Beware The Little Pans Of Small Business
There is an old story about a little girl who was helping her mother prepare for a large family dinner. The entree was going to be ham, and as Mom prepared this particularly large ham for the pan it was to be cooked in, she took out a big sharp knife and began cutting off the small end of the ham.Being somewhat precocious, and waiting as long as she could stand, the little girl at last asked her mother why she was doing that. To which the mother replied, "This is the way my mother taught me to cook a ham."
Not satisfied with that answer, she asked if they could call Grandma to ask her why. Turns out Grandma passed the buck, just as Mother had done, by saying her mother had taught her the same thing. "I guess it just got passed along," Grandma reasoned.
Yes, Great-Grandma was still alive, and they called to ask why she had taught her daughter to cut off the end of the ham before cooking. She explained that there was no culinary reason, and then solved the mystery by admitting, "I couldn't afford a pan big enough to cook a whole ham."
Small Business And Little Pans
When small businesses are founded, they often start out with small "pans", like creating business cards on perforated stock instead of using a professional printer; call-waiting instead of additional phone lines; a price-point computer, instead of the really fast one that costs a little more. There are lots of examples - many prudent - where growing small businesses have to compromise performance for the sake of the budget.
Sometimes our small pans are human, like the classic and abiding small business small pan: never enough people to do the work. And when we do tasks manually because we haven't taken the time to learn how to apply a technology solution, our ability to cook up a profitable business model is sorely limited.
As our businesses grow, we acquire the unfortunate tendency to adapt our behavior and operating systems around the tools and practices we have been using and are comfortable with, rather than finding the best new tool for the job. Consequently, like the family in my little story, we may even be handing down some invalid and outdated operating protocols to our staff.
Small Business and Two Laws
In terms of technology, there are two laws which, when combined with the fact that most small businesses are under-capitalized, contribute to our tendency to make do with what we have.
In 1965, Gordon Moore, co-founder of Intel, observed that the amount of capacity on a computer chip was doubling about every 18 months. Consequently, he proposed that computer processing power would rise exponentially over relatively brief periods of time - a concept which became known as Moore's Law.
Since desktop computers became a key element in small business performance in the 1980s, most of us have experienced Moore's Law first hand. It can be frustrating when the technology we purchase today is, or at least seems to be, replaced with a faster, more productive model almost before we get our new machine out of the box. And in the marketplace, Moore's Law is a two-edged sword: one edge cuts a competitive advantage for you when you take the steps to keep your operation technologically current. The other edge cuts against you if your competition is the first to adopt the newest capability.
Those who have tried to keep up with "the Moores" have run into another law, which is familiar in practice, but not so much in name. Machrone's Law was named for Bill Machrone, VP at Ziff-Davis, and an editor at PC Magazine, who once observed that, "The new machine you want always costs $5,000."
Good Deflation Is Good News For Small Business
As microchip improvements continue, it looks like Moore's Law will be valid for at least a while longer. But the good news is that good deflation is causing Machrone's Law to become invalid. In his book, Deflation, my friend, Gary Shilling, says "good deflation" is when prices fall due to productivity and efficiencies, rather than as an imbalance in supply and demand.
The first PC I bought in 1982 cost almost $4,000. It had no hard drive and 148K (that's kilobytes, not megabytes) of RAM, and today I would use a pen and paper and count on my fingers before I would even turn it on. The last one I purchased cost about $1,200, and it's the small business equivalent of one of NASA's shuttles. Good deflation.
I paid $500 for my first cell phone and it was just that - a phone. The one I have now cost $50, and it's a handful of telecom options. Good deflation.
Software isn't so much an example of good deflation in terms of price, because unlike hardware, software prices generally have not fallen. But in terms of capability, most software products qualify as good deflation when you take into consideration the increased productivity and efficiencies available to us today through both off-the-shelf and customized software solutions.
When you take into consideration the current processing power-to-investment ratio, today's newest generation technology is more affordable than at any other time since we began depending on technology as a critical component in the success of small businesses. That's the good news, which becomes bad news if you don't keep your technology upgraded.
It's A Good Time To Throw Out The Little Pans
How long has it been since you took an inventory of the size of the "pans" your organization uses? I've talked a lot about technology, because I think that's where you will find a lot of opportunity for organizational improvement. But look at everything: telephones, rolling stock, business hours, management practices, banking relationships, (your idea here).
Don't worry, I haven't forgotten about the budget. But capital constraints, like competition, are with us always. For small business owners, the challenge isn't finding a better way, it's paying for it. But don't forget about good deflation. You just might find that prices have come down to meet your budget.
Write this on a rock... Juggling the budget and the newest capability to make sure your organization is operating with the best tools you can possibly afford is a tough challenge for small business owners, but you can do it. Remember, if running a small business were easy, monkeys would be doing it.
