Aardsma

On life and business.

I read an article in the latest issue of Harvard Business Review about a study done on business strategies during the last three recessions. The goal was determine the most effective strategy a business can take during a downturn, measured by growth and profits in the three years after the downturn ended.

Here are my thoughts and observation after reading the article, colored by my experience and business philosophy.

1. Even the best businesses feel the pain. Recessions hit both strong and weak businesses hard.
2. Going into the fetal position is the worst strategy. Companies that do large layoffs and big cuts to development and investment budgets fare the worst. A highly defensive strategy is suicidal.
3. Going super-aggressive is not effective either. Desperately reinventing everything doesn’t turn out well during recessions or any other time.
4. Steady, future-minded investment with an extra dose of proactivity is the best strategy during a recession. Companies that invested for the future and didn’t do large layoffs were in the best position to grow during the economic recovery.

My overall takeaway is this: The same measured, proactive strategies that work best during good times work best during hard times too.

• Don’t panic or veer off in untested directions.
• Don’t lay off key people you will need during the recovery.
• Do continue to invest in the company’s future, facilities, and R & D.
• Do make extra effort to be proactive and open to cautious, tested changes.

These strategies will not spare a company from the pain of the recession, but they will move them ahead of the competition during the economic recovery that follows.

I have often observed that good old-fashioned business strategy holds up better than the latest wisdom about how “everything is different now”. Recessions are no exception.

If I started a $1 million factory building project, and I had only $1,000 of work left to do on it when I found out the factory was sure to lose money, should I spend the money to finish it?

Instinct says that $1,000 is a lot less than $1 million and you hate to see that $999,000 go to waste. But the truth is, if I know the factory will lose money and I spend the $1,000 then that’s $1,000 more gone to waste. In this scenario, the $999,000 is called a sunk cost.

I did one of these irrational sunk cost deals last time I was in Dallas Fort-Worth airport. It’s a big place and you are supposed to take a little train to get around quickly. I rushed over and took the long, high escalator to what I thought was the train depot level, and realized I had accidentally taken the escalator to the pedestrian walking bridge instead. It was a long way to walk and I was short on time, but in my hurry and stubborn style I walked all the way across to the other terminal. It would have taken 30 seconds to simply ride an escalator back down and get back on the right track. But I didn’t want the reverse and the restart. Going forward felt better.

The purely rational way to evaluate these situations is to compare the future outcome of option A with the future outcome of option B. Whatever will produce the best future outcome, go with it. The past can’t be changed by the current decision, and must be accepted for the now-unavoidable loss that it is. Decisions should be based on how they will affect the future. Present decisions don’t change the past.

Sometimes the cost of indulging the straightforward, reversal-free choice is just a few minutes of time or some other price tag small enough to ignore. But when a lot is at stake, don’t let sunk costs cloud your judgment. It takes sober awareness of the numbers, courage, and humility. Sometimes you just have to admit a big mistake and turn the ship around.

In posts like my last one, The Marshmallow Experiment, on delay of gratification, I kinda sound like someone who thinks change and success are all about willpower. Well, they’re not.

I think willpower is totally overrated. I guess where there’s a will there’s a way, but willpower is not the way part, it’s just the will part.

Some problems are solved by getting information that was missing, or by persevering with what we are already doing. I like these problems. They are so easy because they don’t require a change in who we are. Most of the problems we have aren’t this kind, because these have such a short half-life. They don’t last long.

The problems that remain are the tougher sort. These are the problems that stick around after willpower has been applied. I have an observation about this. If you don’t have enough willpower to make the change or solve the problem then I think (and this is deep) you don’t have enough willpower to make the change or solve the problem.

You’re going to need something else, something more than willpower, something you don’t already have in you, something from the outside, something you can’t decide, something you have to experience and receive from other people.

• You can’t willpower your way to self-discipline, you have to experience and receive discipline from other people.
• You can’t willpower your way out of loneliness, you have to experience and receive connection from other people.
• You can’t willpower your way to confidence, you have to experience and receive acceptance from other people.
• You can’t willpower your way to new job skills, you have to experience and receive training from other people.
• You can’t willpower your way out of burnout, you have to experience and receive help from other people.

I think willpower is denial in a thin disguise. It’s denial with a time element. Regular denial says “I didn’t fall” while lying flat on the ground. Obviously foolish. Willpower-flavored denial says “I won’t fall next time” even though nothing has changed. Not as obvious, but just as foolish.

Photo courtesy of www.istockphoto.com/waynerd.

The canyon between knowing and doing is not bridged by willpower alone. When the willpower bridge collapses and you find yourself making a hard landing in the bottom of the canyon, that’s not your reminder to try harder, that’s your reminder to get people. You don’t have the power to jump the canyon but you do have the power to drag your scraped-up self to a coach, a group, a teacher, or a friend. They don’t help build a bridge, they help fill in the canyon.

Delay of gratification has got to be one of the most valuable abilities in life. It’s all about making difficult choices now with the best long-term outcome in mind. (See my earlier post, Make Room for the Long Term.)

In the 1960′s a group of researches at Stanford conducted a now famous experiment that captures this struggle. Kids were given a marshmallow and told that if they waited 20 minutes to eat it, they would get two marshmallows instead. Someone did a re-creation of the experiment and put it on YouTube.

The Stanford researchers tested 4 year olds, then tracked their success for 18 years. Kids that waited longer to eat the marshmallow did better in school and in relationships. This one character ability was a significant predictor of success.

I’m pretty sure I would have eaten the marshmallow.

We are born with brains that aren’t very good at grasping time. The here and now looms large. The ability to delay gratification is learned by growing up in a world where actions lead to consequences in a consistent, predictable pattern.

I want to be more aware of the countless times per day I am faced with marshmallow-like choices in life and in business. Whether or not to refund an unhappy customer. What and how much to eat for lunch. Whether or not to confront unacceptable behavior. When to buy and sell investments. How much time to spend with my kids. How to use credit cards and savings accounts. All of these have a delay-of-gratification element. Sometimes I feel just like one of those kids in the video.

I watched Evan Lysacek win men’s figure skating gold last night. His coach said he trained harder than any figure skater he’s ever known. I saw him stand on the podium holding that gold medal and smiling like the happiest person on earth. It was on TV, I didn’t have to envision it. But he had to envision it a long time ago, when it was a distant and uncertain possibility. He made a million choices to do difficult things every day to move a little closer to making that vision real. He gets this.

The long-term is real. It’s coming, and you are shaping it every day. Zoom out as much as you can and look at the big, long-term picture when you make choices. Look beyond what you see now and envision the end of the story.

People! Step away from the marshmallow.

I was watching the Winter Olympics last night. I observed each skater having a quick conversation with his coach before gliding out onto the Olympic stage. While executing one of the most important performances of his career, each skater had the final words of his coach ringing in his ears. I didn’t see anyone skating without a coach.

We all know it’s impossible to achieve legendary athletic success without a coach. Athletes need the greater experience, outside perspective, motivation, and relational support a coach provides. Someone who’s been there, who can see what the athlete can’t, can push him to do more than he thought possible, and is there with him through the ups and downs. As I watched, it just seemed natural and obvious that every athlete would have a coach by his side.

I think we all need coaches in the rest of life too. Outside of sports we might call them business coaches, counselors, therapists, support groups, advisory boards, or life coaches. From sports to business to relationships, I think success and coaching go hand in hand.

I “skated without a coach” so to speak for my first five years as an entrepreneur. I had a lot of success, but I was limited in several areas by lack of experience or personal hangups. I paid a price in dollars and in stress for those areas where I needed to grow.

In 2009 I took part in a monthly leadership coaching program and also started bi-weekly sessions with a one-on-one counselor. Both have been incredibly helpful. I’ve grown and overcome personal obstacles much more quickly than I did on my own. I plan to continue with both of these coaches through 2010. I don’t think I will ever go without a coach again.

Who is coaching you in the areas you want to grow and succeed?

P.S. Coaches don’t seek you out. It’s your responsibility to find them and hire them. It takes energy, courage, and usually money. It’s worth it.

At one of my companies, ATS Acoustics, we often receive sample books from manufacturers hoping to sell fabric to us. Most of these samples are unsolicited. They get thrown in a big box and forgotten. (They don’t get thrown away because I’m a pack rat. You never know when we might need artificial alligator skin fabric. Come on guys, it could happen.)

So all these samples that the fabric manufacturers worked so hard to assemble into glossy sample books are just sitting there collecting dust.

One day I received a package from a manufacturer that already had their fair share of ignored, dust-collecting sample books in box. I didn’t even bother to open it figuring it’s just more samples. So there the box sat on the floor in my office. (I’m serious about the pack rat thing.)

Fortunately for the sales rep who sent it, he emailed my assistant and said “I sent you a blanket made out of samples of our new color line.” So she opened the box, and next thing I know the entire office staff is standing around admiring and commenting on this quilt-like blanket, made out of samples. An employee liked it so much she took it home.

If you ask anyone in the office about fabric samples we’ve received, I bet that’s the only manufacturer they remember anything about.

How can you be more like the blanket and less like the books?

I like generalizations because they help us efficiently comprehend the vast number of specifics out there. But sometimes I stay general to reduce work or avoid facing reality, and that’s not helpful.

Specifics help me face reality because specifics are real in a way that generalizations are not. Specifics actually exist. Generalizations are logical abstractions in our brains, and might be imaginary. Also, specific cases are complex while generalizations are oversimplified by definition.

Getting specific takes more time, research, and mental effort, but it often spotlights the surprising and uncomfortable parts we would otherwise miss.

In the spirit of this post, the following examples are drawn from specific experiences I’ve had recently at work, church, and home.

In anything from business plans to performance evaluation, do your homework and get specific. It’s a reality check.

I did a little interview yesterday about my acoustics business with Tyler, a student from a local business school. Some of these questions tend to come up a lot in other conversations, so I asked his permission to share part of the Q & A here.

What motivated you, as the owner, to go into this business?

I had a computer software development business that was very specialized and I was interested in expanding into something more diverse in case the specialized niche changed or went away. I built some acoustic panels for my own recording studio, and I thought I saw an opportunity. I started offering them for sale on eBay and we grew.

Has the present economic state impacted your business?

Yes, it certainly has. One of the biggest impacts of the current economy is customers are choosing to do more do-it-yourself projects, so buying materials from us rather than finished product.

What are the very best 2 or 3 rewards of owning a small business?

For me, the best part is having a chance to try my ideas without having to get anyone’s approval. Of course there is a lot of financial benefit to being an owner of a successful business, but there is financial risk as well. The freedom and the platform to learn new things is another benefit I love.

What are the very worst 2 or 3 drawbacks of running a small business?

There’s a lot of responsibility on my shoulders. When things go wrong and all the other employees are home enjoying their evening I am left with the ultimate responsibility for resolving the problem and paying the bill. Being the owner of a small business requires a wide range of skills, and that is stretching, but it’s really not a drawback. I love what I do.

What was your biggest unexpected surprise once you got into business?

My biggest surprise was how well the customers responded and how steadily we grew. I thought it would take more rocket science, or I would find a fatal flaw in the business model that I hadn’t thought of. Really it only took hard work, sensible strategy, and initiative to actually do it.

What advice would you offer people thinking of going into small business?

Make sure your product or service is 1) something your customers find helpful, 2) better than the competition, and 3) suited to spreading the word about it. Keep your focus on helping the customer from day one. It’s not about having fun, making a bunch of money, or doing what you love. Those things will happen, but only if you are passionate about helping your customers.

What are the 2 or 3 factors that you have learned can make or break you in small business?

Legal issues can throw you some curveballs, make sure you have good advisors on that. It’s going to take hard work and diligence no matter what you do. (If not, your competition will beat you by working harder.) So be prepared to lean into the work. A realistic marketing plan is crucial. Just building a product that you like doesn’t mean you can afford to advertise it. Start small, don’t go out on a limb with a big experiment. Do a small experiment.

If you had it to do over again, would you still open this business? Would you change anything if you could start over?

Yes, I would definitely do it again. I would expand somewhat more aggressively and I would hire sooner and delegate sooner so I could focus my time on the new products and new ideas that I do best. I would require a higher level of performance from my employees, and I would fire people sooner who were not performing well enough.

What do you feel is the single most important key to being a successful small business owner?

Making your customers so happy that they tell their friends how great your business is. If you can do that, you’re golden.

I finished reading this book 30 seconds ago. I am moved by its stories. Donald Miller is a kind of writer that I will never be. That bothers me, like a kid who wants to throw away his air guitar after seeing a real rock star. But at the same time I am grateful that he wrote and that I get to read it. He writes things out loud that I try not to think in silence, and I admire him for it.

This is a book that looks at life and story, and the choices we have about what kind of story we live, and what kind of character we are in the story. This book makes me want to live differently, to step outside my world of ideas more often, and engage with the real story that’s going on with all the people around me.

You can buy A Million Miles in a Thousand Years by Donald Miller, on Amazon and lots of other places. (That’s not an affiliate link. I’m not even close to going there.)

I don’t think everyone will like this book, but I did, and I think it’s a book worth reading.

Photo by Jenn Aardsma.

No analogy or profundity here, just a shy creature,  photographed by my wife in our backyard this afternoon.