature.

People and markets are strange

Having sold my company before the financial bubble burst put me in a good financial position to evaluate large equity positions in new companies.  I get many calls and evaluate many opportunities which I share here on this blog.  Recently I evaluated a group of smart individuals who unfortunately forgot that people and markets are not always logical.  They had a great product and decent vision but could not adapt to the vagaries of human nature.  Why?

The right experience.  One of their products looked good on paper because the lead engineer had a great resume and seemed like the right guy for the project.  One year later it had not panned out.  One of the company's leaders was looking for signs he missed while evaluating the engineer to prevent the problem from happening again;  "data points" was the expression used at the conference table.  Missing in this discussion was the one thing which could have spotted the problem:  experience with people in this industry.  People either have or don't have the makeup to accomplish certain tasks in every field.  Experience will allow you to recognize this and if the individual does not have this quality just move on to someone else or don't start the project.  This discussion showed me that the company did not have this people/industry experience to succeed and I moved on.  There is no substitute for experience with people, no matter what the field.

Theory and Reality

I recently evaluated a company in an emerging market as a potential investment for me and my partners.  We will turn away because of one fundamental problem:  they cannot execute their business plan with their current workforce.  Why?

Vision:  The leadership team has a clear and accurate vision of where their market is going and where their company needs to be in the future.  They articulate this perfectly and calmly, and (unusually) do not let egos affect this vision.  This last point is very rare and usually something I like to capitalize on as a competitive advantage.   Growing a business is hard enough without trying to make yourself look great in the process--you should let the business speak for itself.  Not my subject today.  Anyway, this firm almost had me fooled with their vision and articulation, and we would have jumped in had we not spoken with their employees.

Reality:  the company's employees who will develop and build the new products mean-well, but cannot produce what the leaders want.  The disconnect stems from the leaders' unusual background:  the architect of the strategy never worked in operations or sales but has instead been a consultant for many years.  While he understands the market he does not know how to assemble the right team to actually make and sell something.  In a weird way he seems to work in his mind with virtual human employees and not real ones.

Lessons:  Be thorough in your research and don't allow yourself to be fooled.  All of us can make mistakes, and working an organization from top to bottom will give you the information you need to avoid costly mistakes.

Getting back to basics

After one year off, when obviously I did not write anything in this blog, I ended up back where I started; building networks in Latin America, my favorite part of the world.  I took a year for some hard thinking, about what to do and where to do it.  Some conclusions:

Don't push a bad hand.  I realized that working in the financial industry in the heart of a major financial center was not my strong suit.  That my company made money was primarily due to the skills and dedication of my colleagues.  Luck (market timing) also was important.  I concluded that I know enough about finance for some projects but that I needed to focus elsewhere.

Regions count.   Working in Europe then returning to emerging markets again showed me the differences between the parts of the world and that these do count in business.  With my background working in Latin America is clearly the logical choice.

Know yourself.  I am thankful that I was able to honestly look at my strengths, but more importantly as my weaknesses.  This was only possible because I took time to think.

What do you see at 30,000 feet?

As a consultant you hear many phrases used to concisely express certain ideas.  I find these phrases amusing because they frequently convey the wrong idea about what happens in organizations.  This is a result of how we process information but that issue is for another day.  Right now I want to look at the so-called "view from the 30,000 feet" or the perspective of those most senior executives.  The image is one of contemplation free from daily myopic problems.  This is not what happens and as a consultant you need to keep this in mind.  Two reasons why this is so.

1.  The guy in the waiting room.  Senior executives frequently get stuck dealing with the issues kicked up to them by the next level down, or those with the access to hang around outside their offices.  If you spend a day with the senior executive you will see these direct reports hanging around several times a day trying to get their attention (granted geographic proximity can be an issue at play).  This leads to the senior leader spending too much time refereeing problems and doing what the rest of us do at lower levels.  The closer relationships typically found at this level also come into play and crowd out the time needed for long-term planning..

2.  Old habits die hard.  Few of us can make the mental switch from dealing with daily problems to suddenly thinking strategically.  This is by far the biggest problem as human nature is tough to fight.  While training and education are often the key to making this transition the blunt truth is that you either have or don't have this ability to think strategically; it is that simple.  Good strategic thinkers have a track record of always stepping back to analyze the bigger picture, no matter where they are in an organization.  This is very different from Dilbert-style griping and as such hard to spot.  If you can see this quality in yourself, that is a rare gift and you should count yourself lucky.

Reading the customer

I found that running a small firm puts a premium on truly understanding your customers.  While this is also true for large organizations, it is more crucial for the smaller firm where survival depends on knowing your clients.  What does this mean?  Any insights beyond the obvious?  Two points, the second of which follows from the first.

Know the need.  Understanding the service you provide your client is so obvious that it pains me to repeat it.  Go beyond this to have a fundamental grasp of the need underlying what you do for your customer.  Does he worry about his competition and do you solve this problem for him?  Do his clients in turn keep him awake at night and to help with the solution?  Understanding these concerns, frequently unstated, allows you to give the client what he needs before he asks for it.  This is hard, as learning this side of a person requires time on target that is usually not billable.

Ignore the noise.  If you do the above and understand the client's true needs then you can put everything else in perspective.  For example, suppose the client gets edgy and emotional at the end of each quarter and snaps at everyone around him (like you).  Understanding this and what you do for him allows you to just ignore the outbursts as unrelated to your business.  In short, knowing what is truly important allows you to separate the noise from the important "music" for your business.  This allows better peace of mind and keeps you focused.

Control your ego

As I wrap up my time in Europe and prepare my business for the next step (by the way, the reason for the gap since my last blog) I find myself reflecting on lessons I learned.  A big one, and it is negative in the sense of something you avoid, is the destructive role of the ego.  Specifically, why ego's run amok the damage created, and the role judgment plays in controlling this human characteristic.

Why ego?  The answer to the question why does ego play a prominent yet destructive role in business rests with the complexity of human nature.  Ego can be a factor which drives us to new successes as well as leading us to start companies.  We frequently talk about money as a motivator, and while important, financial rewards frequently take a back seat to ego as a driver in the business world.  This is an important point and should not be underestimated.  The reasons are discussed elsewhere in greater detail and not worth repeating; my point is that our egos drive much of what we do in business.  The problems arise when we don't understand this.

Why is ego bad?  Egos are bad when they start driving individual decisions.  If ego led you to seek a new position, try and turn it off when you actually get there.  What do I mean?  Make decisions that benefit the organization and your customer and don't try to look out for number one--this will lead you to make bad choices.  Know your motivations and listen to the right ones at the right times.  The key to this is judgment, which I define as the ability to make the right decisions.  Again and again I have seen this as a key, no, the key quality for running a business.  Leave the ego somewhere else, not at your desk.

Being lucky and unlucky

The last three years have been very profitable ones for me and my consultancy.  We have done some good things to earn this money but it would be disingenuous for me to leave it at that; we have also been lucky in our market timing.  In 2004 and 2005 our key clients found themselves committed to the services we offered and we all came out winners.  A couple of lessons.

1.  A lucky business plan.  All business plans need to factor in events you cannot control.  You may have a great product or service but if the market is not right then it just will not work.  In our case, our relationship with a manufacturing client hinged on their senior management's long-term commitment to the international market.  Without this no amount of persuasion on the potential money they could make would have worked.  When this attitude changed we were positioned to take advantage of this, but the same model would not have worked the previous year.  My advice:  strip out your ego in this part of the business plan and be brutally honest with yourself, i.e. don't be afraid to admit you were lucky.

2.  The unlucky business plan.  If you are riding the upside of the economic cycle never forget that it will end at some point.  Specifically, companies will spend money on things in the boom times that will be cut during the next contraction.  In our case we were able to profit during the recent financial services market boom but knew this would not last forever.  We therefore adjusted our business plan accordingly by planning for not having this revenue stream at various points in the future.  Again, don't let your ego get in the way by deluding yourself into thinking you are a genius who did not need luck to succeed.  The downside lesson could be too powerful.

Does looking backward help us look forward?

Today I was reading about Robert Lucas of the University of Chicago and his Nobel Prize winning work on rational decision making, and it provoked some thoughts on pitfalls we encounter when studying the past.  I am not going to follow Lucas' work here, but just give him credit for the following idea:  Extreme caution is required when analyzing historical events to try and predict future outcomes.  Specifically for this post, large organizations have a bad tendency to prevent future mistakes by looking for "lessons learned" in past mistakes.

1.  The world is never static.  It is too easy to look at the same organization, with some of the same players still in the room and learn the wrong lessons from a failure.  What I have seen ignored time and again was an adequate grasp of the earlier conditions which frequently changed as events unrolled; the tendency is to roll back the world to the start of the project and assume nothing changed.  For example, one project I worked on assumed a market could be created for a service if the latter was presented to consumers in the right way.  This did not work at first but at the end a market started to unfold.  While it was not big enough for the service, key conditions had changed from the start.   Yet I never heard this mentioned in the "lessons learned" discussions.

2.  People are not dumb.  This one is easy and probably known to many of you but that does not lessen its importance.  It is foolish to blame failures on dumb people, assuming of course that you are smarter than your predecessors.  This is a big warning sign that egos are starting to run wild.  I believe it is actually best to set a rule that human stupidity will not be considered in reviewing mistakes.

3.  You will be surprised at what is internalized.  Most of us take in the mistakes we make and change the hard-wiring of our brains to prevent the same thing from happening twice.  This is also called wisdom.  If you accept this as true then I would suggest throwing out the '"lessons learned" exercise altogether;  Most of the recognized mistakes will surface when you least expect it.  This is the key lesson here.

How not to make a million dollars--lesson two

Yesterday I described my mistaken venture into the financial publishing business.  Today I look at my efforts to expand my consulting to executive search, which like publishing did not work but unlike publishing taught me different lessons.  Both hurt, but were different types of pain.

1.  Experience does not always help.  I had relevant industry experience prior to starting this project.  I knew the business and the secrets one learns from practice, and as such I thought I could not lose.   This made me overly comfortable and cocky, and caused me to ignore other factors which were involved in making this work.  The lesson learned is don't let prior success in a field blind you to other changes going on around you.

2.  Costs are tricky.  I started this search business project knowing the costs would not be a major drag on the business, as much of the infrastructure was already in place.  What I should have known but ignored was the cost in my time, which crowded out other parts of my business.  Luckily the core of the company was not hurt, but I never gave the search project the time it needed to be successful.

3.  Different is not always good.  With this new project I assumed that blending the two business lines would give me competitive advantage over my competitors.  What I ignored was the change this caused to my business model and the fact that I was mixing incompatible services--nobody else did this and for good reason.  Thus I learned the judgment that comes from mistakes, knowing in your gut what will work and what will not work.

In the end this was not as painful as the publishing venture, primarily because the only real loss was the time I spent at night and on weekends trying to make this work.  Sometimes you get lucky and learn things the easy way as opposed to the hard way.