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.