Everyone nods

Everybody nods.

In the years leading up to the collapse of the South Sea Company in 1720 there was an increased potential for foreign trade. Consumerism was on the rise. Wealth and luxury were no longer reserved exclusively for the aristocracy.

The company was promised a monopoly of all trade to the South American Spanish colonies.

Everyone agreed that the future was set fair. Everyone nodded.

But through a web of deceit, corruption, and bribery that included both company and government officials it was grossly oversold. The trading concessions barely materialized; the company had a very shaky commercial basis.

The company’s share price fell from a peak of £1050 at the end of June to £175 by September 1720, devastating institutions and individuals alike.

The bursting of the bubble, which coincided with the similar collapse of the Mississippi Scheme in France, ended – temporarily – the prevalent belief that prosperity could be achieved through unlimited expansion of credit.

In the later 1990s the new internet sector and related fields were the place to make your fortune. Everyone nodded.

A combination of rapidly increasing share prices, individual stock market speculation and widely available venture capital created an environment in which many of the internet based companies dismissed standard business models. They focused on increasing market share without regard to the bottom line. That would take care of itself.

These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.

But the bottom line didn’t and the companies couldn’t. The dot-com model was inherently flawed.

Even if the plan was sound, there could only be, at most, one network-effects winner in each sector. Yet there were a vast number of companies all with the same business plan for the same respective sector. Therefore most companies with this business plan faced inevitable failure. In fact, many sectors could not support even one company powered entirely by network effects.

The dot-com bubble crash wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. Add to this the write-downs by the venture capital community which, to name but three, include at least $280 million for kozmo.com, $160 million for boo.com and $65 million for MVP.com.

And so we come to recent times. The bankers announce they have found a way of lending the same money many times over and, even if it is lent where there is a high risk of default, it’s still safe. And everyone nodded.

However, these events and those like them down the years are merely the tip of the iceberg. These are just instances of high–profile, bizarre and reckless conduct. There is just as much perverse, incomprehensible and destructive business behaviour to be found in everyday dealings.

For example, a recent, cash-strapped client who offered 90-day credit to his customers because, “that’s what this industry does.” Everyone nods.

For example, a business acquaintance who cut back on his sales and marketing expenditure in anticipation of a fall in customer volumes (everyone nods) happily reporting that’s what actually happened.

For example, a company, anxious to have its employees engaged with the business (everyone nods), commissions a consultant to conduct a survey in order to discover what its people think.

For example, the business that is doing things in the same way as its competitors (everyone nods), yet expects a result that will show them as being exceptional.

The human animal is tribal. That is not the same as having a herd instinct. We can think independently if we chose; we are more likely to succeed if we do.

In 1841 Charles Mackay published his book "Extraordinary Popular Delusions and the Madness of Crowds", often cited as the best book ever written about market psychology.

In May 2004 James Surowiecki published The Wisdom of Crowds.

In the light of subsequent events, perhaps Mackay had it right after all.

Coach or Consultant?

I was asked recently about the difference between an adviser/consultant and a coach.

It’s a valid question and, while I answered it after a fashion, I have been mildly annoyed ever since that my response was not better.

This is my second try.

Someone who is looking for a consultant or an adviser is a person who expects to be told the answer. It is a childlike, submissive approach; one where the power has been passed to another by someone who believes they lack sufficient resource themselves.

Someone who seeks a coach is a person who wants to find the answer and do the work themselves. They accept the responsibility, assume control and are determined to shape their own destiny. However, they are adult enough to recognise that sometimes they need the independence and questioning skills of an outsider to help them make the best of themselves.

To adapt from The Prophet by Kahlill Gibran:

Advisers/consultants bid you enter the house of their wisdom;

Coaches lead you to the threshold of your own mind.

Believing Is Seeing

We are so lucky. As consumers we are blessed with so many offers of help and assistance – so many that it’s difficult to choose between them.

· You can’t get better than a Kwik Fit fitter – they’re the ones to trust.

· Halifax will pay you 60 times more than the others could.

· L'Oreal – because you’re worth it.

…and, if all else fails, there’s always the DFS sale.

Aren’t these companies good to us?

In business we are equally fortunate. Wherever you turn there is someone offering to do it cheaper…or faster…or bigger…or easier. Just about anything you might – just possibly – regard as a problem can be instantly fixed by picking up the phone and inviting the Merlins of the market into your business.

Whether it’s finding more clients, getting your invoices paid, dealing with your staff, or optimising the internet there are a plethora of individuals, partnerships and companies ready and waiting with sure-fire panaceas.

How could you go wrong?

Likewise, if it’s your business itself that’s the problem, then never fear. There are any number of know-it-alls prepared to tell you how you should run it. Hell, for the right amount of money paid in advance, they’ll even do it for you.

In the quiet of the wee, small hours I sometimes wonder how we mortals so often get it wrong when gold-plated success is so easy to come by. Were we out of the room when they handed out all of the answers?

I doubt it.

Before those outside our business can even hope to make a contribution two things have to happen:

We have to believe that the suggestion they have to offer will actually work for us, and

We have to believe that particular firm or individual is the right one to work with us.

Whatever the ‘fix’ is, we have to buy into it ourselves, mentally and financially, before opening the door. Unless we first experience that mind-shift the ‘fix’ is likely to be doomed before the project even begins. Hesitancy in accepting the proposed solution is probably behind most of the failed consultancy projects. And most consultancy projects fail.

There is a threat to any business from someone who thinks they know better than you how to run it. Maybe they do know better, but it is still your business. However good their ‘fix’ is on paper, you will modify, undermine, sabotage and destroy it – perhaps subconsciously – if your pattern of beliefs do not shift accordingly.

So crucial are your beliefs and associated values that it would make most sense to start with those first, before you call the Merlins. At the end of the day you will probably find you can do without the outsiders, because you will have much better ideas yourself.

Migrating Your Business

Faced with the plans, goals, targets and objectives necessary to migrate our business, from where it is to where we want it to be, it is easy to become overwhelmed. Indeed, it is so easy to become overwhelmed that some people actually end up doing nothing at all, paralysed by those daunting challenges.

Of course, such people are not totally inactive, far from it. They give the appearance of being the busiest people in the office as they collect mounds of data and reams of analysis about all the challenges they face.

However, there is no outcome, for they never reach a conclusion. All that activity is merely a smokescreen, a security blanket, a substitute for the action they should be taking, but never get round to.

When faced with overwhelm one remedy is to take a lesson from the animal kingdom. Since autumn is approaching the goose sense used during their annual migrations is a lesson as powerful as horse sense.

When you see a flock of geese heading south for the winter, you will notice they fly in a characteristic "V" formation. That way, as each bird flaps its wings, it creates uplift for the bird immediately following. The "V" formation adds at least 71 percent greater flying range, for the flock as a whole, than if each bird flew alone.

Who else do you know that is heading in the same general direction as you? What opportunities exist to draw on their experience and leadership? How can you and your firm use their “slipstream” to help ease the hard work sometimes needed in order to make any headway? Would you really like at least 71 percent greater flying range?

However, do not expect such assistance to be entirely altruistic.

When the lead goose gets tired you can expect it to rotate back into the following flock while another goose flies point. Depending on circumstances, resources and the skills required sometimes that goose will be you. That’s because it makes sense to take turns doing demanding jobs.

You will also hear the geese behind honking to encourage those up front. Note that the honking is there for encouragement, not criticism. When you honk from behind – figuratively speaking – what is your intent? And is that intention realised?

Finally, when a goose gets sick or is wounded by gunshot, and falls out of the formation, two other geese fall out with the injured bird and follow it down to lend help and protection. They stay with the fallen goose until it is able to fly again, or until it dies; and only then do they launch out on their own, or with another formation to catch up with their own group.

How many businesses have the corporate sense to offer mutual support in the face of economic ills, market malaise and the continual sniping from Government and financial institutions? And is yours one of them?

Perhaps the humble goose is not quite so silly after all.

Business in Progress

Recently a leading think-tank, the Ernst & Young Item Club, said that the economic outlook for Britain is like a "horror movie".

In my opinion that is a contrived exaggeration designed to catch the attention of the media.

One wonders what metaphor they would possibly have substituted if they had been commenting in 1926. However, there are so many doom merchants plying their trade at the moment that trying to go one better might be expected.

So, just how bad is the economic outlook as seen by the Item Club? What constitutes a “horror movie” these days?

Growth in UK GDP during 2007 was 3.1%. The Item Club expects growth of 1.5% in 2008 and growth of 1.0% in 2009 before it returns to 2.5% in 2010.

Growth????

Oh, yes! Ernst & Young are not forecasting a recession … far from it. They are expecting that the UK economy will continue to grow.

This is about as close to a horror movie as Willy Wonka and the Chocolate Factory.

Even if things turn out worse than Ernst & Young’s choice of prose, professional firms need to get a sense of proportion. In the US Great Depression 1930-33 the reduction in the level of GDP from peak to trough was a fall of some 30 per cent.

That means that some 70% of output was maintained, although the exact figures will have varied from sector to sector and firm to firm. Nevertheless the point is well made that business continued to happen. Some people even did remarkably well out of it.

Therefore, what you can be sure of is that, no matter how poor the economy gets, substantial amounts of business will still get done.

The only question you need to answer is whether you will be among those doing that business.

There is a recognised 3-step process that will help you towards a positive answer:

1. Raise your standards. Increase the levels of service that you provide and the attention that clients receive. Satisfactory is not good enough, either to win new business, or retain existing accounts.

2. Change your beliefs. Who your prospects are, where they can be found, what they want and your capacity to meet those expectations all need rewriting. The world has moved on; you need to keep pace or you will be left behind.

3. Revise your strategies. Whatever game plan you have been following is now familiar to all your staff and most of your competitors. It’s predictable. “A skilled commander seeks victory from the situation and does not demand it of his subordinates” ~ Sun Tzu.

For the outlook to be perceived as bad is nothing new.

Recently, Sam meets his friend Joe in the Arndale Centre and greeted him warmly.

"Hi Joe, I haven’t seen you for some months. So how is the company doing that you set up with Maurice last year?"

"Well,” said Joe, “As I told you then, I put in all the money and Maurice put in all his business experience. But things have changed a bit since then."

"What do you mean?" Sam asks.

"Now Maurice has all the money and I have all the business experience."

The wisdom of making mistakes

We all make mistakes. And fear of making mistakes too often keeps us frozen in indecision and inaction. However, it is rarely the mistake itself that is the real problem. More often it is the consequence we expect, the outcome from the mistake that blocks our moving forward.

That fear is misplaced for four main reasons:

Our fears may be groundless or, at least, exaggerated. Fear is only felt in relation to potential future events. Nobody fears the past since it is already known and experienced. However, potential events are not real events. They may never happen as we anticipate and we cannot know how they will happen until we take action. How often has some dreaded eventuality turned out to be not so bad after all?

Mistakes may be more apparent than real. What we judge to be a mistake in the short term can eventually emerge as a breakthrough. History is replete with such events. Artificial sweeteners, X-rays, microwave ovens and vulcanized rubber are just a few of the inventions that owe their existence to chance.

We learn from our mistakes. It has been said that success teaches us very little, whereas failure carries valuable lessons. Our failures cause us to pause, take stock, work out what went awry and then modify our approach. Success is often taken for granted. We pat ourselves on the back, congratulate ourselves for being so smart and move on. We rarely stop to work out what elements came together to deliver such a great result.

Indecision and inaction is itself a decision – hence the expression ‘damned if you do, and damned if you don’t’. With a decision made and action take you have intention and a degree of control. With indecision and inaction one is subject to the variable winds of fate and fortune, and the decisions and actions of others, never know where one is likely to end up.

Then there are those mistakes that only appear to be foolish, but conceal a deeper wisdom:

One day a beggar appeared in the marketplace. Whenever people showed him both a large note and a smaller note he always chose the small one.

Eventually, a generous man who was tired of seeing everyone laugh at the beggar quietly went over to him and explained that when people offered him two notes, he should choose the larger one. Then he would have more money, and people would not think him a fool.

"You are surely right", replied the beggar. "But if I always choose the larger note, people would stop offering me money, in order to prove that I am a greater fool than they are. And then I would no longer receive enough for my food. There is nothing wrong with appearing to be a fool, if what you are doing is in fact intelligent."

Take a Reality Check

I don’t know exactly how your business is going, but there is one thing of which I can be certain: it could do be doing a whole lot better. And, when you finally pause for a moment of quiet reflection, you will realise the same thing. It should come as no surprise. It applies to all of us.

What stops us improving our performance? Quite simply, we know too much.

We are the experts in our business. We spend most of our waking hours either working in it, working on it, or thinking about it.

We may even spend our sleeping hours dreaming about it.

The consequence is that when we need to get unstuck; when we need more options to choose from; when we need to stay on track, knowing so much means we either recite all the reasons why not, or we end up being overly complex and abstract.

When we want to clarify our thinking, identify the real issues and reach a better solution an external reality check is always useful. Working on the immediate issues with someone who is not so closely involve, who can take a more utilitarian approach, can do wonders.

They can usefully cut through all the moonshine and ask the sort of intensely rational, down-to-earth questions that clears the fog of self-obsession, like: “Yes, but what are you actually going to do and when?

A young engineering graduate fresh out of Cambridge was being interviewed recently. As the end of the job interview approached, the HR Director asked, "And what starting salary were you looking for?"

The engineer said, "In the neighbourhood of £140,000 a year - but depending on the benefits package."

The HR Director said, "Well, what would you say to a package of 6 weeks paid holidays, full medical and dental cover, a two-thirds final salary pension scheme and a FX company car renewed every 2 years starting with…say…a red sports Mercedes?"

The Engineer sat up straight and said, "Wow! Are you kidding?"

And the Director replied, "Yeah, but you started it."