Longer audio version than usual this week, due to all the bonus material. 13 mins but worth it ?
The Do-The-Opposite Strategy
Does your organisation have an MBA infestation? Once you know the signs, it’s easy to spot. And there is a cure.
My business partners and I worked in a business that got absolutely swarmed by them after it got bought by private equity. They came in determined to purge the unqualified carnies who ran it, whose only contribution had been to grow the business into the super-profitable leader in its field.
In about three years the MBA team piloted it into the ground. The weight of management salaries was unsupportable, plus each Chief Something-Or-Other Officer hired battalions of consultants to hedge the risks of making a decision. It was like loading a light plane with cows.
So we set up our own place with the simple rule: whatever MBAs would do … do the exact opposite of that.
Because business is a lot simpler than they want you to think it is. I don’t mean business is easy. But focusing on the complex things usually means neglecting the basics and that’s bad for your business.
Here are a few taken-for-granted MBA laws that are just not true.
IPO Equals Success
The whole point of starting your own business is freedom from interference. You can focus on the things that really matter, your staff and your clients.
You don’t have to justify what you do to anyone other than your conscience and business partners if you’ve got them.
You’re the boss of you. It’s more fun than pet pandas.
Float your business and you’ll spend all your time trying to second-guess what will impress creepy analysts. The layers of committee bureaucracy multiply like the Soviet Union. Your business is less about customers, and more about generating endless reports and presenting them to each other.
Unless you cash out immediately, it’s hard to find an upside to IPOs unless you’re driven entirely by egotism. Or if you’re floating some digital house of cards that will never make a profit in a thousand years.
Economies of Scale
Fixed staff costs get lower when shared by a bigger business, what a textbook no-brainer that is.
Except in reality, where that may not happen. Coming out of a business where head office empire building had gone the full Donkey Kong, we decided we would never have a head office.
Instead of the IT tech masquerading as the ‘CIO’, each of our five businesses uses a local IT consultant when we need them. Each office has a casual bookkeeper, they do it all in about 4 hours a week. I supervise a few freelancers to do marketing. Purchasing, debt collection, sales management, training, all done locally.
There is no HR department because we believe HR tasks can be divided into two parts.
- Items that should be done by managers or a payroll person
- Pointless time-wasting and interference under the insane delusion that HR can create company culture
In-house HR makes your business worse in every way, particularly financial performance.
Just because a task needs doing doesn’t mean it’s a full-time job. Middle-managers are genius at making themselves look busy. A task becomes a job becomes a department in no time. Now you’re on your way to the trifling returns that most public companies make.
We don’t have a CEO, we just chat among ourselves and work out what to do. It works fine.
As a result, our ‘head office costs’ are below 2% of revenue. I’m not going to tell you our margins, for the same reason Rolls-Royce never revealed engine horsepower numbers, because it’s vulgar. They simply described the power as ‘adequate’.
Our margins are adequate.
Horses for courses in each industry, you can’t have every donut shop or carwash doing their own thing or madness will ensue. But don’t create office jobs without hard questioning.
It’s amazing what you can get by without.
This ‘back-end synergies’ concept is used to justify most mergers and acquisitions, which in the long term deliver mainly executive bonuses.
The MBA Strategic Plan
MBAs love a complex strategy made of buzzwords, because only they can understand them. That brings a high-priest sort of prestige. Your staff can’t understand the plan, plus they weren’t consulted, so they either ignore it or actively resist.
When we started our business in 2007 we wrote the Scene Change Ten Commandments, which was a bit of a throwaway summary written on a plane from gut instinct (drink coaster strategies are better but there were none on the plane).
- Look after the crew.
- If it’s going to make us money, buy it now.
- Chase profitability, not size. We don’t have to be everywhere.
- We are comfortable saying ‘no’.
- We’re in this to create long-term income, not to float or sell off to finance pigs.
- Low group overheads.
- Talk to people rather than just emailing.
- One short report a month is just fine.
- Make the good people think: “I want to work there.”
- No fucking Blackberries*.
That was enough of a plan, even though it had no business textbook words**. Did it work?
Here’s a graph of our revenues, I’ve taken the numbers out but it’s a picture of consistent, tidy growth that would get a tick from Marie Kondo.
It’s been profitable enough to pay for all our capex growth plus pull out solid dividends. Sometimes we look at the commandments in the context of the much bigger business we’ve become, and think: do they still apply?
Damn right they do. As much now as ever. Almost every decision, large or small, is still guided by that list. Nobody has to look up the strategy documents, because it’s instinct now. There’s no need for words like Futurification or Agileability.
Some Of My Best Friends Have An MBA
I suppose it’s time for the business version of the classic racist disclaimer: some of my best friends have MBAs, and they’re perfectly good business people. They know the sort of MBAs I’m talking about.
There’s a place for your MBA. If you’re planning to open the next 5,000 outlets of Pervasive Coffee, build a toll road network or just get tons of money from government for PowerPoint, you unleash your multi-tab spreadsheet powers and go for it.
For businesses doing less than $100M a year, you’re better off hiring managers who get how humans behave in the real, non-spreadsheet world.
Podcast: On Business Partners and the Insanest Management Idea I Ever Had
I did another spot with Lambros Photios on his The Venture podcast the other week, on having business partners vs going it alone. It covers a bunch of topics including the middle-management blowout syndrome mentioned above.
Here’s a 4-minute grab, on one of the insanest management ideas I ever had.
Listen to the whole thing here it’s about 20 mins, check it out..
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* Footnote re: Commandment 10, we were not to know the iPhone would be released later that year to bring us all 24-hour work contact, no futurist points for us. We’d come out of an environment with the classic corporate Blackberries that went ‘ping’ all evening with demands from head office, and they wanted answers right away. Fuck that.
** Handy Anti-Jargon Tool
Want to write so that people actually read it? Practice getting the idea across in simpler words.
Sure there’s the Readability Index in Word, but this is a next level anti-jargon tool: a site that forces you to use the most common 1000 words in the English language. I fed the 10 Commandments in and only had to change 12 words. With a quick edit, the only word outside the Top 1000 was Blackberries.
Why not feed it some of your documents and see where you sit?
Practice. It will pay off. People will read and listen, hey you read all the way down to here.