Friday, December 23, 2011

The Way Things Start is Usually the Way Things End

Business relationships are usually at their easiest, their friendliest, their lowest friction, in the beginning.

People tend to be on their best behavior then. People are exploring the potential partner's thoughts and beliefs, and know their own are being probed as well. People tend to be focused on what they can gain from the relationship, and what they must give. And they normally do it cautiously.

If there is conflict at this stage, it is a clear warning of what most likely lies ahead.

This lesson was probably most clearly pointed out to me several years ago during the negotiation of a share purchase in another company -- a partnership. The target firm needed cash, and we were looking for geographic expansion -- it looked like a natural fit. We needed the owners to stay with the business, and they were keeping half the stock, so it seemed like the arrangement should work. The first round of discussions went fairly well -- but I got significant push-back when the subject of salaries came up.

When you own your own business, you set your salary. There were two owners in the business, and neither of them had paid themselves very much over the last several years. When I suggested a market-based salary for the both of them, their loss of control over their pay immediately became an issue.

Through several additional meetings, it became clear that "market" to them meant an outrageously high number they heard whispered by the owner of a similar business. I produced data, they resisted. The dispute took the investment agreement to the brink of dissolution.

It should have been a warning. But, alas, I was going to have to learn this lesson the hard way.

Rather than tabling the deal, I pushed forward. I developed counter arguments, more data, and ultimately compromised, giving them most of what they wanted.

It was a mistake.

Over the next ten years, the same pattern was repeated over and over in a tumultuous relationship that ultimately ended up with one owner quitting, one being fired, and the business going into serious decline. The conflict orientation the two owners had shown in those first few meetings played out over and over again on variety of subjects. It was the conflict, more than any other factor, that caused us to fail to make the kinds of improvements originally envisioned when the deal was cut. Conflict that undercut trust.

My advice? If the relationship starts bad, no matter how theoretically attractive the project/deal is, drop it. The way things start is usually the way they end.

If you enjoy my blog posts, check out my novels: Leverage and Incentivize.

Friday, December 16, 2011

Don't Get Sucked in by that Sexy Idea

I'm sure I'm not the only one who's been sucked in by a cool-sounding idea. They tend to float past at just the moment you think you need them. When a brilliant move will extend your already great reputation. Or when their successful implementation will save you from a problem you're struggling with.

Caveat Emptor -- While the idea might not necessarily be bad, your ability to rationally and dispassionately evaluate it probably is.

Yes, I've made this mistake. More than once.

The problem is the "want" and "need" aspect. When we want or need a success, we are pre-disposed to ignore contrary arguments, brush aside risks, listen to advocates, and vilify critics.

Watch particularly for the last category. You'll find yourself saying things like: "She's not a team player." or "He's always so negative." Remember -- it takes guts to oppose. Agreeing is the easier path. When someone criticizes a direction or path, there's usually a good reason for it.

One of my former associates used to say: "I love it when the facts and my pre-conceived notions come together". Just make sure when they do, it isn't wishful thinking, and the seduction of a sexy idea driving the convergence.

If you find my blogs interesting, you might enjoy my novels. Check out Leverage and Incentivize.

Wednesday, December 7, 2011

How much "New" is too much?

American corporate culture celebrates the new, the radical, and the innovative. In our lifetimes, we've seen some incredibly ambitious projects roll to success -- projects following the "go for broke" theme. Things like the personal computer, the Apollo program, amazing medical advances, and many many more innovations. We love being pleasantly surprised by that new device that rocks our world, and so we love hearing about positive progressive change -- even if we're not personally the type of person to immediately adopt the latest and greatest.

But is going for broke the best way? Or are we focusing on the few winners, and ignoring the many losers in this game? Should we swing for a home run with every pitch, or would it be better to try for singles?

On the broad playing field of countries and cultures, the answer isn't clear. Radical innovation and ambitious projects have served America and American companies well -- resulting in irregular fits and starts in particular firms or industries, but in overall steady progress. The often-sited norm in Japan -- that of smaller, steady, incremental gains, also seems to have allowed their companies to succeed on the world playing field. In some years one process may appear to work better than the other, but over longer time horizons, the approaches seem to be about even.

When we look at the micro level -- at the circumstances surrounding those engaging in the projects -- the picture is radically different. The big-bang method produces a few spectacular successes, but many more failures than the incremental approach. That means if you are an innovator, project leader, or investor in organizations engaged is such projects, your chances of ending up on the losing end of the process is much higher. The hero of my novel, LEVERAGE, plunges into a murder investigation where his experience and skills ill equip him for the work. It is all "new" to him, but he blunders ahead hoping for his "home run". The results are predictable.

I'm not advocating only engaging in small incremental change projects either. They tend to distract you, pull your focus in many different directions, and make life very complicated. And they aren't nearly as fun or as inspiring.

As in many areas of life, there is a golden mean.

My rule of thumb, learned through many experiences of success and failure on projects, is never try to innovate significantly along more than two dimensions. A new product is a great project, it has only one "new" dimension. Make it a new product for a new market -- and you're pushing it. New product, new market, new manufacturing process -- you're courting disaster. You get the picture.

Imagine you have only a ten percent chance of a failure along any of your "new" innovation dimensions. With only one "new" dimension, your chances of success are 90%. If you introduce two "new" dimensions, the chances drop to 81% (90% times 90%). Add another "new" dimension, and the odds of success on the project drop to 73%.

And let's face it, our ability to accurately assess the chances of success at the outset aren't all that great. I've always had a chronic bias to underestimate risks. I suspect most other people do as well.

So spend a little time thinking about the "new" dimensions in your innovative project, and assess the chances of failure along each of these. Then double that estimate to counter your natural bias (or whatever factor your personal history suggests is reasonable). If you're happy with the resulting odds -- go for it. But you just might need to consider a safer and more incremental approach.