Business theories that worked
No matter how charismatic and driven you are, everybody needs a little inspiration now and then. Entrepreneurs tell Kathleen Hall which books and business theories have made a lasting impression
Brett Raynes, CEO of IT company Backup Direct, applies the wisdom of Sun Tzu’s Art of War to his company
The book has become popular with a lot of business people, it was originally written by a Chinese general nearly 4,500 years ago. Much of it might seem like common sense, but there are certain aspects that still stand out today.
One principle is: always expect the worst. In our business we’ve applied that approach to everything. From deciding how we could cope if a certain person were to leave, to having ensured that we are not reliant on any one industry or sector, and that no customer contributes more than five per cent of our revenue. In the current climate, that is something that has absolutely paid off.
Another key principle is: know your facts. You should only make a decision on that basis. In the old days, when I ran my first business, I used to make decisions based on gut feeling. I was involved in a company selling software solutions and we were in the customer relationship management (CRM) market. I pulled out of CRM because I thought the market was saturated with those products, and decided to invest £500,000 elsewhere. But it was just guesswork and the company nearly went bust as a result. That’s a really big regret. It’s better to wait and get your facts straight.
For me, those are the two main points. Entrepreneurs are often too optimistic and so considering the downside and fact checking aren’t necessarily something they think about.
Of course, I’ve learnt half of this the hard way. But sometimes you read a book and a bell goes off and you think: ‘Yes, that’s exactly what I’ve done.’ And because this one has been around for so long, it makes you think that it’s not just a fad.
Since we implemented this in 2004-05, our company has grown 40 per cent year-on-year.
Like most other entrepreneurs, I reached a point where I was living and breathing the business. But that can create conflict with colleagues, and can put a lot of pressure on friends and family.
We had got to a stage where we were doing well, but everyone was really tired and burnt out all the time.
Then I came across Frank Dick’s Managing Your Three-Lane Motorway theory, which says that life should consist of work, family and yourself. I admit it’s not rocket science; we all want a balanced life. But it provided me with a framework and made me realise how important certain things are. Now, if I put something in my diary like going to my kid’s assembly, I’ll go to it no matter what.
For the company, it was crucial that we did it as a collective effort. We sat around with the executive team and told them they needed to sort out their work-life balance. I really wanted to push across the importance of spending enough time at home and concentrating on their fitness.
It’s really helped to improve energy levels. I think it’s given us more focus and a better sense of what’s achievable. Sometimes there is a tendency to always want things to be done yesterday.
We have 32 account managers, and not one of them has left the company in five years. That’s because of our focus on a balanced lifestyle.
Andrew Mercer, chief executive of renewable energy company Blue-NG, used the Insight theory to develop his business after the failure of his software company
There’s no question that this has helped me set up Blue-NG as a joint venture with the National Grid. When building an organisation from scratch you need a framework and a model to create a hierarchy of priorities.
The way Insight works is very simple; it’s almost like playing a game of cards. The top members of the team write down issues of concern to the company on a piece of paper, no one talks, and the team works together to arrange them in order of importance. Getting a team to open up and talk honestly can be really hard, so this method helps to create transparency.
Insight has given me a deeper understanding of the building blocks of organisations. In every category of business these principles have been applied before but, like a cookery book, Insight brings all the elements together.
I sold my software company to Oracle in the mid-1990s, but it was a struggle and I think I could have got so much more out of the business. We got a lot right but, on reflection, how we presented our route to market initially when seeking venture capital backing was wrong – a waste of time and resources. Afterwards, I realised I wanted a way to create a surety of success – as much as possible, at least – and that’s when I came across this theory.
Insight has helped us build the company in terms of our brand and marketing position and bring clarity to the stakeholders. It has shortened the start-up time and helped us to raise cash faster.
The CEO of National Grid told me this was the first time they had been in a successful joint venture in ten years. People on secondment from the National Grid have said that this is the way to build a business.
David Perkins, founder of business consultancy Indicia, uses the Boston Consulting Group’s Matrix to assess where to invest
I came across the theory in the late 70s when I was doing my MBA and it has become part of my thinking ever since. It was originally developed by Boston Consulting Group to demonstrate whether business units were growing or not growing.
You have one axis that represents the market share of a product and another axis that represents its market growth. If the unit has high growth, and high market share (represented by a star on the diagram), it is a leader in the business and should be given lots of investment – and will also generate large amounts of cash in return. But if the unit shows low growth and low market share (represented by a dog), then you should ruthlessly divest.
For me, it’s one of those frameworks of thinking that is useful in allowing you to see where to invest money and where to stop investing – although it is also important to acknowledge some of the inadequacies of the model. Certain aspects, for example, wouldn’t apply to entrepreneurs operating in a niche market.
This is one of the theories that stood out while I was doing my MBA because it’s something that’s easy to involve the people around you with, due to its simplicity.
The other benefit is it means you can take your entrepreneurial hunch and make it explainable to other people. Just saying you have a ‘feeling’ isn’t going to convince anyone.
Alistair Morrison, CEO of training company Echelon Learning, heard W Edwards Deming speak over 20 years ago, which had a profound effect on his business approach
I first heard about the statistician and consultant W Edwards Deming when I was running a training business in 1987. I came across him by chance and heard about a conference he was attending. He was totally incredible. Apparently, Deming was responsible for converting the Japanese economy from a basket case into a world-class manufacturing power.
A lot of what he says is common sense, you don’t really need to be told to put the customer first and have good processes in place. But he brings all these elements together under the system of ‘Profound Knowledge’. Although his work was based on the manufacturing industry, he has also demonstrated how it can be applied to other industries.
Deming says the primary driver behind your business should always be ‘delighting the customer’ because satisfying them is the very least they expect. He was also a big believer in having them involved in the projects.
One of the main ways we applied this theory was by understanding and researching customer requirements and rewriting our training – once we did, our key performance indicators rocketed by 20 per cent in three months.
We became very detailed about speaking to the client and doing a lot of research into the organisation. It made our design and production faster because we were getting it right first time.
If every member of staff has a process they are applying in the same way, it builds a level of confidence and trust with the client because they are getting the same treatment each time. No one likes to be bandied about.
When a company isn’t prepared to invest in quality and is internally focused rather than customer focused, that soon becomes problematic. Ultimately, the customer is the arbiter of your entire business.