What Should You Design Into The Core Of Your Business?

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Monday, 8.59pm

Sheffield, U.K.

Acting is not an important job in the scheme of things. Plumbing is. – Spencer Tracy

It is not always clear what kind of relationship exists between the work one does and what one is paid.

I have a book upstairs about the wealth distribution in the UK and while I haven’t read it in a while, some of the points it makes are probably still relevant.

For example, a quarter of the fortunes made in this country are in property and another quarter in finance.

The change from a nationalised set of industries to deregulation and free enterprise created a host of well paid jobs – what the book calls “fat cat” jobs.

These are the ones heading major enterprises, industries, institutions that came out of public ownership and went into the private sector.

The way one decides how to pay people that run these organisations is by hiring advisers who look at what other organisations pay and suggest an equivalent salary – something that results in a ratcheting up of salaries.

Then there are the people in the professions – what the book calls the “professional poor”.

They’re several rungs down on the wealth scale.

Now, while we’d all like to be fat cats one needs to be careful about labels.

Arguably, one of the most important inventions of modern times is the invention of the joint stock company.

This is where people who don’t know each other put in money for a share in an enterprise and of its profits.

This replaced entrenched interests, family concerns and cartels with an institution – something that was its own legal entity and that was served by its Board of Directors.

So, in that situation you would expect them to be competent and pay them accordingly.

But say you aren’t at that level yet – you don’t have a business that’s listed on an exchange – you’re just starting out with something new.

What do you need to have at the core of your business?

Well, the single best thing is to have a monopoly – be in a business where the barriers to entry are so high that you have no competition.

If you can’t swing that then make sure that at the core of your business you fix something that’s broken.

Let me explain.

Lots of people will help you make money. Play the markets. Find you investments. Save you cash. Get you compensation.

Few, however, really fix problems.

Take the job of a plumber, for example.

Most of the time you don’t really think about your plumbing at home – it works and there is hot water and something to drink.

But what happens when something goes wrong?

You’re willing to pay almost anything to get it fixed.

And that’s the point – you’re always more willing to pay money to fix a broken thing than pay money to avoid costs or make more money.

We’re very cautious – we don’t like to spend money if we’re not sure and we’re worried about losing money betting on the wrong thing.

In fact, we’re much more likely to hate the idea of losing money than the idea of making lots from a bet.

But when something is wrong – we’re a customer.

People look for you not because you’re nice or because you can help them – but because you can fix a smelly, dirty problem for them.

That’s the second best driver to bring in business – after being the only game in town.

Imagine listening to two pitches.

One says here’s a great way for you to make loads of money – you just need to hire me and I will do amazing things for you.

The other says you’ve got a smelly, dirty, messy problem in your house and your carpets are going mouldy – and I can fix that for you.

Which one are you going to hire first?

Cheers.

Karthik Suresh

What Must You Know In Order To Be An Entrepreneur?

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Sunday, 9.30pm

Sheffield, U.K.

Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon. Winston Churchill

Every once in a while you talk to a “real” business person and realise that they think in a different way about things.

Some of it is about culture and some of it is about history – but all of it is hard to compress into a formula.

Take, for example, a collection of essays titled The culture of entrepreneurship edited by Brigitte Berger.

The essays explore the way in which entrepreneurs operate around the world and argues for a better understanding of their importance.

This is important because, as the introduction points out, the living standards we enjoy are as a result of the productive forces unleashed by capitalism and embodied by entrepreneurs.

Entrepreneurs find ways to make the world work better – and in doing so seem to improve things for everyone else.

And that’s something many people still find hard to understand – they cling to the idea that people in business exist to exploit others – and that business itself must therefore be evil.

And that really comes from a place of fear – from a place of misunderstanding.

Imagine that a business is a creature – a strange thing with many arms and heads and a weird body.

Most people would be wary of such a strange animal – wondering what it’s going to do to them.

But that creature has probably evolved to fit a particular niche – and it is eminently suited to do what it is supposed to do.

That business can exist, grow, thrive until one of two things happens.

First, it can grow old and weak – and be devoured by something else.

Or its world can change around it and the niche it occupies disappear, leaving it defenceless and unprotected – and it simply goes extinct.

That’s just the way these things go.

But, while the business is alive – or even when it’s just a thought in the mind of an entrepreneur what is the most important thing that must be in place?

For this – we should think of one of the characteristics of a system as described by Russ Ackoff.

He said that you cannot explain a “why” in terms of its parts. A system cannot understand itself.

In a business you have many people doing jobs – think of them occupied in moving arms and legs – account and marketing and so on.

If you asked any one of them why the business exists you will probably get a partial point of view – perhaps articulated using the language and customs of the respondent’s profession.

In simpler terms they will tell you “how” the business works.

This is the business of analysis.

In order to know “why” the system works you must talk to the entrepreneur – the person who is outside the system – the person who is engaged in creating the business.

That is the only person that can tell you “why” the business exists because they were driven to create it.

This distinction is not easy to capture.

Does it mean knowing how to do every aspect of the business?

No – but it does mean knowing what each aspect needs to do – and making sure that’s done.

Within this basic structure there are a huge range of possibilities for how the entrepreneur functions.

Some people have grown up in business families while others have come to it with no background at all.

Some people see their businesses as families while others see theirs as a network of professionals held together by common values and desires.

The fact is that if you’re an entrepreneur the most important thing you have to be able to do is to see the creature you’re creating.

If you can’t then you’re going to struggle.

And it may be easier to stick with the day job.

Cheers,

Karthik Suresh