The Logic, Science and Math of Business
Rick Phelps
Synchronous Solutions
Why do seemingly successful businesses struggle to maintain their profitability as they grow?
Could it be hubris? Bad advice? Lack of focus? All of these? None of these?
Many companies struggle due to a lack of understanding of the basic scientific principles and logic that underpin all businesses.
Mathematics
Business is math. Simple math. Adding, subtracting, with a little bit of multiplication and division thrown in during analysis. No advanced calculus, or massively complex formulas. Business requires no more math than what is taught in elementary school.
For example, Marketing is math. If you want 100 new clients, and your sales process converts 50% of your prospects into customers, then you need 200 prospects to reach the target. If your marketing creates two prospects for every 10,000 views of a social media post, you will need an average of 5,000 views on social media to get a prospect. If 1000 views cost you $10, then each new prospect costs you $50 dollars and each new customer $100.
Science
Back in the stone age, we learned the scientific method in 8th grade science. I imagine it is taught much earlier these days.
The scientific method is about how to logically construct an experiment so that you can observe what is happening, draw some conclusions, prove by repetition, and learn from that experience.
Consider this example drawn from a recent conversation with a customer: The sales process above converts an average of 50% of their prospects into clients. How do they do it?
Some analysis suggests that one salesperson converts at 40% and the other at 60% – who knew?! Through observation followed by training, you are able to get both salespeople converting at 60%. That is a 20% improvement in your conversion rate. As a direct result of this analysis and action taken, each new client that before cost $100 now only costs you $83.33!
Enjoying how learning about your business makes you money, you decide to look at the marketing process. With your marketing manager you design experiments to test and measure the impact of using different photographs, different headlines, different offers, and different calls to action. It takes time, but as you learn and improve, you decrease the number of views required to get a prospect from 1000 to just 500, and now your attainment cost for a new client is just $41.67!
But wait, there’s more!
Logic
Logic and science go hand in hand! The basis of science is the logical expression IF this, THEN we expect that... We observe, draw conclusions, learn, and improve. It turns out you can apply logic to your business and set up a whole raft of experiments. In fact, with logic you can explicitly connect EVERY role in your business directly to the specific financial goals of the business.
That’s right, everyone in your business can have specific measures and goals that show whether they are helping advance the business, or not. Your teams can come together and define specific projects to work on that will move those measures in the right direction.
You and your leadership team can logically connect all the dots in your business. The connections rarely change, so you need to do it once, and then just tune and adjust quarterly from that point on. We call it ‘creating your cascaded operating strategy’.
There is one key insight you need to understand to make this possible, otherwise you will struggle because you will make it more complex than it actually is.
You need to understand that every chain has just one weakest link at any given time.
Your business is made up of many chains and sub-chains, so think logically and carefully and you can tease out all the relationships you need to fully understand your business and the impact of those weakest links on your business.
When you have those logical relationships diagrammed out, it’s just math…
Do you want to grow from $5M in sales to $10M while increasing Net Profit from 7% to 12%? What would it take to accomplish that? What can you afford to invest? What must you NOT do?
It is all calculable and therefore knowable. It’s just logic, science, and mathematics. Just do it and gain a competitive advantage in your business. I’ll even give you the first logical steps:
IF
The Goal of your business is to make more money now and in the future;
THEN
Sales must fill the capacity of the fabricating process with the right mix of work;
AND
Operations must be constantly working on increasing the effective capacity of the fabricating process.
Just keep building out this logic tree, cascading it to every process in your business, then you, and everyone in your business, will know exactly how to be successful.
If you want help to accelerate the learning process for your business, give us a call. Our Synchronous Flow Operating System is designed to make everyone in your business a successful business scientist, learning and improving every day. Contact us at www.synchronoussolutions.com .
Rick Phelps – Synchronous Solutions