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Worth Noting
As Bill Gates gets ready to reduce his role at Microsoft and turn the reins over to Steve Ballmer full-time, there are several articles worth reading. I just finished reading this article. Here’s my favorite quote about Gates – and a thought we should all keep in the forefront of our mind. The quote if from Nathan Myhrvold, a close friend and ex-Microsoft exec.
The classic CEO needs to be right, or rather needs to appear to be right more than he needs to actually be right – and that’s not Bill. Lewis and Clark were lost most of the time. If your idea of exploration is to always know where you are and to be inside your zone of competence, you don’t do wild new shit. You have to be confused, upset, think you’re stupid. If you’re not willing to do that, you can’t go outside the box.
Two Great Books on Innovation
Innovation is critical to growth. Here are two books that I’ve just finished reading that will highlight the keys to making innovation successful.
The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation - by P&G CEO AG Lafley, and consultant/author Ram Charan, this book shows you the secret behind P&G’s turnaround and success. It’s a must read.
Inside Steve’s Brain – an interesting view into the success that is Steve Jobs and Apple. While the book is not about innovation per se, the role of innovation at Apple is so integral that you can’t help but learn some valuable secrets.
Both books dispel many of the myths and highlight the importance of knowing (and I mean really knowing) everything about your desired customer.
Your Money Making Machine, Part 2
In my last post, I described the idea of a Money Making Machine. This “Machine” is the core deliverable for which you get paid. Whenever a your focus isn’t directly connected to reinforcing your Machine, the probability of a successful endeavor falls considerably. Why? Because, resources that should be focused on the core business (or money making engine) instead get diverted to less vital areas.
While I am talking primarily about small and mid-sized enterprises (SME), the same is true in larger companies. In many ways, this idea is the basis of Jim Collin’s best selling book Good to Great – stop “wasting” resources on those things you are “good” at and redirect them to areas where you can be “great.”
In my previous post, I shared some examples of Money Making Machines. Let’s use one as an example for how that understanding guides strategic decisions. In this case, I’ll use the personal training company.
Our fictional company’s promise is to make you “look better naked.” Their Money Making Machine is the hour in which they train clients. A good innovation is one that reinforces their machine in any of four (or more by combination) ways:
- Increases the number of people who “use hours” (more clients),
- Increases the number of hours people use (increases revenue per client),
- Increases the amount people will pay for an hour (increases the yield), or
- Increases the length of time someone will continue to pay for hours (increases the average lifetime per client).
As our personal training company grows, there are several opportunities that present themselves, that on the surface all look to be good ideas. Let’s look at one of these ideas – the creation of products such as books, CD’s and DVD’s to sell. Should they do it, and if so, how should they do it.
Here’s how I’d make the analysis: While this is an interesting idea, it’s probably not worth the investment, as it isn’t a direct driver of the four key issues above. A products business is a very different Money Making Machine. One “machine” is a high-value/high-margin personal business; the other is a low-margin/high volume business. The critical success factors for a products business are quite different from a personal services business.
A better way to build a products business is to focus first on reinforcing the current Money Making Machine. This may mean reselling existing products rather than creating them, and/or to develop small products with lower production value that can be used to support what’s going on in client’s workouts and to begin to spread the message. As demand begins to build (and it begins to earn money, thus becoming a “Mini Money Making Machine), a separate business could be developed.
Here’s the moral of the story: Your greatest chance for success comes when you constantly reinforce your existing Money Making Machine, instead of trying to build a “newer, better” Machine.
Focusing on Your “Money Making Machine” – Part 1
I’ve always loved working with small and mid-sized companies. Not only are the people who run these some companies the most creative people in the world (probably because their survival/success depends upon it), they are in the position to most easily (and quickly) implement new ideas.
I’ve also learned that this very strength is also the Achilles heel to virtually every small, mid-sized enterprise (SME). As I’ve written here, here, and here, the key to a successful endeavor is focus and discipline. The focus needs to be on sticking to the few actions that actually make you money, the discipline comes in not being led astray by that next “great idea.”
“Great ideas” are probably the single, biggest reason that a SME loses momentum and never reaches it’s potential, or breaks through no man’s land. The reason is that too often “great ideas” are distractions from growth, rather than drivers of growth.
What’s the difference?
It’s the answer to a two very simple questions: “Does the idea/innovation/offering we are considering reinforce our existing ‘money making machine?’” Then, if the answer is “yes”: “How does the idea/innovation/offering reinforce our ‘money making machine?’”
What is a money making machine? It is the core effort that you do that creates revenue – it is that thing or things that makes your “cash register” ring. Oftentimes, your “money making machine” is the core commodity that you provide. Sometimes, it’s not. Here are some examples of companies, their positioning and their money-making machines:
| Company Type | Positioning/Promise | Money Making Machine |
| Printer | Significantly increase the response rate for major direct mail companies | The physical production of materials that get mailed from a company to consumers |
| Personal Trainer | Look Better Naked | The hour in which a client pays a trainer to work out |
| Distributor | Reduce the total costs associated with manufacturing | The purchase of core materials used by OEMs in the production/manufacturing process |
| Imagine Business Development | Cut Your Sales Cycle Time in Half | The on-going support of the implementation of a business’ “go-to-market” strategy |
In my next post, I’ll explain how knowing what your money making engine is simplifies decision-making and drives profitable growth.
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Resources
Doug's Washington Business Journal Columns- Intelligent Growth Articles
Third Wave Selling Blog
Products to Grow
