You’re sitting in a meeting and someone says, “Now that’s a good idea! We should move on that.” The meeting ends and nothing happens. Sound all too familiar?
While everyone clamors to innovate and rethink what’s possible… it’s being confident enough to pull the thread of an opportunity a little further and build so much momentum around an idea that it gets traction – and gets done – that’s what sets innovators apart from people with good ideas. Said another way, idea people talk about opportunities… innovators unravel them.
Blockbuster: “Rent a lot of movies.”
Employees: “Got it.”
Blockbuster: “We’re gonna have to let you go.”
Employees: “Gees. Thanks a lot jerk.”
Netflix: “Rent a lot of movies through the mail.”
Employees: “Got it.”
Unravel… “What about streaming?”
Netflix: “Lets do it. Stream a lot of movies.”
Employees: “Got it.”
Unravel… “What about streaming our own content?”
Netflix: “Brilliant! Lets produce our own shows.”
Employees: “Got it.”
Coming up with the idea to rent movies through the mail wasn’t hard at all (I had that idea two years before Netflix). Neither were the ideas to stream video content and produce your own shows… but implementing those innovations is a whole nother story. I didn’t have a team, I didn’t have the resources or the funds, I had no idea how to get started, and, most importantly, I didn’t have the courage to start renting DVDs through the mail.
Now, the ideas that you and I come up with may not be as grandiose as a Netflix innovation. Nevertheless; a simple cost saving measure, a tweak to a process, or an improvement in efficiency are important innovations that can help build your career… especially if you rinse and repeat until the day you retire.
Watch this video in your next team meeting and complete the activity…
Acumen in Action™
In your next team meeting watch the video and use your business acumen to explore the following:
What’s the difference between having a good idea and innovating?
What do you think it means to pull the thread of an opportunity?
What role does momentum play in innovation?
Does it take courage to innovate?
How good is our team at coming up with new ideas?
How good is our team at implementing new ideas?
Does the idea have to be yours in order for you to be an innovator?
Does the idea have to be big (like a strategy change) in order for it to be innovative? Talk about the importance of small innovations repeated over and over again.
Brian Tracy once said, “The smartest business decision you can make is to hire qualified people. Bringing the right people on board saves you thousands, and your business will run smoothly and efficiently.” Obviously, hiring qualified people is a priority of every organization. The question is how exactly can you tell if a person is qualified?
We would argue that a qualified person doesn’t just understand the role you are looking to fill, but has a sound understanding of the business. They have the ability to see the “big picture” and make good business decisions for the company as a whole, rather than having a narrow focus on what’s best for their function or department. In other words, they have business acumen.
While it may be hard to gain a comprehensive understanding of an applicant’s business acumen, here are 5 questions that will at least give you an idea about how much they “get” business. And if you are a job seeker, you may want to know the answer to these questions as well.
What does profit margin tell you, and how do you improve it?
Name some companies that likely have high profit margins and why that would be the case.
Name some companies that likely have low profit margins and why that would be the case.
As a company that teaches and promotes business acumen, we get really geeked out looking for organizations that “see the big picture,” and Zappos is a company that has caught our attention. If you can’t find a particular shoe around town, chances are they’ve got it – and they’ll let you try it on and send it back to them absolutely free! The #1 online shoe retailer (that now sells clothes and accessories as well) actually likes to think of itself as a “technology company that just happens to sell shoes.”
One of the things we really admire about Zappos is their focus on people – both their customers and their employees. Their exceptional customer service and unique company culture has given them a competitive advantage that has fueled profitable growth over the last 15 years.
Zappos’ unique culture starts with the hiring process. We would love to tell you all about it, but our CEO, Kevin Cope, is a much better storyteller, so we’ll let you hear it from him.
Would you quit your job for $3,000? Would you at least think about it? That offer would be tempting to a lot of employees elsewhere, but we have a feeling that there aren’t many people at Zappos who take the money and run.
Achieving the right balance of people and profit isn’t easy, but Zappos is a company that has done exceptionally well in our books.
If your boss came up to you right now and asked what the difference between profit and cash flow is, would you be able to respond? Or even worse, what if you were asked this question in a job interview. What would you say? If you are at a loss, don’t worry – most people don’t know there is a difference between the two. But while profit and cash flow may appear to be the same thing, they aren’t, and recognizing how each one impacts the business is extremely important. First, let’s take a look at how both profit and cash flow are recorded. Our bestselling book, Seeing the Big Picture, explains it clearly.
“Cash flow is the difference between actual cash received and actual cash used in the process of doing business (from core operations). Each day, month, quarter, and year, a company receives a certain amount of cash and pays out a certain amount of cash. It’s that simple. Analysts look at cash flow carefully because it’s a very real measure of how a company is doing (whether it will be able to pay its bills tomorrow or next week or next month).
Profit, on the other hand, is revenue from the sale of services and products–whether payment in the form of cash has been received yet or not–minus all expenses–expenses paid in cash, expenses to be paid in cash at a later date, and expenses accounted for in other ways.
While you could say that the profit isn’t ‘real’ because the cash hasn’t moved in and out of the company, it’s still important to know whether a company is earning income (making more than it’s spending) from its daily operations over a period of time. If we didn’t calculate profit (or income) this way, a company could appear to not earn any income one month, be hugely profitable the next, and so on, depending on when its bills are due and when its customers pay their debts. But that wouldn’t be a very good indicator of how consistently it’s earning income from its core operations, would it? Even if its financial performance was steady overall, it might seem erratic if we didn’t follow this type of accounting system, which is called accrual-basis accounting.
Another way to think of accrual-basis accounting is that it tracks transactions. Sales, expenses, and profits are recorded when the transaction is made. Apple records the sale of a computer when the customer picks it up at the store and the expense for making the computer at the same time, even if the customer arranges to pay for it over several months and the cost of putting the computer together was paid a few months before the sale was ever made. Small companies may use cash-based accounting, in which you record a sale when cash is received and expenses when they are paid.”
To Sum It Up
Simply put, profit is generally recorded when the sale is made and cash flow is recorded when the money is actually received.
Now here’s something to think about – can a profitable company go out of business? The answer is YES! Let’s say you own a computer company and are struggling to stay in business when you make a huge sale to Company X with an agreement to get paid in one month. You record the profit now (when the sale is made) but in two weeks, Company X goes out of business and is unable to pay you. Even though you show a profit, you don’t generate the cash you need to sustain the business and may have to close your doors.
You may be asking yourself, “Why should I care?” or “Does it really matter if I know this or not?” (Just don’t ask these questions to your boss). Well now that you know how cash flow and profit are measured, you can start making conscious decisions to improve each of these metrics in your company. If you are in sales, do everything within reason to collect payments sooner rather than later (preferably point of sale). If you are in a position to pay your suppliers slower, do it – though you will want to be careful not to incur any late fees or damage your relationships in the process. Also, anytime you can cut costs or sell more, you are improving your company’s cash flow and profitability.
Do Something About It
This is great and all, but if you don’t do anything about it then you might as well have just watched an episode of Gilligan’s Island. So take a moment to think about the specific ways you can improve cash flow in your company, write down 2 or 3 of these ideas (no, seriously – write them down right now), share them with a colleague or your boss, and then put them to action. And just remember to shoot us a thank you letter when you get a promotion.
Pets.com became a publicly traded company on Valentines Day 2000. Overnight it raised 82.5 million big ones. In their Prospectus, they listed 7 keys to their strategy and over 30 risks related to their business. While the risks were significant, the real problem was that none of their 7 keys represented any type of sustainable advantage. There was nothing unique about Pets.com and so they tried to compete on price – actually selling products for less than what they bought them for and offering free shipping. Imagine that… shipping heavy bags of dog food for free and for less than what you bought it for. Doesn’t sound very sustainable. On Election Day, just 268 days after Pets.com’s IPO, George W. Bush would become the 43rd President of the United States and Pets.com would go out of business. That’s like losing just over 307 thousand dollars a day! While investors lost millions, at least some of their money was spent on memorable commercials.
What do you think it means to have a sustainable advantage?
As you look at Pets.com’s strategy can you identify what would make them unique or different from other pet supply stores? Discuss how Pets.com tried to compete on price and talk about why that would be a challenge.
Point out that there were 4 online pet stores in 2000 and lots of brick and mortar stores to complete against. How hard would it be for competitors to implement parts of Pets.com’s strategy?
What do you think our company’s sustainable advantage is? What makes us unique in the marketplace? What would our competitors say was their sustainable advantage?
As you look at Pets.com’s risks how well do you think their strategy addressed those risks?
Which risks do we share as a company? Some of the bolded items in the list are common risks many companies face.
What has our executive team done to mitigate some of our risk?
What is our team’s strategy and how well does our strategy align with some of the risks that our company faces?
Seeing the Big Picture
As a team, write down some of the risks you need to plan for. You can refer to Pets.com’s risks to help brainstorm some ideas. For example, an HR team might share this risk with Pets.com: HIRE AND RETAIN PERSONNEL An IT team might share this risk: SYSTEMS FAILURE OR DATA CORRUPTION Discuss the relationship between risks and a sustainable advantage. What would happen to your company’s sustainable advantage if these risks were taken lightly? Challenge your team to use their business acumen to improve processes that mitigate risks and ultimately help your company maintain or achieve a sustainable advantage.
If you and your team have the book Seeing the Big Picture (Greenleaf, 2012) turn to page 10 and read the section: Influencing the Whole