Sunday, December 1, 2013

The CFO as the Chief Business Architect

Few enterprises today have descriptive representations that depict how the enterprise works. Therefore, change can only be accommodated by trial and error. As complexity and the rate of change increases, risk of trial and error increases. Architecture provides the structure to predict the impact of change, reduce the risk and maintain enterprise viability in a changing environment.-John Zachman

Enterprise Architecture is a complex framework that has emerged from the IT world as a way to clearly describe the enterprise IT environment to now represent an impressive tool for orchestrating enterprise behaviour and change.

I would not go into the intricacies of what Enterprise Architecture really means, there are enough experts to battle it out forever. I only have a simple perspective and I enjoy keeping it that way.

It is no secret that the business world has already shifted its expectations for CFOs from being the guys in charge of the financial model and perhaps of the control environment to the guys in charge of the integrity of the entire business model of an Enterprise. 

Therefore, a CFO is uniquely positioned to take on the Chief Business Architect role because s/he is at the nexus of all business model perspectives. Let's examine them one by one:

1. The motivation model - the markets the Enterprise operates in, the goals, the strategies, the external change vectors.

A CFO is required to scrutinize and keep abreast of all these. SWOT analysis? Check. PESTEL? Check. Macroeconomics analysis? Check. Competitive intelligence and benchmarks? Check.

2. The organizational model - the org chart, the motivation systems, the functional design of departments, the roles and responsibilities, the back-up systems, the outsourcing / partnership strategy.

A CFO must contribute to the organizational model because maximizing the return on the human capital is the most comprehensive way to maximize enterprise value. Yes, it is rarely measurable and therefore not obvious, but that is precisely why the CFO must be involved. 

3. The process model - the process taxonomy, the task successions, the business rules matrix, the data model (the master, the transactions, the unstructured data), the adaptation strategy.

4. The technology model - the technology stack, the IT architecture, the support and services model.

The CFO is the best positioned executive to drive the internal innovation agenda, both in terms of how things get done (the process model) or what tools are appropriate to support the Enterprise (the technology model).

And of course all the business model perspectives but be tied together into something that holds water, and that is done by linking everything to the financial model  - the P/L, the balance sheet, the capital mix, the investment & dividend policies.

One could argue that it is the CEO's job to reconcile the business model perspectives. But there is a lot of in-depth work and understanding that is required by a Chief Business Architect role and in my opinion this can only be accomplished effectively by the CFO.

photo credit: NathanaelB via photopin cc

Tuesday, November 26, 2013

Profit Driver #3: FUNCTIONS

“Capitalism has turned human beings into commodities. To the owner of a restaurant: the cook and a bag of potatoes are equally important.” 
~Mokokoma Mokhonoana

Well, of course a cook is much more profitable than the sum of the meals that could be cooked from all the potatoes in the bag (even if they may, sometimes, cost the same... :-) ). And this is because they fulfill radically different functions:
- a cook's function is to ensure quality meals, to manage a team of aides, to come up with new recipes, all in order to secure a repeatable positive customer experience etc.
- a potato's function is to be cooked and served in one single customer experience event.

That is the reason why a law firm will always earn more profits than a construction company with similar headcount - the market pays better for a perceived higher function that drives more value throughout the value chain.

Also, this is the reason why education is expensive - education amplifies a function so that it may earn more for its carrier.

Translating this to a lean start-up world, this gets very difficult to crack. A lean start-up has to make very tough choices not only about the risk priorities, about the assets to build, but also about the best functions to perform.

The original Business Model Canvas captures the function on the left-hand side: the Key Activities and the Key Resources.

The Lean Canvas instead replaces this with a different, more focused approach: the biggest areas on the left side of the canvas are called Problem and Solution. So a clear proposition emerges: split your start-up into a Problem Team and a Solution Team. 

Now, strictly in terms of business functions, Ash Maurya argues that a lean start-up should only employ the 3 most critical ones:
- Development (solution engineering)
- Marketing (customer understanding)
- Design (embeds design thinking into the functions above and makes them "sing" together in harmony)

Not coincidentally, the three quoted functions have the highest profit potential of all functions. Any other support function (finance, administration, legal etc), at the lean start-up stage, should be carried out by the founders.

So, don't start up by stocking up on your cafeteria supplies, by renting out the nicest office space or by buying that ever-present ping-pong table :)

Monday, November 11, 2013

Profit Driver #2: ASSETS

If I collected all the diamonds in the world, I'd have no 'income' but I'd have a lot of 'assets'. Would my company be worth nothing because I have no income? A lot of Net companies are collecting assets. They have to be measured with a new set of metrics.
~Vinod Khosla

Such is the case with a start-up. More specifically, a lean start-up collects a lot of diamonds: these are the nuggets of insights, knowledge and wisdom that are the main outcome of the experiments conducted on their business model.

Everything, in a lean start-up, is targeted at maximizing learning:
- formulation of falsifiable hypotheses
- splitting into problem team / solution team (same thing for the interviews)

The lean stack promoted by Ash Maurya is a very useful tool by which the knowledge gathering process is managed.

Knowledge may be the most important asset in this stage, but there are others too:
- the recruiting process is not merely important, but fundamentally vital - it can literally make or break the start-up;
- the ability to pivot the business model, to continuously weed out potential waste.

One more thing
You may have noticed that I have not included in here the "classic" assets: IT infrastructure, patents, products already designed / built etc.

That is because I believe that, at a start-up stage, such "hard" assets are actually liabilities - they hinder innovation, they are a trap of past thinking and habits, they entice you to reuse sunk (and maybe failed) efforts, they force your solution into an already existing mold.

This is the innovator's dilemma applied to start-ups: you may become captive not to your existing market (because you don't have one yet), but to your existing asset base.

You have to keep pivoting your asset base and you best do this when your asset base is intangible. Your "hard" asset base should, for the time being, stay on your P&L (as a rental cost), not on your Balance Sheet.

Next week, on Profit Driver #3: Functions!

Monday, October 28, 2013

Profit Driver #1: RISK

“To get profit without risk, experience without danger, and reward without work, is as impossible as it is to live without being born.”
― A.P. Gouthe

This first profit driver is a no-brainer for everybody and common wisdom is full of references about risk as an important way of accruing future gains in business.

In particular, start-ups are, by their nature, extremely risky undertakings. If you ever doubt this, try getting a bank loan based on a start-up business plan. Ok, I'm glad we've cleared that up :)

In a start-up, uncertainty is the only well-known attribute: you don't know exactly who is your customer, you don't know what is the actual need of that customer, you don't know how will you satisfy that need, you don't know if your product will ever work, you don't know if your team will hold during the runway phase, you don't know how long your runway really is.

Let's take the possible risk responses according to the T-A-R-A framework:
- Transfer - can you really transfer the start-up risk? Not really. I'm not aware of any insurance policy for this, other than the normal practice of ringfencing the start-up from other profitable endeavours you might have (if possible, protect your personal assets in the same way).
- Avoid - sure, you can simply cop out and forget we ever talked.
- Reduce - you can share the risk by going through seed rounds and accept contributions (cash and advice) from other VC's or investors. Since you know this will dilute your equity, you know then that reducing risk means also reducing possible future benefits.
- Accept - and that's the only interesting scenario that I want to bring up in this blog entry.

Once you've chosen to accept the risk of entrepreneurship, you might as well just manage it!

Strictly from that point of view, the lean start-up methodology is just that: a very smart risk management methodology for start-ups.

Let's just look at the main chapters of Ash Maurya's excellent book, Running Lean:
1. Document your plan A
2. Identify the riskiest parts of your business model
3. Systematically test your business model

If you want to build a low-burn start-up (and who wouldn't?), you have to read Ash's book. This is one book that compels you to take notes as you read it :)

The lean start-up methodology is grounded in the scientific method: you formulate falsifiable hypotheses (i.e. formulate them in a way they can be explicitly negated as a result of experiments), continuously test them (if possible, in caeteris paribus conditions), learn about customer responses from those experiments and seamlessly incorporate them in your next product iteration.

The more you can rinse and repeat this learning cycle, the less risk and waste will be incorporated in your start-ups early life. The lean start-up methodology teaches you to systematically navigate through the start-up's unknowns, discover them and translate them into your unique advantages in the newly discovered marketplace. Your assets.

On Assets (as Profit Driver #2), next week.

Tuesday, October 22, 2013

A Lean Start-up Perspective On Profit Drivers

Profitability is what makes a company real.
~Elon Musk

When I was still a relatively junior Finance Manager, I have learned from my dearest mentor that, for a business to be profitable, it must have a combination of three key drivers:

Any business needs to venture in the unknown. There is no money left where the markets have already priced in all the information, opportunities and events. Conceptually, the more risk you take, the greater the return you should expect.

By definition, an asset is something of a long-term value that is held by a business with an implied expectation that the asset will accrue future benefits to the business. Again, theoretically, the more assets you can leverage (and think of assets in the broadest way possible), the more profits you should expect as an entrepreneur.

It also matters what type of activities the business undertakes. The more sophisticated the activities, the greater the likely return. For example - engaging in basic web design will earn you far less than creating a web platform with an embedded network effect.

I will tackle, in the next few posts, some opinions on how to maximize the combination of the three drivers to reach profit as a lean start-up.

By the way, the 3-driver concept is now a major methodology used in international tax planning.

Monday, October 14, 2013

Process Re-design, Challenge #03

Re-design Around Roles, Not Persons

Democracy is the process by which people choose the man who'll get the blame.
~Bertrand Russell 

In many business process re-design projects, there is a strong temptation to start re-thinking the processes while having an eye at your current employees as process actors, in terms of capabilities, possible performance considerations, possible conflicts of interest, possible personality clashes etc.

This is the wrong way to go, because you will be designing your new process around specific people or personality traits and this kind of structure is guaranteed to be unstable.

Rather, once the ideal process sequence is established, think hard about the ideal roles that should perform the process activities: how does information flow most naturally (i.e. with the least waste) to their role? how do they get the authority to perform those steps? how are their organizational objectives aligned with the process objectives?

In a smart process, work must occur where it makes most sense.

Sunday, October 6, 2013

Process Re-design, Challenge #02

Always an art, never a science?

Art and science have their meeting point in method.
~Robert Bulwer-Lytton

What makes BPM different than scientific management approaches (like project management, six sigma etc)?

1. There is no global optimum
There is no best way to execute a process, it all depends on availability of resources (time, money, talent) for execution. It is an illusion to think that one may ever reach a global optimum in any process.

2. BPM is a continuous deployment framework
There is no best time to improve / change / upgrade a process. Or rather, the best time to do that is "as soon as possible". A business process must be agile, i.e. must be able to adapt to new conditions (shift in strategy, legislative changes etc). Therefore on-the-go tweaking should be part of the process design philosophy.

Hey, this sounds a lot like the lean start-up philosophy!
1/ start small with a minimum viable process and with a few process metrics that matter,
2/ continuously test your model's falsifiable hypotheses along the way until you get it right and avoid local optima,
3/ tweak it on-the-go based on the learnings above.

Actually, there are at least two major differences:

1. Approach on customer problem
A lean start-up defines how a new product solves an existing / emerging customer problem.
A business process redefines how an existing organization addresses entire classes of existing problems (effectiveness, efficiency, segregation of duties, activity cost, information distribution, asset / function redundancy etc).

2. Build-Measure-Learn cycle
A lean start-up iterates the product. One product iteration may be deployed almost instantaneously. Customer reaction can measured reliably in direct relation with that specific iteration.
A business process iteration manages the change to the process (employee education, transition, organizational feedback, integration into an existing business model). Therefore, a business process iteration needs a significant soak period before it starts to perform as intended.

So... how do we reconcile this?...

More to come :-)

Monday, September 30, 2013

Process Re-design, Challenge #01

Re-design From a Blank Slate

A relentless barrage of "why’s" is the best way to prepare your mind to pierce the clouded veil of thinking caused by the status quo.  Use it often.  
~Shigeo Shingo

When you hire BPM consultants to help you redesign your processes, they will usually start with a presentation of the implementation methodology, a recommendation of the software package to use for modelling and a timesheet estimate for the blueprint project (AS-IS, TO-BE and gap analysis)

As a result, many organizations start a process re-design by having a look at their current process, the AS-IS situation.

My challenge: this AS-IS approach is a waste!

When starting from the current situation, you are basically throwing resources back at yourself, ending up either:
1/ being convinced that you were right to start a re-design project or
2/ getting comfortable with the current status quo.

So, get over your legacy mindset and take a completely fresh view of what you do - you might be surprised about how many bright ideas are lurking in your -apparently dormant- organizational layers.

I would even argue whether a proper methodology is needed! Of course you need clear steps on how you execute the re-design (as in: how do you manage transition?), but business process design does not work best with a methodical approach.

More on this next week :-)

Monday, September 23, 2013

Process Re-design - the lean way!

"A corporation is a living organism; it has to continue to shed its skin. Methods have to change. Focus has to change. Values have to change. The sum total of those changes is transformation"
Andrew Grove

In the next few weekly entries I will be focusing on a process re-design approach that doesn't go well with the current thinking around Business Process Reengineering - the approach will be centered around Lean Start-up notions (minimum viable product, build-measure-learn cycle etc) instead.

I do admit that the two approaches do not fully reconcile, so I will be careful to point out the differences. The Lean Start-up is a very seductive concept and once you fall in love with it (as I did), you tend to apply it to everything!

I will be challenging classic approaches like AS-IS / TO-BE analysis, never cutting corners, focusing on organizational aspects etc.

The main scope of the following entries will be to understand how we can eliminate waste from the Business Process Reengineering process itself :-)

More to come :-)

Monday, September 16, 2013

Lean Processes, Tip #04

Reduce the Batch Size

"We are what we repeteadly do. Excellence, then, is not an act, but a habit"
- Aristotle.

We have discussed previously (Tip #02) how minimizing the number of handoffs will make your process more agile and more straightfoward. Today we'll be discussing the virtues of minimizing the size of the handoff - and, since the handoff contains a batch of work done, the size of that batch.

Historically, companies have built up manufacturing systems to be efficient in terms of cost-per-product. Traditional management science views the products as cost collectors and therefore one of the way of minimizing unit costs (like overhead) was to increase batch size. More products in the same batch accumulate same absolute overhead (say, for QA), therefore less overhead per unit, right?

Not necessarily. Toyota has long time ago turned this concept upside down with their TPS (the predecessor of the lean manufacturing concept). The actual cost drivers are the activities, if you want to reduce costs per unit, you are better off optimizing activities within processes.

By minimizing the batch size you get several key benefits, crucial especially in an intangibles production system (like, services and software):

1/ smaller batches = faster feedback. In a lean start-up, the build-measure-learn cycle needs to run many times before the invention of a valid business model. Ability to iterate as fast as possible is vital to success. Ideally, the batch size should get as close as possible to 1. If we build excellence by repeating what we do, then let's repeat what we do a whole lot more, and then we'll be excellent much earlier.

2/ smaller batches = less overhead. You will find that, with the right batch size (depending on your size of business), your QA/testing overhead will actually decrease significantly. That's because the QA/testing function will get much more responsive, much more automated, much faster in identifying issues - you would need less QA resources overall, and they will be more evenly allocated across your product cycle.

3/ smaller batches = less risk. You will be able to check your work much faster and correct errors much earlier in the process, before they become ticking bombs in your value chain.

More to come :-)

Monday, September 9, 2013

Lean Processes, Tip #03

Morph Your Handoffs Into Teamwork

I discussed last week about the need to minimize the number of handoffs, as they build up cycle time and noise in the organization.

When we cannot reduce anymore the number of handoffs, we should try to optimize the handoff process, so that we enable process roles to be more aware of each other in their quest to fulfill the common process goal:

1. Make your upstream roles proactive on the downstream information needs.
This way upstream roles can design templates and checklists before they push the info downstream.

Example: an efficient salesperson (what is that, anyway? :-) ) would follow a predefined checklist when finding out about a new customer to ensure the lead is fully qualified (do they have the budget / the authority, the pain / the urgency to buy?) before proceeding along the sales funnel.

2. Promote downstream roles upstream.
Sometimes you just need to redesign the whole process and have your downstream role take up upstream responsibilities.

To note, this "tip" requires quite a bit of proper transformation within the organization:
- cross-functional trainings;
- setting up stand-ins / back-ups for all process roles;
- setting up systems to automate data validations (in templates and checklists) wherever possible;
- have a Business Process Lifecycle Management practice in place.

I never said it would be easy! :-)

More to come :-)

Sunday, September 1, 2013

Lean Processes, Tip #02

Minimize the number of handoffs

If you want a fast and reliable process, cut the middlemen.

A process handoff is an intermediate step in a business process where work and information passes from an upstream player to a downstream player.

Handoffs are the usual suspects for a slow process. Here's why:

1. a handoff is an opportunity for cycle time build-up
Prior to a handoff, the upstream employee usually prepares the information, the documents, the action history or any other data that will assist the downstream employee in performing future work.
After the handoff, the downstream employee will consume the data prepared by the upstream employee, will seek clarifications and / or further guidance and will then proceed with work.

These additional activities create additional time in the process, only for the sake of the process.

Example: most Sales people abhor doing paperwork - especially when they create a new sales transaction. If they have to bring complete cases to the Legal Department, they have to spend time building them. Under pressure, they will deliver incomplete cases just to hand them off quickly and then the time waste is moved in the Legal Department. This could be redesigned through a technique I am going to discuss about next week.

2. a handoff adds noise in the information flow
With signal, comes noise. The more we communicate, the more likely we are to be misunderstood. When handing off multiple activities multiple times, the noise can get out of control.

In the SCRUM methodology (an agile software development methodology), an estimated 50% of knowledge is wasted after 5 successive handoffs. Therefore, a handoff is a significant opportunity for mistakes and misplaced work, to the point you could reliably measure its cost.

Example: a purchasing employee obtains an additional rebate deal for a complex Purchase Order, gets approval of Management in one form, then passes this to Contract Management, who then passes this to the Warehouse (if it's a goods deal) or to a Service acceptance function (if it's a service deal), then somehow this info needs to come to Invoice Passing (maybe other functions, like Engineering or Tax). The more complex the deal is, the more likely it is to get misunderstood, to get stuck, or to get executed very differently from what has been approved - and generate lots of waste.

If you cannot minimize the number of handoffs (especially in large organizations), there is a solution: morph your handoffs into teamwork.

More on that next week :-)

Sunday, August 25, 2013

Lean Processes, Tip #01

Design Around Customer Interactions
Your value chain processes should be designed with the end in mind: attract and delight your customers as fast and as friction-free as possible. They will be more than willing to then pay for whatever they perceive as valuable in your offer.

Think about a high-touch sales process:
1/ establish initial contact (meeting, business cards)
2/ execute sales pitch
3/ follow-up for decision to enter into business together
4/ negotiate contract T's&C's
5/ acquire customer master data to set them up in transactional systems
6/ sign contracts
7/ get order
8/ deliver
9/ wait for the payment term
10/ cash in
11/ if not cashed in, follow-up on overdues through a dunning process

At the opposing end, you have the no-touch sales process (the so-called freemium model), where you first give some of your product's features away for free and then try to upsell your initially acquired customers to your paid product.

Between these two extremes, you can imagine a plethora of accelerated sales processes, by asking some of the following questions:
- can you execute your sales pitch proactively? Create marketing, webinars, YouTube presentations, grow an audience.
- can you make your business case extremely clear in how you deliver value? Your product landing page should be like a Mafia offer: so good they can't refuse!
- can you make your standard T's&C's extremely friendly to your customer? This way you will remove upfront a massive class of typical customer objections.
- can you skip some customer master data on the first sale? Can you collect the non-critical data after the sales closure - I bet you can.
- can you automate your collection? Remember, your objective is to part your customers from their money as fast as possible for you and as fun as possible for them.

Take a look at already existing examples of excellent frictionless customer interaction examples: Amazon Web Shop (and 1-click payment), Mobile Ecosystems (Google Play or Apple App Store). These examples have almost completely turned the classical sales process on its head.

I'm eager to learn from you some other fascinating examples of brilliant processes that simply look at every aspect of enhancing customer interaction.

Tuesday, August 20, 2013

On The REAL Social Web

The social networks of today's internet (the Facebooks, Twitters, G+, LinkedIns - FTGL) have barely scratched the surface of our real-life social web, the one we weave everyday.

I believe that in real-life (IRL) social web has three fundamental components:

IRL - our society's tribes or communities have specific roles, statuses and identities.
FTGL - we know where our acquaintances work, their siblings, we may organize all of them by groups. That's a low-resolution (dyadic, triadic), individual perspective of our social framework.

IRL - our actions are guided by norms, laws, taboos, customs, shared paradigms.
FTGL - you may have community rules and Terms of Use, but they're not modelling social relationships. They're just there for the legal protection of FTGL.

IRL - we give, we take, we negotiate, we barter.
FTGL - Sharing / tweeting / liking / +1'ing are just basic, lifeless, data points, modelling our attention span and browsing patterns for the monetization of the advertising industry. Again, a very low-resolution view on how we act in the social framework.
So what, you say? Entertainment has always been the first monetizable content of any new communication medium. Why should this be different? Well, because you can go much deeper on social modeling, in ways that are incredibly more relevant to our real-life environment - and much more monetizable.

Let's take - doing business. To me, this is the fundamental social behaviour of humanity. After all, business is one of those very few things you can't do alone - you need at least one other person to act as your customer :-) 

So, why is no one modelling the social process of doing business, in all its splendour? It is complex and painful - of course - business entities must be orchestrated internally as well as choreographed externally. But it's doable. The brain and the brawn are there. But there is no compelling vision.

You see BPM (Business Process Management) providers choking on competing methodologies, struggling with emerging standards, crowding the training curriculae, selling overblown tech stacks and expensive consulting timesheets... and then you realize how much of an opportunity has been missed by this industry.

There is a better way.

More to come :-)

Sunday, August 18, 2013

The Process Shall Set You Free

“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” 
– W. Edwards Deming

In emerging markets, having clear business processes in a company is seen, more often than not, as a sign that bureacracy and narrow-minded control freaks have kicked in and it's time to leave towards something more fun.

This is mainly due to several objective factors, economic and cultural:

1. emerging markets had cheap, relatively well trained, workforce. So whenever more work had to be done, it was easy to just tap into the cheap labour pool and call it a day. Back in the days, cheap was smart. It still is, in some cases.

2. emerging markets were tough to plan. They were highly volatile and anyway they were growing so fast that your elaborate business plan would have been left in the dust in a few months. I remember that, in one of my positions responsible for the whole Balkans region, we used to call our region "the CNN countries", because at that time there was always something in the international news about them: wars in Bosnia or Serbia, ethnic tensions in FYROM or Albania, an economic meltdown in Bulgaria, a political turmoil in Romania, an army standoff in Moldova. Good luck doing anything else than surviving.

3. the prevalent emerging market business model was: "start doing something, doesn't matter how because you are anyway one of the firsts, grow it fast and sell it to a multinational that wants a quick way into an unknown market without the trouble of setting up shop". There is no room for business processes in such a gold rush.

There are also lots of subjective factors that stem from the negative-bias management style (particularly specific to former Eastern Europe dictatorships), the social pressure to quickly perform and achieve a desired status (which leads to corruption) etc..

They all lead to the same conclusion: educating local businesses about the need for business processes is one tough nut to crack.

Nevertheless, in the following weeks, I'll be trying my teeth at this seemingly monstruous task, but not in the usual "consultant's way", preaching incessantly about optimization and automatization and standardization and return on investment.

Instead, I'll be giving out specific tips & tricks, from my own experience, at the same time putting them into the overall framework of "lean mentality".

Feel free to chip in with your own tips & tricks.... as of next week. :-)

More to come :-)

Thursday, August 1, 2013

On Goals That Matter

Defining your goal is the first significant waste-avoidance measure of any start-up.

Part of my effort to catching up the full chain of thought behind the Lean Start-up philosophy, I am reading just now an older book, "The Goal" by Dr. Eli Goldratt.

The book, written as a novel from a main character's perspective, addresses the problem of defining overarching goals for an enterprise so that they immediately relate to everyone in the organization.

The main character's conclusion is that those goals are (in a manufacturing context, in the book):
- maximization of throughput
- minimization of inventory
- minimization of operating expenses (i.e. overheads)

While I'd argue that an overarching goal would be to maximize shareholder value (or stakeholder value, if you're more into the modern theories), I agree that this set would be a common-sense proxy for shareholder value maximization.

+Ash Maurya (my favourite Lean author) is about to publish a new book called "The Customer Factory" (I am really looking forward to this!) and one of the striking statements there is the following:

"Everyone is in the manufacturing business"

I love this quote - the goal of any value-chain process is to manufacture happy customers:
Customers pay you - they bring revenue.
Satisfied customers pay you more - they bring a healthy margin.
Happy customers pay you most and refer you to others - they are your growth engine.

So how do you translate the three manufacturing goals to a service business in a lean start-up philosophy?

Here's my take:
- minimization of customer friction: make it easy and fluid for your customer to use and get benefits from your service, automate your client workflows - this way you use your servicing capacity faster and increase your throughput;
- minimization of waste: write the minimum amount of code, iterate (instead of plan) your business model scientifically (make intelligent assumptions about what drives your customers happy and validate them through experiments), maintain a minimum batch of work to focus on what matters most to the customers.

More to come :-)

Monday, July 29, 2013

On Growth

There are two things that grow for the sake of growth: cancer and business.

Every business paper I read nowadays talks about how Company X have been budgeting a growth of Y% this year and they are (or most likely are not) on track to achieve it.

Why are we so obsessed with growth when it comes to our businesses?

I have recently read the excellent book Economics of Good and Evil by the brilliant Tomas Sedlacek (I had the privilege of meeting him in Bucharest at the Romanian launch of the book). It is a dense, scholarly book, by any means, but he brings excellent insights into the historical chain of economic theories that brought us in this growth craze mindset.

In many developed countries around the world, stock market cap is higher than GDP. On a worldwide level, in 2012, stock market cap was around 55 trillion USD, while the GWP (Gross World Product) was around 72 trillion USD. Since the stock market is usually made up of the few elite companies, it must be that there is a strong disconnect between the real economy and its financial representation.

I know I am not comparing apples to apples here, but precision is not needed to spot the disconnect.

The financial representation is based on future cash flow valuations, inherently based on a growth assumption. When growth doesn't come, we panic and heavily discount for reality.

So, let's all act surprised when the next financial crisis happens.