As a kid, I learned a valuable lesson about hope in business that applies today.
Flashback….. I actually learned something from a game called “Lemonade Stand” that I played on early school computers. It was my first exposure to thinking about “best laid plans gone awry” as a small business (pretend) owner.
In this game, you are the proprietor of a lemonade stand and you must rise each day and before you know what the final weather impact will be for that day, you must decide how much inventory to “mix” in advance. After you have made your choices, the weather result would either reward you handsomely for having prepared for great lemonade demand or you’d see a lightning bolt graphic and cry in your paper cup. Usually, we’d play out a full week in 15 minutes and it taught us to manage inventory and risk as well as what we didn’t control. This story is RELEVANT because “hope is a dangerous thing” in business.
Anytime a business model is significantly impacted by something you cannot control, you do not have adequate control over your success – and that lowers your confidence for as long as you own the business. Isn’t business hard enough? Isn’t every competitor trying to rob you of customers and profit?
You can go down the list of business models that are amazingly dependent on variables one cannot control. What about your business? Are there variables in play that significantly impact your business yet you do not have control? Weather? Fads? Traffic patterns? Sports wins/losses? The price of steel? If so, are you crazy? You must make a killing in profit margins when things go right so you can absorb the losses when they don’t. How do you use hope in your business plan? Most people use it but don’t admit it.
To limit your exposure, if your business plan adjusts toward product or service diversification, you can become immune over time. Worried about consumer confidence? Add a utility revenue stream (something everyone has to have). Do you have a customer concentration problem (too few customers and a couple of them are too large a percentage)? Adjust your sales plan to diversify. You have many options – but first, you should consider if you have left your results dependent upon things you cannot control. Examples: - “I hope it rains” vs. adjusting to at least 50% of income from non-weather-dependent source ’”I hope everyone knows the objective and stays focused” vs. actually writing a very specific plan, communicating it, and measuring progress weekly/monthly/quarterly - “I hope my employees try their best” vs. a good results-based incentive system - “I hope people will visit my web site” vs. registering with good viral marketing engines - “I hope this new employee works out” vs. pre-qualifying a candidate with a battery of assessments - “I hope my raw material doesn’t go up much more” vs. hedging via financial instruments or consolidating buying power to improve leverage - “I hope we get good weather this weekend” vs…… vs….. go buy/start a non-weather related business to balance you out - “I hope people will visit our trade show booth/exhibit” vs. an advance mailing and phone campaign to set appointments and a reward for showing up at your booth. Finally, a foreign competition favorite: “I hope China doesn’t impact my business” vs. get your butt over there for a few days and find out if they’re coming your way.
If your success depends upon an independent variable you cannot affect, you can accomplish even fewer success cycles in your lifetime. Your confidence also suffers because you never really know the perfect formula for success – thus, you add “hope” and you learn to rationalize “why” success didn’t happen. If your business is feast or famine, and/or variables are not in your control at least 80%, you will have a hard time building upon an improved foundation year-to-year. Instead, you’ll be chasing it. Put the variables in your favor and save hope for world peace.
Found the game online: http://www.lemonadegame.com/ - M
Tags: Confidence, Entrepreneurship, Starting a Business