Business Advice from Doctor Who

You know how I like to keep up to date with cutting edge modern business management theory, so let’s start this week by hopping in the Tardis and travelling back to the 14thCentury. Then we’ll fast forward to the early 20th and consider one of the fundamental building blocks of any business – garden peas.

William of Ockham (or Occam) was a Franciscan friar, philosopher and theologian who died at age of 60 in 1347 – having first come up with a key business principle that still applies 670 years later. Occam’s Razor states that among competing hypotheses, the one with fewest assumptions should be selected. Or more succinctly, the simplest explanation is nearly always right. Or in business terms, KISS.

And now to the University of Lausanne in 1906 where the Italian economist Vilfredo Paretomade the famous observation that 80% of the property in Italy was owned by 20% of the population. As you do, he then went home and confirmed the hypotheses: 20% of the pea pods in his garden held 80% of the peas. Later generalised as the Pareto Principle, the 80/20 rule was born.

We have all known about KISS and the 80/20 rule pretty much from 9:30 on day one of our business careers. We also know that they are as relevant – and as useful – today as they have ever been. So why don’t we give them the respect they deserve? And how can we use them to help build our businesses?

In many ways this is part of the ‘back to basics’ feeling that I’ve returned from Denver with. As technology gets ever more sophisticated, as a new app appears on our phone every week, as there seem to be 101 ways to solve every problem, it’s easy to forget the basics. It’s easy to forget that the simplest solution nearly always is the best solution, and that whatever we do, 20% of our customers give us 80% of our sales and 20% of our time produces 80% of our results.

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So how can we use these old rules to build our businesses?

Let me take the last point first. It’s four or five years now since I first started using Toggl to track how I was using my time – and I still remember the shock when I looked at my first report. How much time had I lost/wasted/frittered away in the week? I’ll keep that one to myself, thanks.

I’ve written many times that you owe it to yourself and your family not to work 60-80 hours a week. 40-45 is fine, providing you are working productively for all those hours. The reason that 20% of our time produces 80% of our results can sometimes be that we’re only working productively for 20% of our time.

Now let’s turn to our customers or clients. For the majority of businesses, 80% of the customers do account for 20% of the sales. So if you want to grow your business, ask yourself two simple questions: where did those customers come from? And what need do we meet for those clients? Answer those questions, and then go out and find some clients that match the same profile.

But this is where Occam’s Razor comes in: this is where we need to resist the urge to over-complicate.

I’ve seen a couple of articles suggesting that the 80/20 rule is scalable. If my top 20% of customers produce 80% of my sales, why don’t I repeat the exercise with just those customers? Wow! My top 4% give me 64% of my sales. (Trust me on the maths!)

No. The simplest solution is the best solution. Once is enough. 4% of your customers is too small a sample: you run the risk of including the one outlier that skews the statistics.

Let me finish with another instance of the 80/20 rule. We’re all familiar with the old saying: ‘I know that half my advertising budget is wasted. I just don’t know which half.’ Today, that no longer applies. Google analytics, ads on Facebook – today you can measure the return on your marketing budget very accurately. And again, you’re going to find that one or two channels account for the vast majority of your leads or sales. Don’t be afraid to concentrate on those channels: you no longer have a moral obligation to keep the local newspaper afloat.

That’s it for this week. After the summer holiday and the trip to Denver I’m looking forward to a weekend at home doing not very much. Then again I have teenage boys: time to reach for my taxi driver’s hat…

 

The Valley of Clouds

You know how it is on a long flight: you read anything and everything. A history of the sword making industry in Toledo? What could be more fascinating?

So it was that somewhere at 30,000 feet I came across an article that included this quote: it’s from an author – and a bonus prize to anyone who guesses the author before the end of the post…

There’s a phrase I use called ‘The Valley Full of Clouds.’ Writing a novel is as if you are going on a journey across a valley. The valley is full of mist, but you can see the top of a tree here and the top of another tree over there. And with any luck you can see the other side of the valley. But you cannot see down into the mist. Nevertheless, you head for the first tree. At this stage in the book, I know a little about how I want to start, I know some of the things I want to do on the way. I think I know how I want it to end. And this is enough…

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That may well be a description of how the author wrote his books. Isn’t it also an exact analogy for the entrepreneur’s journey – the journey we’re all on?

The long flight took me to Denver, for TAB’s annual conference – as many of you know, one of my favourite weeks of the year. It was great to meet so many old friends and (as always with TAB) make plenty of new ones. The best part of it for me? It was simply going back to basics. After the whirlwind of becoming the MD of TAB UK – after spending so many hours with solicitors, bankers and accountants – it was wonderful to be reminded of the simple truth of why we do what we do.

That’s why the quotation chimed so exactly with me: all of us start our journey with a lot of faith and not much in the way of a ‘map.’ As the quote says, we know where we want to get to, we can see a few staging posts along the way: but the rest we’re going to discover on the journey – and we accept that there’ll be plenty of wrong turns.

So when we start the valley is full of mist – but we can emphatically see the other side. Most importantly, we can see the people we love on the other side of the valley, financially secure and happy. We can see our future selves as well – not just financially secure, but fulfilled because we have achieved what we set out to achieve and realised our full potential.

I know some of the things I want to do on the way. Yes, when we start our entrepreneur’s journey we do know some of the things we want to do: in my experience we want to do things differently, ethically.

And sure, we can see the top of one or two trees – but none of us can see down into the mist. We can’t see the route we’re going to take.

And that might be just as well, because if the mist cleared and we saw all the late nights and missed weekends, the deadlines and the stress, we might decide that the journey across the valley isn’t worth it.

Trust me, it is.

Some members of TAB UK have just reached the first tree. Some of them are a long way across the valley and plenty have reached the other side. Building a business is exactly like walking through the mist – but if you have a guide, someone who can say ‘I was here a year ago. This is the path I took’ then you are going to cross the valley much more quickly, with far fewer wrong turns.

Let me finish with another reflection on Denver. It was absolutely inspiring: TAB is now in 16 countries and is becoming a truly international organisation. The latest country to launch is India – along with China one of the two fastest growing major economies in the world and a country almost synonymous with the entrepreneurial spirit.

As always it will take me about a month to process everything that went on and everything I learned in the week. But I came away with one key reflection: the strength of our team here in the UK. The calibre of the people involved is both humbling and inspiring. Truly, if you are at any stage on the entrepreneur’s journey – just starting or halfway across the author’s Valley Full of Clouds – you could not wish for better guides than the TAB UK team.

The author? The late Terry Pratchett.