Richard Pierce Thomas

Leadership and Small Business Consultant

There is a common mistake businesses make when developing strategy—they focus too often on what is happening externally while ignoring the most important place to start—internally, ensuring it has the components of an enduring business.             

It was through camping with my dad early on that I learned a framework for understanding this. The campsites rarely had level surfaces and he showed me how a three-legged stool always finds its level. No matter how uneven the ground, the stool did not rock when I sat on it. The analogy of the three-legged stool has stayed with me over the years and having since experienced the uneven and often turbulent landscape of the free market in the aim of building an enduring business, I have found that it applies here as well. 

Leveraging the analogy, there are three principles crucial to building enduring businesses. When well understood and executed by the organization, they will allow the business to withstand any economic climate. They are as follows:

1. Purpose – A well-understood and communicated explanation of why the business exists (of which by the way, is not about the money), and more importantly, why it matters, both to the business and to the customer. One could even argue that the latter is more important than the former. To underscore this, consider the following: Koch Industries built the largest privately held business in America based on the principle that understanding what creates the greatest value for their customers is the most important thing. The first and most important element of its MBM® (Market Based Management) Framework is, “where and how…the organization can create the most long-term value for customers and society.” If it is good enough for Koch in building a $100B+ business, it is good enough to work in our businesses as well.

2. Competence – The business must be great at what it does, and by my definition is the combination of talent, learned skills, and scar tissue from surviving a fire walk—leading the organization through a brush with mortality. To gain competence in your business, you must first be willing to sacrifice for it, be skilled enough to run faster and smarter than the competition, and then have the good fortune of having lived through the fire walk, or two, before you truly acquire competence.

3. Business Model – The most fickle of the three, while the first two can endure for a lifetime, the business model may not. Some stand the test of time, many don’t. A friend’s experience with opening a retail PC business in his rural hometown about ten years ago illustrates this. 

Soon after opening his store, a greeting card shop moved in next door and while he watched to see how long their business would last, his business began to grow which brought its own implications. Warranty returns, damaged product and an occasional unhappy customer to name a few. Add to this the hassles of hiring and managing employees; he began to question whether he had made the right decision. 

The business was never intended to be the end-all, but rather a means to provide a lifestyle he and his wife could enjoy once the operation ran on its own. The traffic at the card shop meanwhile, had grown to a steady stream and he visited one day to purchase a birthday card for his wife. 

Staring at the display of cards, it dawned on him why he wouldn’t get to where he needed with his business—he didn’t have the right model. 

Unlike his PC business with expensive and complex inventory that was prone to obsolescence or failures, the card shop had inexpensive inventory, virtually non-existent failures, higher margins and longer shelf life. 

“I had to admit that no matter how well I managed the business,” he said soberly, “without the right model, I’d always be a slave to it. And I didn’t have the right model.” Realizing he could not change the reality of his situation, he sold his business within six months.

Start 2014 on the right foot by taking a hard look at your model. While exiting may not be the answer, it may be time for a significant change.

 

Rick Thomas is a Principal and Director of Human Capital at Pilot Wealth Management, a registered investment advisor in Oregon state. Leading their focus on the human component of building wealth, he consults and speaks to organizations across the country, focusing on individual and organizational achievement.