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Saturday 9 October 2010
Wednesday 23 June 2010
Why choose Increased VAT to bring in the extra pennies
Of all the ways the UK chancellor could have chosen to bring in the much needed extra cash why choose VAT ?
You may be of the opinion, like some that we don't need to cut the defecit quite as drastically as the chancellor believes. Indeed, you may also be thinking that the pain should be borne by the banks and not the hard working man in the street.
I think I should come clean with my own opinions at this point. I firlmly believe we should reduce the defecit as quickly as possible, as quickly that is without dropping the economy back into recession. Yes we could target the banks, the ones who got us into this mess in the first place but the truth is, we need them to be strong, and we want them to regain their strength as quickly as possible because it's the large financial institutions that are one of the key pieces in the recovery jigsaw.
The capitalist world requires money to fund expansion. The governments need money, the banks need money, so does industry and the man on the street. Banks lend to industry, industry employs people who pump money into the economy by spending more. The more we spend, the stronger industry gets and the supply and demand process starts to kick in so a recovery starts to take shape.
Of course, we could simply cripple the banks, take a huge levy and reduce the taxes on the working man, leading to extra cash leading to more spend. The problem with this is that the levy is not sustainable unless it is small and this does not result in the necessary impact to fuel continued growth.
Yes we need the banks to be strong so can't hurt them too much because they will help the country recover. So back to the dilemma the uk government is facing.
A massive defecit and a challenge to reduce it quickly or the wrath of a potential downgrading of our tripple A rating awaits. Such downgrading would make things even more difficult to raise the cash because the cost of borrowing by our financial institutions and government would increase.
Why the rush, could we not simply gradually reduce the defecit as the economy grows. Of course we could do that, but as any loan company will tell you, the longer you have to pay off a loan, the more you pay in the end. Pay it off early and you save lots more money. Money that could be used to invest back into the services the country needs.
So back to the VAT question. Why choose VAT, he could have raised the tax rate, lowered the tax bands or increased the rate for higher earners.
Of course raising taxes in the normal way is an option, make more people pay more taxes and the money rolls in. VAT is also a tax, unlike normal tax however it is targted on spending. The more you spend the more VAT you pay so in one way it is quite a repressive tax. The standard tax route would have a similar effect but the tax is taken at source so the net effect could be the same, they both dampen the spending power of the consumer.
The subtle difference though is that VAT is borne by everybody equally. When consumers buy goods from a shop, the VAT they pay on the goods is passed to the shop who in turn offset their VAT payments against the cost of purchase of the goods and down the chain it goes, the government taking their cut each time there is a difference between the input and output VAT.
The key benefit of using VAT as the vehicle to raise funds quickly is that exporters are not affected, foreignen importers of UK goods are not affected (generally) which means the recovery can be industry led which helps to kick start the economy. Not that simple I admit but when your trade defecit is topping £4bn an export led recovery is not such a bad thing.
You may be of the opinion, like some that we don't need to cut the defecit quite as drastically as the chancellor believes. Indeed, you may also be thinking that the pain should be borne by the banks and not the hard working man in the street.
I think I should come clean with my own opinions at this point. I firlmly believe we should reduce the defecit as quickly as possible, as quickly that is without dropping the economy back into recession. Yes we could target the banks, the ones who got us into this mess in the first place but the truth is, we need them to be strong, and we want them to regain their strength as quickly as possible because it's the large financial institutions that are one of the key pieces in the recovery jigsaw.
The capitalist world requires money to fund expansion. The governments need money, the banks need money, so does industry and the man on the street. Banks lend to industry, industry employs people who pump money into the economy by spending more. The more we spend, the stronger industry gets and the supply and demand process starts to kick in so a recovery starts to take shape.
Of course, we could simply cripple the banks, take a huge levy and reduce the taxes on the working man, leading to extra cash leading to more spend. The problem with this is that the levy is not sustainable unless it is small and this does not result in the necessary impact to fuel continued growth.
Yes we need the banks to be strong so can't hurt them too much because they will help the country recover. So back to the dilemma the uk government is facing.
A massive defecit and a challenge to reduce it quickly or the wrath of a potential downgrading of our tripple A rating awaits. Such downgrading would make things even more difficult to raise the cash because the cost of borrowing by our financial institutions and government would increase.
Why the rush, could we not simply gradually reduce the defecit as the economy grows. Of course we could do that, but as any loan company will tell you, the longer you have to pay off a loan, the more you pay in the end. Pay it off early and you save lots more money. Money that could be used to invest back into the services the country needs.
So back to the VAT question. Why choose VAT, he could have raised the tax rate, lowered the tax bands or increased the rate for higher earners.
Of course raising taxes in the normal way is an option, make more people pay more taxes and the money rolls in. VAT is also a tax, unlike normal tax however it is targted on spending. The more you spend the more VAT you pay so in one way it is quite a repressive tax. The standard tax route would have a similar effect but the tax is taken at source so the net effect could be the same, they both dampen the spending power of the consumer.
The subtle difference though is that VAT is borne by everybody equally. When consumers buy goods from a shop, the VAT they pay on the goods is passed to the shop who in turn offset their VAT payments against the cost of purchase of the goods and down the chain it goes, the government taking their cut each time there is a difference between the input and output VAT.
The key benefit of using VAT as the vehicle to raise funds quickly is that exporters are not affected, foreignen importers of UK goods are not affected (generally) which means the recovery can be industry led which helps to kick start the economy. Not that simple I admit but when your trade defecit is topping £4bn an export led recovery is not such a bad thing.
Sunday 13 June 2010
Getting to know your customers
The answer to this weeks topic is pretty much summed up in the title. But how much do you really know about your customers.
You know they buy your products but is that because you have a monopoly or are you doing something your customers really like. If you haven't done true indepth research before you may be surprised at the findings and in some cases a little worried.
Let's start with talking about bank customers. It is common knowledge and there is lots of statistical information that customers are not too satisfied with their bank, so why don't they change to another bank. It's simple, people think it's both too difficult and they don't really know whether the competition will be any better.
Let is now apply the bank analogy to your company, do you think your customers have the same view of you as they do with their bank. If the answer is a 'could be' or 'probably' then you really need to do something about it and do it quick.
There is a saying in business, it is much easier to keep your existing customers happy than get new ones if your existing customers leave. It's common sense, you have done all the hard work, building the trust, expending oodles in advertising and you have a customer base. You will have found that, of all the potential customers, only a small proportion decided your company was right for them. So, lose one customer and you need to put in much more effort to replace them.
Im not going to cover off in this weeks blog how you can keep your customers happy and loyal to you, i will leave that for another time. I will ask that you go and find out what your customers really think of you and your company. Believe me, even that small task of contacting them and asking them is a small step in the right direction.
You know they buy your products but is that because you have a monopoly or are you doing something your customers really like. If you haven't done true indepth research before you may be surprised at the findings and in some cases a little worried.
Let's start with talking about bank customers. It is common knowledge and there is lots of statistical information that customers are not too satisfied with their bank, so why don't they change to another bank. It's simple, people think it's both too difficult and they don't really know whether the competition will be any better.
Let is now apply the bank analogy to your company, do you think your customers have the same view of you as they do with their bank. If the answer is a 'could be' or 'probably' then you really need to do something about it and do it quick.
There is a saying in business, it is much easier to keep your existing customers happy than get new ones if your existing customers leave. It's common sense, you have done all the hard work, building the trust, expending oodles in advertising and you have a customer base. You will have found that, of all the potential customers, only a small proportion decided your company was right for them. So, lose one customer and you need to put in much more effort to replace them.
Im not going to cover off in this weeks blog how you can keep your customers happy and loyal to you, i will leave that for another time. I will ask that you go and find out what your customers really think of you and your company. Believe me, even that small task of contacting them and asking them is a small step in the right direction.
Saturday 15 May 2010
Interest Rates - currency and the recovery - Chaos theory at it's best
In another week of further currency fluctuations following the $750Bn loan guarantees provided by the EU and IMF it makes you wonder why such huge numbers don't appear to make the dramatic impact they should.
It's hard if not impossible to pin it down to a single cause but it seems like chaos theory is running the world, funnily enough, those of you who study chaos theory will see remarkable similarities between it and the way the world of trading.
Just over a week ago now the world stock markets nose dived. Was it because of the estimated 5000 barrels of oil pouring into the Gulf of Mexico and impact it is having on the economy and wildlife or was it because of the ash cloud continuing to affect air travel. Well, not really, it's because the Greece bailout, when it finally came was not deemed to be big enough and there were concerns that the European Currency would start to tumble taking countries other than Greece with it. Greece needed to borrow more to pay the interest on it's debts which is like me or you going to a bank and asking for a loan to cover the escalating interest costs for our mortgage. Don't worry though, it's the way governments work, they operate differently to the man on the street.
Greece's borrowing is not unique but the world economy starting to wake up to the fact that borrowing above your means is not the best of fiscal measures so they all had a bit of a chat, a long chat actually, it lasted 11 hours and decided that the best thing to do was provide a pool of funds $750bn to allow countries like Greece to continue borrowing but at a lower interest rate. The simple aim being to ensure the Euro retains it's strength and does not fall over the precipice.
Sure enough, the Euro bounced back (temporarily) and all was well again and stocks began to trade as if nothing had happened. But it had, $750Bn is a big number but it takes a number like that to stabilise currency, stabilise stock markets and keep countries from going bankrupt.
The UK recovery is starting to take shape, slowly but it is starting to recover. The early plans were to have a low valued currency, meaning imports were more expensive and exports cheaper. People would buy cheaper British goods so helping the economy grow. A good plan, but it's not that simple, the UK trade defecit reached 4Bn last month, more than the month before so what is going wrong. People are a little more astute than governments sometime. If a person doesn't have the money to buy expensive goods in a time of recession, they tend not to buy so even though British goods are cheaper, people still aren't buying. We're still importing from countries like China because their goods are cheaper.
In a slight twist, sterline rose a little last week off the back of the 11 hour meeting. This means that the cost of exports rose (people buying our goods had to pay a little bit more) but it did mean that the UK government bonds are a little stronger making it a little bit cheaper for the UK government to borrow more money. To top it all, UK interest rates remain at an all time low, they want us to borrow at low interest to buy goods to help the recovery, making the pound stronger and making it easier for the government to borrow at lower rates.
Simple isn't it. The world relies on credit, the more expensive it is the harder it is for economies to recover. But wasn't it the credit crisis that caused all the mess in the first place. Ho hum.
It's hard if not impossible to pin it down to a single cause but it seems like chaos theory is running the world, funnily enough, those of you who study chaos theory will see remarkable similarities between it and the way the world of trading.
Just over a week ago now the world stock markets nose dived. Was it because of the estimated 5000 barrels of oil pouring into the Gulf of Mexico and impact it is having on the economy and wildlife or was it because of the ash cloud continuing to affect air travel. Well, not really, it's because the Greece bailout, when it finally came was not deemed to be big enough and there were concerns that the European Currency would start to tumble taking countries other than Greece with it. Greece needed to borrow more to pay the interest on it's debts which is like me or you going to a bank and asking for a loan to cover the escalating interest costs for our mortgage. Don't worry though, it's the way governments work, they operate differently to the man on the street.
Greece's borrowing is not unique but the world economy starting to wake up to the fact that borrowing above your means is not the best of fiscal measures so they all had a bit of a chat, a long chat actually, it lasted 11 hours and decided that the best thing to do was provide a pool of funds $750bn to allow countries like Greece to continue borrowing but at a lower interest rate. The simple aim being to ensure the Euro retains it's strength and does not fall over the precipice.
Sure enough, the Euro bounced back (temporarily) and all was well again and stocks began to trade as if nothing had happened. But it had, $750Bn is a big number but it takes a number like that to stabilise currency, stabilise stock markets and keep countries from going bankrupt.
The UK recovery is starting to take shape, slowly but it is starting to recover. The early plans were to have a low valued currency, meaning imports were more expensive and exports cheaper. People would buy cheaper British goods so helping the economy grow. A good plan, but it's not that simple, the UK trade defecit reached 4Bn last month, more than the month before so what is going wrong. People are a little more astute than governments sometime. If a person doesn't have the money to buy expensive goods in a time of recession, they tend not to buy so even though British goods are cheaper, people still aren't buying. We're still importing from countries like China because their goods are cheaper.
In a slight twist, sterline rose a little last week off the back of the 11 hour meeting. This means that the cost of exports rose (people buying our goods had to pay a little bit more) but it did mean that the UK government bonds are a little stronger making it a little bit cheaper for the UK government to borrow more money. To top it all, UK interest rates remain at an all time low, they want us to borrow at low interest to buy goods to help the recovery, making the pound stronger and making it easier for the government to borrow at lower rates.
Simple isn't it. The world relies on credit, the more expensive it is the harder it is for economies to recover. But wasn't it the credit crisis that caused all the mess in the first place. Ho hum.
Friday 7 May 2010
Choosing the Right Candidate
The UK is in the middle of the fallout from the election results but don't worry, I will make a conscious effort not to bore you with all that. There are similarities in today's topic but it's so slight you would hardly notice.
If you are an employer you have probably interviewed many people, large employers try to make this process more targetted and focussed by filtering candidates via the infamous HR department. Many in the UK use third party agencies to do the job. But does it work ?
Not to be too scientific, filtering is used to remove unwanted material. It does this by only allowing suitable material to pass though. It's a basic concept isn't it.
Now don't get me wrong, it is obviously necessary to apply some sort of criteria when doing the initial assessment. The problem I have is when this filtering process becomes too rigid, so rigid in fact that the only candidates that get through for interver are deemed such a perfect match that the interview is merely an exercise in etiquette and checking dress sense.
I feel a true life example is necessary here. A couple of years ago I was asked to undertake an assessment on a company's employees to understand why the retention rate was so low. The brief I had been given was that morale was poor and job satisfaction appeared to have dropped off the scale. All the eomplyees were highly skilled and their salary scale was above the national average but still the retention rates were incredibly low, staff turnover was 20% above the average but nobody knew why.
I feared the worst, an evil manager, some sort of interdepartmental infighting. Both could be resolved but I had not been given the job of resolution, merely to identify the root cause.
Anyway, to cut the story short (I do tend to over-explain), in I went, embedded within the department and started to gather knowledge on the pretence that I was working on another project within the company. The information I gathered was initially confusing, there was no fighting, no bullies but also there was no atmosphere. The people simply did their job, at the end of the day they packed away their stuff and went home.
By day three I had resigned myself to the fact that the team simply need to be injected with something that would entertain them, team building exercises are the simplest of things to implement and it's the first consideration of management to get the team working and enjoying working together. I naturally fell into this trap hook, line and sinker.
Activities were organised involving the whole team, both within and and in the evenings. I felt my job had been done, issue identified and solution in place and so I left, 5 days into a 10 day job.
A month later I was invited back in to do a re-assessment. Back I came, expecting the initial seedlings of an office atmosphere, and indeed there was but retenton was only marginally better, within a month two more people had opted to leave so the solution was not having the immediate benefit I had anticipated.
By chance, I had lunch with somebody in HR and we discussed the dilemma. It was explained to me that the HR procedures were rugged, stringent criteria were used for selecting the best people for the roles and only the best were ever selected. Out of courtesy more than anything else I asked to see the cruteria used to select the people in this particular department on the off chance that something pecular was happening.
I spent a quite laborious 2 hours going through the process, candidates were selected on background, skill, educational qualifications and domain experience. Three references were always taken and back-checked. The candidate was then interviewed by a team manager, an independent manager and a member of HR. All seemed pretty normal.
Domain experience, it's one of those things that companies always consider when identifying candidates. Candidates should only apply if they have experience of industry 'X' I went back to the department and sat down to think. In the nicest possible way, everybody within the office were clones, exactly the same background, same skills and the precious previous domain experience.
There it was, the cause of the problem. The filtering problem had resulted in exactly the same type of person working in a single department doing the same job and all they could talk about was their previous experience of doing the same job..... tedium infinitum.
It's one of those moments when you want to scream so i raced back to HR, and sure enough domain experience was number 2 on the order of essentials when assessing candidates.
Within 20 minutes, I, HR and the department managers were discussing the problem and re-ordering the list of essential skills and capabilities for the selection criteria. Domain experience had been relegated to a 'nice to have' not an essential.
The change seemed subtle but the result was startling, people were selected on technical skills and essential capabilities. The differing backgrounds were the essential ingredient the office had been missing. Within 3 months, differing backgrounds were actually considered a benefit in the employment process rather than a blocker.
I could happily take the credit for this insight but the problem was found by chance. The results took a little time to take effect but returning 12 months later to do an assessment the change was dramatic, people appeared to be enjoying their work, they talked about football or the previous evening's take-away but the work quality remained just as high. People were bonding, and experiences were shared. The team was naturally growing stronger, they obviously had no need for team building exercises it was inbuilt.
The moral of the story is simple, if you filter your candidates for domain experience, think again. The world works when people with differing backgrounds mix together, companies grow stronger when new skills and knowledge is introduced and more importantly.... at the start of a career you have no domain experience, zilch, zero. You were clever enough to learn it on the job, so can everybody else.
Have a good weekend, Im now off back to the politics
If you are an employer you have probably interviewed many people, large employers try to make this process more targetted and focussed by filtering candidates via the infamous HR department. Many in the UK use third party agencies to do the job. But does it work ?
Not to be too scientific, filtering is used to remove unwanted material. It does this by only allowing suitable material to pass though. It's a basic concept isn't it.
Now don't get me wrong, it is obviously necessary to apply some sort of criteria when doing the initial assessment. The problem I have is when this filtering process becomes too rigid, so rigid in fact that the only candidates that get through for interver are deemed such a perfect match that the interview is merely an exercise in etiquette and checking dress sense.
I feel a true life example is necessary here. A couple of years ago I was asked to undertake an assessment on a company's employees to understand why the retention rate was so low. The brief I had been given was that morale was poor and job satisfaction appeared to have dropped off the scale. All the eomplyees were highly skilled and their salary scale was above the national average but still the retention rates were incredibly low, staff turnover was 20% above the average but nobody knew why.
I feared the worst, an evil manager, some sort of interdepartmental infighting. Both could be resolved but I had not been given the job of resolution, merely to identify the root cause.
Anyway, to cut the story short (I do tend to over-explain), in I went, embedded within the department and started to gather knowledge on the pretence that I was working on another project within the company. The information I gathered was initially confusing, there was no fighting, no bullies but also there was no atmosphere. The people simply did their job, at the end of the day they packed away their stuff and went home.
By day three I had resigned myself to the fact that the team simply need to be injected with something that would entertain them, team building exercises are the simplest of things to implement and it's the first consideration of management to get the team working and enjoying working together. I naturally fell into this trap hook, line and sinker.
Activities were organised involving the whole team, both within and and in the evenings. I felt my job had been done, issue identified and solution in place and so I left, 5 days into a 10 day job.
A month later I was invited back in to do a re-assessment. Back I came, expecting the initial seedlings of an office atmosphere, and indeed there was but retenton was only marginally better, within a month two more people had opted to leave so the solution was not having the immediate benefit I had anticipated.
By chance, I had lunch with somebody in HR and we discussed the dilemma. It was explained to me that the HR procedures were rugged, stringent criteria were used for selecting the best people for the roles and only the best were ever selected. Out of courtesy more than anything else I asked to see the cruteria used to select the people in this particular department on the off chance that something pecular was happening.
I spent a quite laborious 2 hours going through the process, candidates were selected on background, skill, educational qualifications and domain experience. Three references were always taken and back-checked. The candidate was then interviewed by a team manager, an independent manager and a member of HR. All seemed pretty normal.
Domain experience, it's one of those things that companies always consider when identifying candidates. Candidates should only apply if they have experience of industry 'X' I went back to the department and sat down to think. In the nicest possible way, everybody within the office were clones, exactly the same background, same skills and the precious previous domain experience.
There it was, the cause of the problem. The filtering problem had resulted in exactly the same type of person working in a single department doing the same job and all they could talk about was their previous experience of doing the same job..... tedium infinitum.
It's one of those moments when you want to scream so i raced back to HR, and sure enough domain experience was number 2 on the order of essentials when assessing candidates.
Within 20 minutes, I, HR and the department managers were discussing the problem and re-ordering the list of essential skills and capabilities for the selection criteria. Domain experience had been relegated to a 'nice to have' not an essential.
The change seemed subtle but the result was startling, people were selected on technical skills and essential capabilities. The differing backgrounds were the essential ingredient the office had been missing. Within 3 months, differing backgrounds were actually considered a benefit in the employment process rather than a blocker.
I could happily take the credit for this insight but the problem was found by chance. The results took a little time to take effect but returning 12 months later to do an assessment the change was dramatic, people appeared to be enjoying their work, they talked about football or the previous evening's take-away but the work quality remained just as high. People were bonding, and experiences were shared. The team was naturally growing stronger, they obviously had no need for team building exercises it was inbuilt.
The moral of the story is simple, if you filter your candidates for domain experience, think again. The world works when people with differing backgrounds mix together, companies grow stronger when new skills and knowledge is introduced and more importantly.... at the start of a career you have no domain experience, zilch, zero. You were clever enough to learn it on the job, so can everybody else.
Have a good weekend, Im now off back to the politics
Monday 3 May 2010
The cogs of business
Apologies in advance, I love analogies so for my first opening gambit Im choosing cogs. You will see what I mean later on.....
I have been working with businesses for the last 20 years, large and small, blue chips to start-ups Ive seen it all. They all have one thing in common, they want to be (or remain) successful. Unfortunately, not all can be, the vast majority fail while the lucky few manage to rise above the others and reach the top. The challenge is then to stay there but that's for another discussion.
Im not saying business is a game of chance, though luck does occasionally play a part in it. Successful businesses seek out a niche and fill the gap before the competition has a chance to react. This is easier to explain with start-ups. Each start-up business commences with an idea, it may not be unique but it has a niche, an angle which the start-up can exploit. They don't have the baggage associated with a large red-brick organisation so can act more out of instinct than business accumen.
The SME and blue-chips act in a similar way to start-ups however the decision makers have more to consider, more to lose and to be honest, much further to fall than the lowly start-up so their decisions take longer, are more considered and tend to be based on market and domain experience so take longer.
Im now back at the cog analogy, imagine a blue chip is a large cog, turning slowly but ever so powerful. The Start-up is a small cog, spinning rapidly but much easier to stop. If both are going in the same direction with the same goals, the large cog tends to win but now imagine they are in the same space (business domain) and the start-up is going against the tide, the two cogs will spin in opposite directions. Very occasionally they will collide and the big cog will grind the smaller into the ground but sometimes the smaller cog can gain enough momentum to find and exploit that niche before the larger one can slow down and change direction.
We see this sort of thing happening time and time again, the large organisations take a long time to change direction and the smaller ones are much more agile. It's by no means easy for the smaller one, but some gain enough momentum and competitive advantage that they eventually win out.
I recently sat in a board meeting with one of my clients, it was a strategy meeting and the topic was the impact of the stategic change brought about by the world financial meltdown. The company had a long and proud history but the financial crisis had been brutal, it relied on the capital provided by the financial markets to pay it's suppliers so when the bubble burst a series of cost cutting measures had ensued. A series of cost cutting measures had made the company leaner. It had extended the payment terms for it's suppliers and been aggressive at forcing down supplier margins. The outcome was that the company was now leaner and more able to face the future but some of it's suppliers had fallen away so it was now faced with an orderbook that was on the increase but a lack of supplies to service those orders.
The company was facing it's second crisis, it had forced some of it's suppliers out of business to save itself but the knock on repercussions were only now becoming clear. It did not have the ability to service new orders so the customers were moving over in droves to the competition, some of whom had seized the opportunity to build their own client base in the same market.
The strategy meeting was heated and everybody was blaming everybody else but the sad fact was that there was little that could be done now to react to the new more agile companies that were edging them out. Though they were much leaner than before they did not have enough liquid capital to undercut the competition rates so the talk was of merger and acquisition.
Looking back over the last 12 months, I have watched some of the larger companies survive and grow stronger, some have failed; at the same time i have watched as start-ups have seized opportunities and some have succeeded. There will always be some winners and some losers. Darwin was right in one respect, survival of the fittest is true but I would probably add that survival also helps if you can spot opportunities, identify a niche and go against the tide. In this case, the smaller cog won.
I have been working with businesses for the last 20 years, large and small, blue chips to start-ups Ive seen it all. They all have one thing in common, they want to be (or remain) successful. Unfortunately, not all can be, the vast majority fail while the lucky few manage to rise above the others and reach the top. The challenge is then to stay there but that's for another discussion.
Im not saying business is a game of chance, though luck does occasionally play a part in it. Successful businesses seek out a niche and fill the gap before the competition has a chance to react. This is easier to explain with start-ups. Each start-up business commences with an idea, it may not be unique but it has a niche, an angle which the start-up can exploit. They don't have the baggage associated with a large red-brick organisation so can act more out of instinct than business accumen.
The SME and blue-chips act in a similar way to start-ups however the decision makers have more to consider, more to lose and to be honest, much further to fall than the lowly start-up so their decisions take longer, are more considered and tend to be based on market and domain experience so take longer.
Im now back at the cog analogy, imagine a blue chip is a large cog, turning slowly but ever so powerful. The Start-up is a small cog, spinning rapidly but much easier to stop. If both are going in the same direction with the same goals, the large cog tends to win but now imagine they are in the same space (business domain) and the start-up is going against the tide, the two cogs will spin in opposite directions. Very occasionally they will collide and the big cog will grind the smaller into the ground but sometimes the smaller cog can gain enough momentum to find and exploit that niche before the larger one can slow down and change direction.
We see this sort of thing happening time and time again, the large organisations take a long time to change direction and the smaller ones are much more agile. It's by no means easy for the smaller one, but some gain enough momentum and competitive advantage that they eventually win out.
I recently sat in a board meeting with one of my clients, it was a strategy meeting and the topic was the impact of the stategic change brought about by the world financial meltdown. The company had a long and proud history but the financial crisis had been brutal, it relied on the capital provided by the financial markets to pay it's suppliers so when the bubble burst a series of cost cutting measures had ensued. A series of cost cutting measures had made the company leaner. It had extended the payment terms for it's suppliers and been aggressive at forcing down supplier margins. The outcome was that the company was now leaner and more able to face the future but some of it's suppliers had fallen away so it was now faced with an orderbook that was on the increase but a lack of supplies to service those orders.
The company was facing it's second crisis, it had forced some of it's suppliers out of business to save itself but the knock on repercussions were only now becoming clear. It did not have the ability to service new orders so the customers were moving over in droves to the competition, some of whom had seized the opportunity to build their own client base in the same market.
The strategy meeting was heated and everybody was blaming everybody else but the sad fact was that there was little that could be done now to react to the new more agile companies that were edging them out. Though they were much leaner than before they did not have enough liquid capital to undercut the competition rates so the talk was of merger and acquisition.
Looking back over the last 12 months, I have watched some of the larger companies survive and grow stronger, some have failed; at the same time i have watched as start-ups have seized opportunities and some have succeeded. There will always be some winners and some losers. Darwin was right in one respect, survival of the fittest is true but I would probably add that survival also helps if you can spot opportunities, identify a niche and go against the tide. In this case, the smaller cog won.
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