Sunday, February 3, 2008

There's a great scene in Three Days of the Condor, where the C.I.A. operatives are trying to figure out how the analyst played by Robert Redford keeps escaping their traps.

"He reads," one of them says.

"He reads? What kind of crap is...."

The head guy waves him off. Nods his head.

One of the great nerd responses of all time.

What brings me to this, is that my typical reaction to anything I'm doing in my life is to read a book, research it. Have a health problem? Read up on it. Want to be a writer? Read every book in the library on writing. Want to buy a house? Read up on it. (and then start a blog.) Want to own a small business?

Screeeeeccchhh.

There is very little out there for a Mom and Pop sized store. Most of it is geared to much higher levels of management, many more employees. Most of time, if you actually tried to do the things 'small' business books advise, you'd spend ten times more money than you'd actually make. Growing a Business, by Hawken, is the closest I've found that is actually usable.

Frankly, you don't need most the accounting tips you see in the books. It's total overkill.

But, there is a small part of it that you can apply. Trouble is, trying to figure out which small part.

So, you end up re-inventing the wheel. Remember the C.O.C.C. Small Business adviser saying I had a 'crude sophistication?' What I took that to mean was, that I was applying solid business practices, but I was arriving at them on my own. Wrong terminology, approached from a back-assward direction. But it got me to the same place.

But it's like re-inventing the frakken wheel, every time.

Earlier today, I talked about 'mean reversion.' Well, I arrived at that concept, more or less on my own as usual. I called it the 'base' number, but I was referring to the same thing.

That has happened to me over and over again.

What I'd like to see is someone who has my experience in actual M & P operations, and who is also actually familiar with economic terms, who could weed out the 90% of advice that is extraneous to a business my size.

Another example. I couldn't figure out how come opening more stores or buying more product didn't always result in profits, even though sales are higher.

I finally arrived at the idea of a widget machine. The widget machine costs 10k; and produces 10K worth of widgets every six months, so your cost of goods is 50%. But because you've become successful, you suddenly have a demand for 13k widgets every six month. If you don't fill this demand, the customer will go elsewhere and you risk losing all your sales.

So you invest in a new widget machine. Costs 10k. But suddenly, your cost of goods has shrunk to 23%. Ouch. (Thus the saying, the only thing more dangerous than failure is success.)

I experienced this kind of disaster over and over again before I figured it out. So I pick up a little book about Keynes, and there the theory is, presented in all the correct terminology. Damn, I wish I'd known about that!

Or here's one I've arrived at in the last few years, which I just KNOW is in a book somewhere, but which I've discovered through trial and error.

I call it the 'hidden cost' phenomenon. I see it mostly played out in newer stores, and just shake my head.

A store opens: they bought 100 widgets, and they sell 50 of them (cost of goods 50%) right away. Suddenly, they are depleted by half, looking lame, but hey, they just made their cost back, so they order another 100 widgets. And so on. Looking really, really successful for a really, really long time.

But; let's look at the 50 leftover widgets from first batch. Half of them sell, but take twice as long to do it. 25 widgets leftover. But a shiny new batch of widgets has shown up, so no one really wants them anymore. Again, it takes twice the preceding time to sell half. Now, you've got 12 widgets left.

So now, you're cost of goods has jumped to 55% and your operation cash flow is really straining. And this is for successful product. Imagine, as often happens, you sell the easiest 50%, and then hardly any more.

And so on. I have dozens of examples that I just had to fail at to understand more fully.

Maybe it's just an oxymoron: successful small business. Hey, if you were successful, you'd be a BIG business. Such a book may never get written. (Certainly not by me, whose eyes glaze over when I look at math and algebra.)

3 comments:

BilboBend said...

Want to own a small business?

Screeeeeccchhh.

*

There is such a book, its called ...

"Whatever happened to the woolly mammoth"

Written by a CPA back in the 1960's, this little book is bible on why biz succeeds and fails, has a chapter on every imaginable subject include 'why you shouldn't sleep with your help'

In order to write a book about success in small biz, you have to do a lot of case analysis. Small businessmen have no money, but definition, thus it would be silly to write a book for them. I think entrepreneurship was much more common in the 1960's.

I agree ALL biz books these days are about brown nosing "Up the Organization?

Duncan McGeary said...

I think that's exactly right.

And not much motivation on the part of the M & P business to write one, either. Nothing to hide behind.

You would always get the: if you're so smart, how come you ain't rich response.

Duncan McGeary said...

You're also right about how you'd have to have the uplifting, "you can do it!" tone, which is annoying. Instead of, you can do it, if, but, and when....