THE two most recent business articles I’ve read send out a strong and similar message. Since they came from completely different sources, I thought it would be useful to pass on the message.
The first was from Verne’s Insights (a newsletter from Verne Harnish, the founder of Gazelles) in which he referred to an article from a major US business magazine. The article was on David Sokol, Warren Buffet’s ‘Mr Fix-it’. What struck me was despite the problems being faced in that environment being measured in the billions, the principles for solving them came down to the same that would (or should) be implemented in a business with a turnover of less than $1 million.
The other interesting fact is that even Warren Buffett makes mistakes, but when he does he takes swift, vigorous and immediate remedial action. The article took one particular problem for Mr Buffett; one of his companies (Netjet) was severely underperforming, having lost more than $US700 million in the previous year. Mr Sokol was given the task of turning it around, in which he succeeded, switching this loss into a profit within a year. However, to me, it’s not the size of the loss, or the fact that Mr Sokol succeeded, but how he was able to achieve the turnaround.
Having purged senior management, Mr Sokol elevated three NetJets executives from the next rung down to his new team and hired three from the outside.
“NetJets was top heavy and lacked a good organisational structure. We needed to give employees responsibilities and goals that were clear and deliverable. We needed to make clear who was doing what,” he says.
“In the old regime, you got everyone in top management in a room and said, ‘Here’s our goal, here’s what we’re doing’. But did the employee on the second floor of accounts receivable know what was going on? Probably not.”
Mr Sokol has trained his team to measure every single thing the company does, from on-schedule service to bill collection to the quality of catering.
“When we make a mistake, we analyse why we made the mistake, and if there’s a way to fix it, we fix it by putting a system in place that solves the problem,” he says.
“Just knowing the owner, knowing anniversaries and birthdays, helps to build strong relationships.
“You lay out a whole series of explicit assumptions about the economy, business planning, regulations. That forces you to ask yourself; ‘what are the important factors that might make you change some decisions’? It helps reduce surprises.”
The above are just some snippets and quotes from the article, but interestingly, the principles align with the message from an article in Australia’s national newspaper in August.
It is obvious that the Smorgon family still relies on the advice (the family call it ‘the injection’) of patriarch Victor Smorgon, despite his having passed away last July. It’s now self-administered into the Victor Smorgon Group, which is under the stewardship of grandson, Peter Edwards.
Mr Edwards says the way the business operates now is no different. All the systems and processes his grandfather put in place are still here.
During the past 15 years, the business’ owners built a group with investments as diverse as property, tuna, retail, plastic pallets and biodiesel.
The pertinent fact remains that, with both business leaders, it is the basic principles that are at the foundation – systems, procedures, communications with your people, long-term planning and providing clarity in all aspects of the business that are at the heart. These messages are neither new nor unique; they are examples that are easily available to business owners throughout the western world.
Why is it then, that so many of us fail to grasp the nettle?
It has been said that the only difference between a small business and a big business is that a big business was a small business that got it right.
With this in mind, why wouldn’t all of us, as operators of smaller businesses, follow the solid examples of business owners of the calibre of Warren Buffett and Victor Smorgon?