The Business Book (DK) (Part 2)

Culture is the way in which a group of people solves problems. Tradition, culture and structure are important for a company. Culture is a shared history of what the company has. It is a narrative. There are basically 5 dimensions of culture. They are 1) power distance; 2) individualism vs collectivism; 3) uncertainty avoidance; 4) masculinity vs femininity; 5) long vs short-term orientation. Power distance refers to distance in authority between managers and executives. Culture matters a lot. Organization culture is non-static and can change over time.

Emotional Intelligence is the intersection of heart and head. EQ is the ability to perceive, control and evaluate emotions. There are 5 domains to EQ. It is an essential trait in highly effective business leaders. They are 1) self-awareness; 2) self-regulation; 3) motivation; 4) empathy; 5) social skills. EQ can grow with age and experience. Emotional balance is a key factor in commercial success.

Management is a practice where art, science, and craft meet – Mintzberg’s management roles. Management roles fall into these 3 categories: 1) informational; 2) interpersonal; 3) decisional. Effective managers must use all three and know when to use them appropriately. Management is both an art and a science. Management is complex and multi-faceted.

A camel is a horse designed by a committee – Avoid Groupthink. We tend to nod in agreement even if we disagree. This is because we want to feel like we ‘belong’ to the others. Groupthink can be so strong that proper analysis might not be conducted at all. It encourages extreme risk taking. Managers must encourage all to talk and encourage dissent in order to avoid groupthink.

The art of thinking independently, together – the value of diversity. Males have the tendency to employ other males. Greater diversity means scope for creativity. Diversity can combat groupthink.

Making money work: Managing finances. Finance strategy has emerged in importance nowadays. Leverage is a double-edged sword. Is it the director who is responsible when things go wrong? Learn to ignore the herd instinct. There may be wisdom to listen to your customers. For instance, China has a huge potential. Management accountants work hard to derive accurate costing. ABC is a good way to do this. Financial accountants must play by the rules and abide by FRS and their principles. Often, companies are trying to make ‘money’ from ‘money’ rather than concentrate on their core operations.

Do not let yourself be involved in a fraudulent business. Learn to err on the side of caution. Consider rules plus morality as well. Do not inflate profit figures if you are an accountant. Prudent approaches must be made with regards to the provision of bad debt. Directors must be alert to any creative accounting being employed. IFRS relies more on principles as compared to rules-based US GAAP. Is mark-to-market accounting misleading in times of economic boom? No set of rules can govern ethical behaviour.

Executive Officers must be free from avarice. Managers can act in their own interests. They must not be opportunistic and simply interested in personal gain. Shareholders are now even more concerned about governance and gain.

If wealth is placed where it bears interest, it comes back to you redoubled – Investment and dividends. Dividends are more rare nowadays. Share buy backs are more common. In periods of high growth, companies should reinvest a great amount in order to grow the business. When growth is slow, companies should pay dividends. Apple only started paying dividends in 2013.

Borrow Short, Lend Long – Make Money from Money. However, this is a short term strategy. Invest in financial products. The treasury function emerged in the late 1970s. Speculation via derivatives can be risky indeed.

The Interests of the shareholders are our own – Accountability and Governance. Governance must be proactive and ethical in nature. Lines of responsibility are clear. Board members must be fully informed and work in the long term interests of business and shareholders. Board members must be alert. Many board members had no idea what risks the company faced. Good governance is necessary.

Make the Best quality of goods at the lowest cost paying the highest wages possible – your workers are your customers. Sale of stable groups are growing rapidly. Sometimes, your workers will also be your customers. This will be good. China is the biggest market for consumer spending. There is a lot of potential in this market. Bosses need to focus on workers’ delight and fulfilment more than ever. Encourage the workforce to manage themselves.

Utilize OPM other people’s money – Who bears the risk? In the event of liquidation, shareholders tend to lose out as they are the last to be paid. Staff might lose their job when the company fails. The pension funds might be wiped out and hence affecting employee welfare.

Swim upstream. Go the other way. Ignore the conventional wisdom. You need to have a contrarian view to make money. Public shareholders should not follow mass trends. Do not stampede to make takeover bids. This is because the company will tend to overpay. Do not buy other businesses for diversification sake when others are doing so. Avoid followership and imitate market innovators. Learn to swim upstream

Debt is the worst poverty – Leverage and excess risk. In the long run, taking leverage is not good. However, in the short term, it might help the company to grow. The optimal debt should be about 25 to 30%. Leveraged buy-outs exist in the market. For instance, LBOs rescued MGM Grand.

Cash is King. Profit vs Cash Flow. For fast growing companies, cash flow is more important than ever. Profit is an accounting concept. Those with weak cashflows can use overdrafts and supplier credit. However, in times of recession, cash is king. Companies must be able to tie over the period of negative cashflow in order to survive unscathed.

Only when the tide goes out do you discover who’s swimming naked. There is off-balance sheet risks. Not all liabilities may be reflected on the BS. Losses can be parked with subsidiaries or SPVs and not consolidated.

ROE is a financial goal that can become an own goal. ROE is vital. Share repurchases help to boost ROE. However, this results in a risky capital structure. Hence, ROE can be misleading at times.

As the role of private equity has grown, so have the risk it poses. PE involves loading debt onto the business, similar to LBO. Debt has inherent risk. Managers are pressured to perform to pay off the debt. Hence, there is more incentive for short term performance rather than long-term gain. Those who make PE purchases are usually institutional investors. The trick is to try to turn the company such that it becomes profitable.

Assign costs according to the resources consumed. Use ABC. Overhead costs can be vague in nature. ABC calculates the actual overhead costs. This allows the company to make better decisions. This is good for non-standard products. To do this, one needs to identify the cost drivers for each activity.

Working with a Vision – Strategy and Operations. Everyone should have a common objective. Strategy is vital. Companies must be nimble and change course if necessary. There is a need to balance long and short term objectives. Flexibility is important. Regulation is taking centre-stage now.

Turn every disaster into an opportunity. There are many success stories that emerged because of failure. There are opportunities in disasters. Analyze every failure and learn from them.

If I had asked people what they wanted, they would have said faster horses. The company that leads the way can dominate an industry even if they are copied. This is because people associate the concept with them first. This is known as first-mover advantage. Do things that no one else is willing to do. Being the first is everything. You need to get into the mind of your customer. Toyota created the Prius car.

The main thing to remember is, the main thing is the main thing. Protect the core business. Diversification usually does not bode well for companies. A business should focus only on what they are good at. Outsourcing some non-core functions is possible. The outsourced function must be managed well.

You don’t need a huge company – Just a computer and a part-time person (Small is beautiful). Internet had disruptive power. Google was phenomenal. eBay is a very successful auction house. Anyone can sell unique items on such platforms. Internet allows business to be run at a much cheaper cost. Cost and speed of delivery are important too. Customer service is increasingly important in this modern age. Feedback is always useful for business owners. Customization is possible for small businesses.

Don’t get caught in the middle – Porter’s Generic Strategies. Companies generally choose between cost leadership or differentiation. This is how companies develop a competitive advantage. For low cost strategy, companies might be worried that their idea will be copied. Bose is a company that pursues a differentiation strategy. A focus strategy is good to target a niche market. Ryanair is a typical low cost carrier. SIA pursues a differentiation strategy.

The essence of strategy is choosing what not to do – Good and bad strategy. Choosing what not to do is as important as choosing what to do. Good strategy should be developed from SWOT. Kodak is an example of a company which used bad strategy. They neglected the potential of the digital camera.

Synergy and Other Lies – Why takeovers disappoint. The purpose of merger and acquisition is to create synergy. The most reason why things don’t work is because the two companies cannot agree on a common strategy. There might be a mismatch in organizational culture.

The Chinese word ‘crisis’ is composed of two characters: ‘danger’ and ‘opportunity’. Crises can strike anywhere. Crisis management is important. Leadership must be swift and decisive. It is always crucial to care for the well-being of your customers. Sometimes, product recalls are necessary.

You can’t grow long term if you can’t eat short-term. There is a need to balance the two. It is a delicate balance. If you only think long term, you might not have the immediate capital to fund your business. It is important to preserve the core of the business and yet stimulate progress.

Market attractiveness, business attractiveness. MABA is a business framework. It is also known as the GE-McKinsey Matrix. This helps to plot the relative profitability of business units or products.

Only the paranoid survive. RIM did not innovate. It is normal to relax when things are well. Every business faces change. Intel had to reposition themselves when Japanese companies could produce memory chips at a lower cost than them. This is known as a strategic inflexion point. Leaders must make the right decisions during inflexion points or the business has a high chance of failure. Leaders need to look out for black swan events that might hurt the business. Keep asking ‘why’ till you get to the root of the problem. Managers must question processes. They need to constantly ask whether there is a better way of doing things. Victorinox started selling watches after its business for pocket knives were hit.

To Excel, tap into people’s capacity to learn (The Learning Organization). Companies need to be devoted in development and education. The community will benefit as a whole. Peter Senge made headway in his research. The two traits are discipline are personal mastery and mental models. The other three are team learning, systems thinking and building a shared vision. Turnover is a big problem in major organizations. This could be due to poor management practices. Honda is an example of a good learning organization. Those organizations which focus on learning have better hope for the future.

The future of business is selling less of more (The Long Tail). This means low volumes of an increasing large number of products. Customers are now buying niche items from online sellers. iTunes offers a wide range of music that no one else can compete with them. Physical stores can only offer a limited variety of items.

To be an optimist, have a contingency plan for when all hell breaks loose – Contingency planning. One must have an adequate plan to tackle a crisis. It is important to be able to manage disasters well.

Plans are useless but planning is indispensable. Ask what is likely to happen the next few years. Shell managed to diversify into other energy sources when there was an oil embargo.

The strongest competitive forces determine the profitability of an industry. They are the power of suppliers, buyers, rivalry among existing firms, threat of new entrants and threat of substitutes.

If you don’t have a competitive advantage, don’t compete. Companies can add value at any stage of the value chain. Companies must know how to analyse their value chain.

If you don’t know where you are, a map won’t help (The capability maturity model). Processes must be proactively applied and then managed and monitored. Continuous process improvement is crucial.

Chaos brings uneasiness, but it also allows for creativity and growth. Companies need a flatter structure with more flexibility. A company has to re-visit its strategy frequently. Workshops and team briefings are important.

Always do what is right. It will gratify half of mankind and astonish the other. There is morality in business. Companies may cheap because they want to boost performance. Some companies engage in price fixing etc.

There is no such thing as a minor lapse in integrity – Collusion. There is a fine line between collaboration and collusion. Accountability is important and must be emphasized.

Start Something that Matters by Blake Mycoskie

To laugh often and love much, to win the respect of intelligent people and the affection of children. To earn the appreciation of honest critics and endure the betrayal of false friends. To appreciate beauty, to find the best in others, to leave the world a bit better whether by a healthy child, a garden patch, or a redeemed social condition. To know even one life has breathed easier because you have lived. This is to have succeeded. – Elisabeth-Anne Anderson Stanley

Tom’s Story. I was involved in an online driver-education program. I took part in the Amazing Race with my sister. To relax, I took a holiday in Argentina. The poverty was starling and that woke me up. I saw how they walked barefoot and got cuts on their feet. I wanted to help. I considered looking for donors, but that wouldn’t be sustainable. Then, it struck me. I should create a business that provided the kids with a constant flow of shoes. I called the company TOMS with the catch-phrase ‘Shoes for a Better Tomorrow’ or ‘Tomorrow’s Shoes’. The polo teacher, Alejo, joined me on this business venture. We knew what design we wanted. Finally, we found a local shoemaker willing to work with us. We collaborated and I tweaked on the design. I sent the shoes out for testing as well. How could I get people to pay for the shoes I made? Talking to your friends works and they also loved the idea. It is very important to show up in person. Some saw that TOMS made a good story. The newspapers picked up my story. However, the inventory management system was bad and we suffered and couldn’t fulfil orders. The local shoemaker helped to manufacture shoes. The media loved our idea, which was to sell a pair of shoes for profit and then give a pair away. Once we had enough shoes to give away, we went around Argentina. I was overjoyed to be able to provide shoes for the needy children. It made everything seem worthwhile and meaningful. The children were really grateful when thanking us. It was like my life’s work. I wanted TOMS to be my life. I left my other businesses to focus on TOMS. My work had a positive impact on others. The giving aspect of the business gave us a story. There are new tenets to success that must be followed. This book will show you how you can make a difference. You will learn to create a business. You want to make the world a better place. It is possible to earn money, achieve personal fulfilment and to create a positive impact on the world.

What’s changed is the definition of success. Increasingly, the quest for success is not the same as the quest for status and money. The definition has broadened to include contributing something to the world and living and working on one’s own terms. – Blake Mycoskie

A good story transcends boundaries, breaks barriers, and opens doors. It is a key not only to starting a business but also to clarifying your own personal identity and choices. A story evokes emotion, and emotion forges a connection. – Blake Mycoskie

Find Your Story. I liked Adam and Eric. They realised that there was a toxic product and decided to make a safe one in their labs. They wanted an environmentally friendly product. They found people to take care of the packaging. Eventually, the two of them managed to get shops to carry their brand. Press love a good story. Their store received a lot of publicity. Now, they are one of the largest eco-friendly cleaning brands. They had an idea to sell, not just a product by any means. This helped to get customers excited. Stories are powerful. Never underestimate their importance. We rely on stories to remember things. A good story helps open doors. There is too many products out there and we suffer from decision fatigue. You need to connect with the audience emotionally. People are more concerned with personal stories than anything else. Facts only matter that much. Environmentally friendly products are good. Campaigns based on stories are very effective. TOMS was a very young company. The TOMS story was a huge sell. People help to spread the word too. This was the power of our story. People have to believe in what you are doing. Supporters will be loyal customers. AT&T bought our story too. Later, I filmed a commercial and it was a big success. How do you find your story? You can create the only Texan vodka. Identify the communities you belong to and find your story that helps you get off the ground. We usually get caught up in everyday life. It is important to get in touch with ourselves and articulate our passion. If you did not worry about money, what would you do? What cause would you serve? You have to feel strongly about your cause and organize your life around your passion. Commit to telling the story at EVERY OPPORTUNITY. Use ideas from your supporters as well. Listen to them. For example, TOMS organized a barefoot shoes day. Ensure your story is authentic and comes right from the heart. Connect to all the groups you know. This will be your community. When people ask you what do you do, tell them with passion. Learn to partner with others as well. Manage your social media to ensure the story is consistent online too. Find the influence makers who will love your story. Share your story with your social network. It is important to know your audience. Be specific about your idea.

It’s about creating a successful business that also connects supporters to something that matters to them and that has great impact in the world. – Blake Mycoskie

Face Your Fears. Jump right in. Do not hesitate. If you have a good story, do not hesitate to share it. Pam self-published a book. Never give up even if you receive a setback. Always aim to change the lives of others. Fear is more common than what people realize. We are more impressed by boldness. Fear is always with us. You need to learn to overcome it. For many, they give us once the ‘fight-or-flight’ syndrome kicks in. We all need a safe haven to escape from. Create a plan and overcome your fears. Sam Walton is a real success story and who didn’t give up. You must have courage of your convictions. Learn from the mistakes of others. The difference between success and failure is how you overcome setbacks. Be comfortable with fear. Life goes on and you can always start afresh. Don’t fear the unknown. You can never be fully prepared for something. Everyone makes mistakes once in a while. Do not worry about what others think. Do not wait for the best idea to come, for it never will. Learn to remember to live your story. Surround yourself to inspirational quotations. Use inspirational quotes to push you during difficult times. I often read biographies of inspiring people too. Take one small step at a time. Follow the Japanese ‘kaizen’ mindset of small improvements at each time. If you need help, go and ask for it. Create a pros and cons list. The timing is never right and the key is to get started.

Be Resourceful without Resources. We didn’t know if the TOMS business model could work. Many people applied for our internship programme even those they wouldn’t get salary. This was a chance to do something different. We let the interns have a fun time to compensate for the lack of pay. The garage is enchanted. Learn to improvise your space. Learn to lower the expectations of others. Make everyone feel like a team and create a good company culture. Most people start off with humble beginnings. Most people start businesses with a few resources. Imagination trumps money. A lack of money will force you to be alert and hardworking. A lack of money will force you to be creative in getting what you want. Too much money is toxic. If you attract too much money, you need to answer to investors too. Pets.com invested too much in advertising after receiving money from venture capitalists. If you incorporate giving in your business model, it will reap benefits. Stand for something bigger than yourself. Develop a presence where it is free. Social media is free anyway. Dispose of formal titles. Create innovative names so that the people lower-down will also seem important. Use an interesting business card so that people will remember you. Always treat the interns well and feed them properly so that they will be happy. Read other resources on how to better manage your resources.

If you have little money and have to bootstrap and improvise to pull things together, that becomes embedded in your company’s DNA forever – so as you scale up, you maintain the frugality and efficiency that helped you survive your earliest days. – Blake Mycoskie

Keep It Simple. Learn to simplify things. Always think simple and strip it down. Footwear are simple. We used the black canvas as the design. In design, simplicity is the key. Simplicity is very important. Simplicity can also be applied to a goal or a mission. Keep it simple and do the best you can. Learn to unclutter your work area. Learn to schedule things and don’t let technology enslave you. Please clean up. Own as little as you can.

Build Trust. Tony Hsieh is a successful entrepreneur in the US. Zappos was a bit hit. Their business model is all about trust. Employees all look out for the best interests of their company. Employee bonding is very important. The people were given much freedom to tweet. The turnover is very low. Trust is built with the vendors and customers too. Both internal and external trust are important. The hard approach for your staff may not be the best anymore. Make sure the whole team is on the same page. Information is not top down nowadays. Ideas can spring up from the bottom. Empowerment is the key. The soft style of leadership works better. It is important to build a climate of accountability. It is okay to make mistakes. Recall the product if has been shipped to the customer but turned out to be faulty. If someone breaks trust, you must be ruthless about it. There are companies who reward employees for admitting mistakes. Have zero tolerance for people who bad-mouth others. Always place the customers first. Tumi helps to repair bags. Being open and forthright is very important as well. We allowed selected customers to join us on shoe drops. State your goals clearly. Please offer honest and constructive criticism. Empowerment is related to job satisfaction too. Learn to trust the interns. Fine tune your hiring policy to ensure you hire the best. Wear your product so that others will believe you.

People are more likely to do favors for each other if they are friends, not just co-workers. – Tony Hsieh

Giving is good business. Even giving free lunch to needy kids can change their lives. Lauren sold bags and the proceeds went to needy children in Rwanda. Giving is more important than ever. Fight for something bigger than yourself. The smiles on the kids’ faces will definitely keep you going. Pepsi also dropped their SuperBowl commercial and gave money to people who could come up with business ideas. Social work is becoming more popular. TOMS managed to attract many different types of partners. Sometimes, for-profit companies might want to pair with not for-profit companies. Is social responsibility about increasing profits in the long term? Even if you don’t start a business, you can have tremendous impact too but starting new initiatives at work. If you can’t start something big, start something small. Start giving now. Do not simply give money away. You can offer to do pro-bono services. Incorporate giving anywhere you can at work. Trust the host organization to make proper use of the gifts. Try and seek feedback in order to improve your giving. Tailor your gift to the organization’s needs.

The best way to find yourself is to lose yourself in the service of others. – Mahatma Gandhi

The Final Step. OneShot is a non-profit that provides meningococcal meningitis vaccinations to college students. It also addresses this problem in Africa. Soon, this story caught on. You will get immense joy hearing praise from your customers. Even if you just help one person, it is an enormous achievement. Once you start helping others, you will see that your life is filled with purpose.