Businomics Blog

Profiting from the Recovery: an Interview

I was interviewed by the Optimistic Bear about profiting from the recovery.  He has other interviews on the page covering economics, investments, and start-ups.

Technical Debt: Not Just for Startups

"Technical debt" does NOT mean, "Technically, we're in debt."  Technical debt is what happens when a business puts up an application that isn't perfect, then has to clean up bugs and scale issues in the future.  I heard the phrase for the first time in a great discussion on TWiST (This Week in Startups) in which Mike Jones and Peter Hirschberg were interviewed.  (Mike, the new COO of MySpace, is an adviser to my startup, abcInvesting.com, and an incredibly insightful guy.)

Technical debt most often arises in the high-tech new product arena.  Somebody gets an idea for Twitter, and throws it up not having a clue whether it will appeal to 1 thousand users or 1 million users.  Oh, turns out it's 10 million--so far.  With that many users, there are scaling issues that weren't solved in the first version, because that first version was about getting something up and seeing if it attracted users.  Now there's a technical debt to be paid to bring the system up to current traffic levels.

Large corporations also incur technical debt, but they may be less aware of it.  They carefully plan a new feature, which may be relatively mundane, as an electric company enabling its customers to pay bills online.  The systems are built at scale and with substantial usability tests ahead of time.  The debt arises because it's impossible to anticipate everything.  Here's a person who wants to pay a portion of his bill from his bank account and a portion from his credit card, and he's already on our bad-debt list because he walked out of his last apartment leaving an unpaid bill, but he's eligible for a government subsidy.  Does the system work for him?  I don't know if that particular set of circumstances is a problem, but I've been on plenty of websites that just couldn't accommodate what I wanted to do.  That's technical debt.

What do you do if your business has technical debt?  Fortunately, you don't have to show it on your balance sheet, but you should recognize it.  If your startup is growing rapidly, you almost certainly should budget for major technical costs to fix all the bugs that a large user base identifies.  If your corporation is budgeting for a major systems convesion, include some contingency costs that may be very far into the future.

Although technology is great, and the cost of technology is falling, don't underestimate just how much it will cost you to get everything running right.  You don't have to pay the bills today, but understand you've got an invoice headed your way.

The Economics of Technology and Labor: Time to Rethink Your IT Program

I was sitting with a consulting client evaluating their readiness for the economic recovery, using my basic economic consulting process.  The client mentioned that he had considered a project to automate one of their manual processes, but it didn't seem to pencil out.  It turns out that was three years ago.

Today I was in a conversation with my favorite information technology consultant, Caleb Jones, and he talked about the value of a periodic IT audit within a company.  Putting the two conversations together, I just had to grab these charts to compare labor costs with the cost of technology.

The CPI chart is not perfect; it reflects hardware but not the consulting services often needed to implement IT solutions.  But the gist of the message is very strong:  Labor costs are rising, while computer costs are falling.  If you made the perfect decision three years ago, that decision is now out of date.

Gee, you thought running a company would be easy?

Checklist for Business Planning in an Economic Recovery

A reporter needed a sidebar, so I created this checklist for business planning in an economic recovery:

·         Sales people—are they making all the calls they can?

·         Do you have the inventory needed to serve your most important customers?

·         Do you need to ignore peripheral markets to serve your core market?

·         Do you have the cash or financing to purchase materials and pay workers when orders increase?

·         Can you use the downturn to lower your costs, such as building rental?

·         Can you buy used equipment at a bargain-basement price?

·         Can you acquire a weak competitor?

·         Do you have a plan to find additional workers when the economy recovers?

·         Do you have a plan to train and integrate into the workforce your new hires

For more background on these items, see my article "Business Strategy for the Economic Recovery."

Selling in the Recession

My recent post about changing business challenges as the business cycle turns prompted the sales consultant extraordinaire, Kathy Maixner, to send me the questions that sales people should be asking today.  My favorite:

What is the toughest thing for my buyer to handle during these challenging times?  How can I help my buyer in dealing with this challenge – or can I???  Am I using logic to explain away my buyer’s fears – or am I letting him/her explain their concerns without judgment on my part, while I remain empathetic?

You can get her entire article by shooting Kathy an email.

Unlocking the Potential of Your Frontline Managers

This is a little outside my specialty, but this article from the McKinsey Quarterly strikes me as the most important reading of the day for executives with widely dispersed operations, such as retail, banking, and a variety of other industries.

If you want to implement the ideas here, I can suggest a couple of consultants who can help you.

Business Strategy for the Economic Recovery

The economic recovery is coming, but not all businesses will gain from it.  Some executives will step outside to smell the sweet aroma of economic growth, only to find that half their market share has been taken from them.  More successful managers will enjoy earnings growth hugely disproportionate to their industry’s profits.  The difference will be due to tactical steps taken now to accentuate the recovery’s benefits.

On the sales side, companies should first tend to their core markets and customers.  This is not as easy as it sounds, but it offers great potential for gaining market share. 

Growing Market Share in the Economic Recovery

Plain old fashioned sales effort dwindles in a recession.  Sales representatives get discouraged.  Oftentimes sales staff have been cut so much that the remaining people become order-takers, answering calls from repeat customers but not cold-calling or contacting past customers.  I believe that the greatest swings in market share happen at economic turning points.  Fire up your sales reps.  Hold a sales contest.  Those luxury Las Vegas rewards trips that corporations have been criticized for having?  They are cheap now, so offer special incentives to your sales people.  Celebrate every last sale—and every unsuccessful sales call.  The business will come, and when it does, it will come to the sales reps who have been making the calls.

Faces of Innovation at Intel

Four key people in Intel's recent innovations are profiled in an article in Oregon Business magazine.  You don't have to live in Oregon to appreciate it.  If you are wondering where the next round of cool ideas will come from, look to people like these folks.

Business Strategy for the Recession

Fortune Magazine has a good article by Ram Charan mistitled, "My (Recovery) Playbook."  It's actually more about bottom of the recession business strategy, and though it's a great article, it comes a bit too late for most companies.  The time to start implementing this strategy was six to 12 months ago.

Nonetheless, I like it because it's so much like the last section of Chapter 7 of Businomics, "Taking Advantage of Recessions."  If I write a revised version, I'll crib some material from Charan--but what's in the book now, I think, is pretty darn good.

A great idea from Charan:

Narrow your focus to the best parts of your business, closing or selling segments that drain cash while offering little potential.  I noted in my book that there are great opportunities in a recession for those who have cash.  Charan adds the important twist that multi-segment companies can sell off their dogs to fund their stars.  I should have thought of that.

However, the economy has just started (probably) turning up.  It's time to put the recession strategy behind us and concentrate on the recovery strategy.  What exactly is that?  Stay tuned.

The Future of Digital Media: John Malone Interview

John  Malone of Liberty Media and Discovery Holding Company spoke at the Wall Street Journal's All Things Digital conference.  This is an exceptionally insightful interview, in which Malone explains the underlying economics (without any of my jargon) of video, cable, and digital content in general.  (Hat tip to Patrick Galvin of Buzz Builder).  Useful to watch for anyone involved in media, advertising, or content of any kind.