For Small Business It’s All About the Third Rule

Constant change requires small business owners to be sure they’re playing the right game.

 

There are not many hard and fast rules in business. But, companies struggle when they don’t follow three basic rules and fail to realize that everything else changes

Play the right game

In business you have to be sure you are playing the right game.  Just ask the ex CEO of Nokia.   In September of 2013 he announced that Nokia was being acquired by Microsoft, signaling the end of the once dominant mobile phone manufacturer.  The CEO ended his announcement speech stating: “We didn’t do anything wrong, but somehow we lost.”

Faced with the failure that was seemingly out of their hands the team was overcome with emotion.  But, of course, they did do something wrong.  Nokia, like so many companies before and after played by the wrong rules.  They thought they understood the market. They thought they dominated the market.

And then the market changed.

In business there are very few rules.  In fact, there are three. They aren’t complex, difficult to understand and, being rules, they don’t change.   Yet, in our experience, many businesses miss them.  All too often they focus on the wrong things and face bankruptcy as a result.

The first two rules

The first two rules come from Michael Raynor and Mumtaz Ahmed who published them in the Harvard Business Review in April 2013:

Rule 1.         Better before cheaper.

Rule 2.         Revenue before cost.

Rayner and Ahmed show that companies that focus on quality and revenue do better over time.

Others might start out doing well but then external factors change and they almost always respond by cutting costs and digging in to the competitive environment. Focusing on revenue and quality means a focus on building, reinvention, and delivering a differentiated product; even as the market changes.

Nokia, Kodak, hard disk drive manufactures and main frame builders are all great examples of failing to operate by these rules.  But the rules are not new, following them is the same challenge that buggy whip manufacturers faced at the turn of the 19th century.

Just as technology drives change today, buggy whip manufactures became a business school case study of failure because they missed the shift from horse drawn carriages to cars.  Facing a changing environment they denied it and cut themselves to non-existence.

These are great rules, but they aren’t enough.  There is a third rule.

Next- The Third Rule