Scaleability – Page 19 – Discipline makes Daring possible.

May 17, 2022

Snowballing

It’s every new business owner’s dream. Your first customers love what you do so much that they tell their friends, who become customers. They love what you do, and tell their friends, who become customers and tell their friends, and so on…

Until suddenly it overwhelms you. You can’t keep up with demand. You can’t recruit fast enough, you can’t train people fast enough, you can’t supervise any more jobs yourself.

Soon, the referral rate has slowed. Worse, as customers become disillusioned, they warn off their friends, who warn off their friends, and so on…

Suddenly you don’t have a business any more.

What you’re experiencing is a reinforcing feedback loop (a flow of customer referrals) that hits a limit (your capacity to deliver), and slows down or even goes into reverse.

The good news is that a loop that’s gone into reverse will also eventually hit a limit, as the flow of customer referrals gets back into balance with your capacity to deliver.

The best news is that you don’t have to wait for that.

One short-term fix is to slow-down the referral rate, to give you more time to implement a longer-term fix of increasing capacity:

put your prices up – this will reduce the number of referrees who turn into customers, and give you more money to invest in increasing capacity.
create a queue – increasing waiting times gives you more time to invest in increasing capacity.

Similarly, there are short-term fixes for the capacity side too:

put wages up – this will increase the flow of potential team members who can deliver for you.
pay overtime or bonuses to your existing team – this will increase the flow of work from your existing resources. (This is probably only true for emergencies though)
use freelancers – this may increase the flow of already capable capacity into your team.

The best thing you can do for the long-term is to monitor your referral rate, because this will help you plan ahead.

The time it takes for an exponentially growing stock (such as customers) to double in size is roughly 70 divided by it’s growth rate as a percentage.

So if 5% of your customers refer each month, your pool of customers will double in 14 months. If 50% of your customers refer, you’ll have double the number of customers to deal with in just 1.4 months.

For a sustainable business, what you really want is to keep customers and capacity in balance, as you grow both. What’s counterintuitive, is that it’s monitoring flows, and the rates of flow that will help you achieve this at the speed you want.

Snowballs are only fun for a little while.

Discipline makes Daring possible.

May 16, 2022

Introducing systems thinking

We spend much of our time in business measuring quantities or stocks, when often what we should be looking at are flows – the processes that affect those quantities, for good or ill.

In fact, we’d learn more from looking at how those flows are changing – are they speeding up or slowing down? – and by asking why, create ourselves more options and opportunities to improve things.

We also tend to focus too much on stocks that are concrete (profit, inventory, capacity) and ignore the abstract (delight, autonomy, morale). Partly because the abstract is harder to measure, partly because we think they don’t matter.

As we all know, what gets measured, gets managed. The trouble is that managing the wrong things distorts the system. Until it no longer serves the purpose we originally envisaged. Or until it breaks.

If you’re looking for a different way of explaining – and re-designing – your world, this book is an excellent introduction to systems thinking.

This week I’ll be sharing some ideas from the book, as they apply to the systems we are all trying to create – our businesses.

You’ll recognise them.

May 12, 2022

And what about everyone else?

It’s not often I think that Seth Godin is being ungenerous. But I think he is in this post.

Of course Seth is writing for his tribe, those with what Shelle Rose Charvet would call an ‘Options’ preference. Who love uncertainty, exploration, overshooting boundaries and blank sheets of paper.

But not everyone works like that. A few like to slavishly follow a process step-by-step. Most of us like to have a map. Or a score we can interpret in our own way.

That doesn’t make us want to be a cog in a machine without responsibility or accountability. It just means we like to see where we are, where the destination is and what the possible routes are. We are perfectly willing to take responsibility, be on the hook, initiate action. It’s just that like children, we play more freely when we can see the boundaries.

Industrial control was never the answer to human flourishing, but neither is a void.

A little bit of discipline makes a lot of daring possible.

May 11, 2022

Approaching equilibrium

Systems of all kinds can persist for long periods, staying more or less the same. Not static, but always hovering around some equilibrium value, even as they grow.

This happens because of feedback. A change in the equilibrium value triggers a change in the flow of something that affects that value. Like your central heating thermostat, which uses feedback on the actual room temperature to regulate the flow of hot water to your radiators in order to maintain a temperature that feels comfortable to you.

A business is a system too. We’re usually looking to grow it, exponentially if we can. We don’t often think of it as something we want to keep in equilibrium.

But perhaps we should.

A business is a system for making and keeping promises. That means that whatever else we might like to see, the important equilibrium value is how many promises we keep – or perhaps even how many we exceed.

If we all made that our thermostat there’s a good chance that a better kind of exponential growth would take care of itself.

May 9, 2022

Being an ancestor

As I get older, I am more conscious that I am not immortal. It’s quite hard to imagine my life 20 or 30 years from now.

But then, I never did think that far ahead – not even when I could reasonably expect to have another 30, 40 or even 70 years ahead of me.

Would I have made different decisions if I had?

It is of course impossible to foresee the future, so the question would have to be about impact and ripple effects rather than concrete, specific results, but ancestor questions are well worth asking, of one’s self and one’s business:

“What impact do I want to make on my generation?”

“What impact do I want to make on the next generation?”

“What impact do I want to make on the generation after that?;

“And the one after that?”

…

We can’t know how they’ll live.

We can know whether we have made living harder or easier for them.

And it’s not too late to change what we do. Especially if we change together.

April 29, 2022

We are many

A quote from anthropologist Margaret Mead today:

“Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has.”

Imagine what we could do if we all got together?

April 27, 2022

The scientific method

We constantly observe the world around us. We form certain assumptions about how it works and why it works that way.

But we rarely take things further and actually test those assumptions with an experiment. If we did, we’d find out that they are often incorrect. Which might lead us to draw new conclusions and most importantly take different actions as a result.

“The scientific method” isn’t just for science. It’s a great way to approach building your business ‘on purpose’.

Using it to understand your customers better is a profitable place to start.

April 26, 2022

Instinct

Instinctively, I don’t like being paid by the hour or day. I’d much rather be paid for delivery of a service.

There are a couple of reasons for this. One is a simple dislike of being at someone else’s beck and call. The other is to do with risk.

If I am paid by the hour, and I take longer than expected to deliver the goods, the client pays more. If I take less time than expected, they gain. They are incentivised both to pay me as low a rate as possible and to have me work as fast as possible – perhaps even more hours than we agreed.

These risks are flipped if I am paid for delivery. If I have to put more effort in than I expected, I lose. If I am able to deliver with less effort, I’m the one who gains. I am incentivised to deliver a clear result in as short a time as possible. The client gets whatever it takes to complete the job.

For a business like mine, being paid for delivery makes more sense, because I am in control of the process. Over time I can expect to get better at estimating effort, and slicker at delivery, so over time, I can expect to gain.

For a business that is not in control of the process – like shipping cargo by sail for example, the situation is different. On the whole, ships prefer to be chartered, because they can’t control the weather. There is little opportunity to gain by delivering faster. Being chartered means that even though they can’t gain, they at least don’t lose.

What was counter-intuitive (to me at least) is that this arrangement might be preferable to the client who charters them. Until yesterday.

For one of my clients, Sail Cargo Alliance, the aim isn’t just to ship goods by sail, it’s to connect a worldwide community of small producers, ships, ports, independent shops and customers. For the Alliance, paying for the ship’s time makes perfect sense, because their attitude is collaborative.

OK, they take the risk of the ship arriving late, but having control over the ship’s time creates opportunities for revenue generation that don’t exist if they are simply paying for delivery. For example, they can add passengers to the trip, or if a ship arrives early, they can offer day-sailing trips, or tours, or on-board hospitality. And by sharing any additional revenues with the ship, they might just have created the best of both worlds.

Clearly my instinct is wrong. The answer is not time or delivery, but some mixture of time and delivery that minimises the downside and maximises upside for both parties. That enriches the relationship rather than simply exploiting it. Commerce without the capitalism.

Hmm. Worth thinking about for the next project.

April 25, 2022

Signals

We set up signals in our societies and our businesses to warn us when things might be going wrong.

It is possible that they go off by mistake, or due to causes we didn’t foresee. The systems we live in are complex.

But investigation is always a better bet than simply shutting our eyes.

The least that will happen is that we learn something.

April 22, 2022

Every day is Earth Day

Today’s image is NASA’s ‘global selfie’ for Earth Day 2014.

It’s a reminder that we are all part of a global ecosystem. We affect it as individuals. Even more so, we affect it through the social systems we build on top – some of which take on a life of their own.

Some of our effects are benign, or at least harmless. Others are malign – diminishing, depleting and damaging. Making the planet a less hospitable place for others and ourselves.

It’s not too late to switch to having only benign effects.

Any difference we can make individually, will help. But we’ll make a bigger difference when we get together.

Our social systems are just that – social. We made them up. We can make up new ones, different ones, better ones. That enrich and nurture people and planet.

But where do I start?

With yourself, your family, your friends, your workplace, your street, your block, your town, your county, your country. You get the idea.

Find the others.

Then do something together.

Happy Earth Day.

“The ultimate, hidden truth of the world is that it is something that we make and could just as easily make differently.” David Graeber.