My entire life there’s always been this ingrained curiosity about the world, people, how things work and especially about business. “Why?” is and always has been commonplace in my vocabulary, asking anyone about anything I came across.  My family, business partners and team hammer back…..”WHY! WHY! WHY! Why do you ask why so much”?!  

It makes me pause and wonder why it bothers them at times or why they joked about it, because I see it as something so natural that everyone should do it.

  Over time I’ve found lots of evidence that asking “why” is a good thing. The root, or “real” problem or situation is usually revealed when you continually ask why. Some people ask “why” once, get their answer, and are satisfied. I keep asking until I get the full story, and it’s come in handy with the cultural barriers we experience with our office in India.

I enjoy a nice “Ah Ha!” moment, and move on thinking that this is how it should be done.

Even the business guru Jim Collins supported my theory in his Harvard Business School paper on getting to your business core purpose. He talked about an exercise where you ask yourself WHY your company exists, outside of earning a paycheck. After each answer you ask WHY again, 5 times each, to help find the deeper underlying meaning of why you are in business. As I chuckle to myself, I think “See mother, these “why’s” are the real deal!!”

This all changed for me when I attended a local EO learning event on hiring the right people by Randy Street. This all day event captured most of what was in his bestselling book WHO, as well as the Topgrading process. Randy described how, in their research, they determined that “Why” questions come across with judgment, either in our body language or tone. He added that this holds back the communication and flow of conversation. Using “What”, “How” or “Tell me more” responses allow you to dig deeper without putting people on the defensive.

After all this time, now I get it. “Why” works in the right context, but I am sure my “Why’s” were coming across a little too judgmental, or it was annoying to ask so many times. These days I try to think about how I ask questions, and use a lot of “so what happened then”, “how did that turnout”, or “tell me more about that” kind of inquiries.

Did you ever wonder how a website that does nothing but allow you to display your life to all your friends and family and is free to use, could be worth around $11 Billion??  Facebook is. This valuation comes from the power of connecting…not just people, but things. When connectivity is increased, value goes up exponentially.

This could best be understood with the explanation of the “fax effect”. The first fax machine that was made cost exorbitant amounts of money during research and development, and was worth relatively nothing. Not until you add another fax machine does their start to be value. Add another and another to the network and you start to create something of real value. Each arithmetic addition allows for the value to be increased by the square of the connections.

In the mid 90’s, I read the book Out of Control, and then in 1999 came the book New Rules for the New Economy both by Kevin Kelly. From Out of Control came the understanding that networks with high degrees of feedback create collective intelligence (more on this subject soon). This is what led me to the crazy idea of starting a mutual fund run by the shareholders called the iFund. We started in 2001, right at the beginning of that nasty down turn in the market and it never took off. An idea before its time, I believe, and we closed down when we sold off IPS Funds.

If you asked me the business authors out there who I think provide the most value, I would have to say Jim Collins and Peter Drucker. Both of these guys have provided huge insight to the business community on how to run a successful company. Like most businesses, we at Efficience are starting the year formulating strategies and goals to make forward progress toward our destination, and reading Collins’ and Drucker’s material has always been good preparation.

Peter Drucker is legendary and has since passed on. I credit him for giving me the insight in the early ‘90s to see how the information revolution would provide the future with value and to develop a mutual fund called IPS Millennium Fund in ‘95 to participate in this information revolution.

Jim Collins opened my mind to creating a company that had a big vision with a BHAG (Big Hairy Audacious Goal), a heart with a core purpose, and personality with core values. So, when Collins came out with his new book, I was anxious to see the new awareness that would come from his decade long research.

In Great by Choice, Collins and Hansen set up an awareness of how three key areas acted as the common themes in the companies that have dealt with uncertainty, chaos, and luck as well as why some companies thrive despite all this. What they found was very interesting and contradicts common thinking about great companies. They discovered what they call 10Xers (companies that have been beating the marketing and comparison firms by at least 10 times in stock market performance) were not more visionary, more bold, more risk taking, more innovative, or more creative than the comparison companies.

They were more of 3 things:

1) More Disciplined

2) More Empirical

3) More Paranoid

This book is very eye opening! When we think of a company that has had great success, we usually assume it has done so with a new break through idea, a new patent, or by taking a big risk that is paying off. However, this was not the case. Of course, to a point, these companies were innovative and creative, but they became really great by finding what works through empirical evidence, testing that out, and then being super disciplined to get it done. They also worried excessively about what was out there that could change the game for them.

I will discuss each in more detail in next week’s blog. Happy New Year, and I wish you much success this year being worried about what is coming, gathering evidence that your ideas work, and implementing them with vigorous discipline.

Growing a business doesn’t happen overnight (usually). It’s happens step by step, one decision at a time. As business leaders, we are faced with making decisions every day. We constantly strive to collect as much information as possible, and then act on that knowledge in an attempt to move our companies forward and upward. 

I recently had a conversation with my office manager Mukesh in Pondicherry, India, where he was asking my advice on making decisions. More specifically, he wanted to know how much information he needed to hold out for before making a decision. It occurred to me that many of us struggle with the same question. How long does one wait and continue to collect information before making a decision, without worry that it is wrong?

I told him that my experience has shown me that we have to work with the best information we have at the time. In a perfect world, all the necessary details would be right in front of you. You would weigh them, and then make a decision. The reality is that you rarely have all the necessary details. You don’t know what other people are thinking, you don’t know what the competitor has planned, and you don’t know how the marketplace will react.

So what do you do? How do you make decisions that you can feel confident about? You have to realize that sometimes your decisions will be wrong, but there is no opportunity for progress if you don’t make any decision. You make the best decision you can based on the information you have, and move on to the next. It’s the compilation of decisions that makes the most progress, not just one. Sometimes a decision will cause you to take a step back, but you will still be further ahead than if you had waited for everything to line up perfectly before making that first decision. You have to make progress to succeed, and research shows that the thing that motivates people the most is progress.

On a side note, big decisions – game changers – fall into a different category. It’s important to work slow and collect as much information as you can, otherwise you may end up taking much more than a step or two back.

My experience has been that we are rarely lacking strategy and planning, they are abundant. What we do lack is execution around those plans, which is the major problem we face running a business.

We follow a 5 step process to gain execution on our strategies, and it’s had a major impact on our business.

To set the stage, think of your goals this way: After creating your BHAG (Big Hairy Audacious Goal), you will usually set shorter term goals that create the path to reaching your BHAG.

Here at Efficience, we have our BHAG, 3 to 5 year Goals, 1 year Goals and then Quarterly Goals. Each goal is a stepping stone to the next goal. When we set our company Quarterly Goals, each person on the team is assigned individual Quarterly Goals that help work toward the company’s Quarterly Goals. Every week we have a weekly team meeting where we review each person’s progress, defined as Next Steps, towards reaching their quarterly goals.

Here are our 5 steps to Execution:

1Stop for a minute and plan what the next step is you can take towards reaching your short-term goal.  For us, this has to be something achievable within the coming week.

2Write it down and make it visible for your peers to see. This can be posting it on a bulletin board, posting it online, sending an email…just so long as it’s visible to more than just you.

3Put it in your calendar: this means setting a specific date and time to work on your Next Step.

4Tell your peers what you are going to do. This works best if you have a rhythmic meeting schedule, such as weekly, where you can share it with everyone, and then flow right into number….

5Meet with your peers once more and tell them if you completed your task. As stated, this works best with a rhythmic meeting schedule, where every meeting you tell your peers what you did/didn’t do the previous week, and what your next step is for the upcoming week.

As humans we come standard with egos, and none of us like to look bad in front of others. Knowing that we’re being held accountable by our peers drives us to do what we say we’re going to do.

Something that I‘ve wanted to write about for a long time is the understanding of what the Black Swan Theory is and why the book by Nassim Taleb is so relevant to both our personal and professional lives.

In my investment days I read Nassim Taleb’s 1st book Fooled by Randomness. I was blown away by how he analyzed risk as a former Wall Street trader. Being a regular in the book store, I saw another one of Taleb’s books The Black Swan about 3 years ago and picked it up immediately. I was once more blown away, only this time at a new higher level.

So why does he call the book The Black Swan? The reason is that for years it was man’s experience that swans only came in white. Then one day in Australia a black swan was discovered. This is significant because it illustrates how one event can change everything you ever thought you knew about something. It shows a limitation in our learning because we use observations that pile up over and over, then one event changes our entire reality. The impossible becomes possible.

Some examples of a Black Swan Event would be World War 1, the attack on Pearl Harbor, the October 87 stock market crash, the computer, Google, Harry Potter and the events of 9/11.

There are 3 attributes to a Black Swan:

First…. It is an Outlier and is hard to predict

Second…It carries extreme impact, something that you might consider a game changer

Third…The event is made out to be explainable and predictable after the fact from our human need to be able to think there is a reason for everything

Both positive and negative Black Swans exist. It is important in our lives that we do our best to stay out of the way of the negative ones, while at the same time exposing ourselves to the positive ones. (I’ll explain more on how to do this in the coming week…)

A lot of what happens in business seems to be based on default. What do I mean by default? Well it goes like this: “I lost my job so I went into business myself”, “These clients buy my product so, this is the audience I sell towards”, “I was making all the money for the company, so I decided to go out on my own”, or “I was a really good engineer, carpenter, programmer, haircutter, etc, etc, so I decided to go into business for myself”. This is exciting, but it doesn’t create a great business until you determine its purpose for existence, beyond making a living.

If you’ve ever wondered why it is that other companies seem to be doing so well, and you are always struggling, it could be because you haven’t found or awakened to your true purpose for being in business. Making sure that purpose is always alive in your daily and weekly interactions and the culture of your business is essential to real success.

In my favorite book on leadership called Leadership Wisdom from the Monk Who Sold His Ferrari, Robin Sharma wrote about purpose and why it makes a difference. He used the example of how Southwest Airlines became great, not because they were charging low fares, but because they had a greater purpose of making it possible for grandparents to see their grandkids and small business to expand their markets. This awareness of a greater purpose allows people to move beyond working just for a paycheck.

Purpose was also a key aspect of Built to Last by Jim Collins and Jerry Porras. If they were faced with choosing between core purpose and core values for guiding and inspiring an organization, they said they would likely choose core purpose.  To them, the core purpose captures the soul of an organization and is like “a guiding star on the horizon – forever pursued, but never reached”. In other words, an organization is always stimulating change and working to move closer to that purpose, but unlike a goal, it’s never fully realized.

When a company or organization finds their higher meaning for being in existence, it will align the people and engage their hearts. With a purpose you can show your organization that their work touches people’s lives, directly or indirectly. People tend to work harder where they find fulfillment, and giving your people a purpose for what they do day to day could be just what you need to create an environment where great things are possible.

Have you discovered your core purpose for your company, or possibly for your own life? If not, you should check out this article “Building Your Company’s Vision” by Jim Collins on how to realize your core purpose.

Are you choosing high growth or low growth?

How often do we make a conscious decision to put ourselves in the path of opportunity? Do you consider this when choosing your type of business or market segment?

I spent years in the investment world, and one thing I can tell you is that around 85% of your returns are determined by the asset class that you choose to allocate money towards. For example, if you choose stock, bonds, or real estate as one of your asset classes, your portfolio manager, company, track record and all the research will lend little towards your return. Ultimately it’s the inherent return of that asset class that determines the majority of what you return.

What does this have to do with business? You have to consider similar things when selecting a marketplace or industry for business opportunities. In the 80’s and 90’s, reading all the financial magazines made it evident that mutual funds were gaining popularity with the masses, making it apparent that a mutual fund would help us grow our investment firm, and it did immensely.

Our software company grew out of an awareness of the value desired and created by innovative software, and how it was becoming the backbone of businesses. We’re experiencing strong growth during tough times. Is it because we’re just that good at sales, or is it because the sector we chose to play in?

Do you watch what’s happening in the world and go with the flow of money and change? Have you put yourself in the path of the monumental “green” movement or phone applications?  How about all of this government spending taking place? If the sector you are in is not a high growth industry, and isn’t headed that direction, have you considered changing your direction?

Have you ever noticed how things work in cycles with observable patterns? As someone whose strength is observing and seeing patterns, I find it helpful to know that these patterns exist and to see if this awareness generates some form of opportunity. This may be because I have that entrepreneurial instinct that draws out this intrigue, but whatever the case, they seem to pop up everywhere.

You can find these patterns in the stock market, football teams, the weather, time to market saturation for products, and a multitude of other things. For example, look at the stock market over a long period of time. You will see that over time the price to earnings ratio (PE) tends to expand and contract over a longer time horizon than the normal business cycle.

From 1903 to around 1920, you should notice a contraction of PE from around 24 to 5. From 1920 to 1930, the PE surged from 5 to 28. From 1930 to 1950, it contracted back to 9. From 1950 to 1969, it expanded from that 9 to about 23. Then from 1969 to around 1980, it dropped back down to 7. From 1980 to 2000, you should see it surge up to 42 (can you say bubble?). We have been on a PE contraction since then. The sad news, as you can see from the pattern, is that a long uptrend does not typically start until the price to earnings ratio falls into the single digits.

Being a University of Tennessee football fan, I observe the patterns there also. As fans, we have high expectations every season, which makes it difficult to see the patterns. However, you can go back to the 1960s and see a good decade for the UT program. The 1970s were tough. The 1980s bounced around with big ups and downs. The 1990s were great, and the decade of the 2000s has been sad. You would think from this, the current decade will improve.

If you listen to the news, you would think we have been on a warming trend from the past 100 years. Actually, we have been on a warming trend since the late 1970s. In the mid-70s, all the major news stories reported how the average temperatures had been dropping since the 1950s, so we would all starve to death because of crop failures. Last winter, we had snow on the ground in Knoxville, TN for over three weeks. Typically, snow only stays on the ground here for a couple of days, and this was the first time since I started living here in 1981 that this has happened. Could this be the start of something new?

Finally, notice the trend of how breakthrough technological inventions saturate the market. In a general sense, the automobile, television, and radio each took about 30 to 40 years to fully saturate the market. The VCR took at least 15 years. The internet reached saturation after around 8 to 10 years, and it only took Facebook around 3 years once it opened up to everyone.

This pattern is obvious, and we will see new products, services, and software tools reach full penetration within a year in the near future. This results from how connected everyone has become, and this connectivity continues to increase. I would say that at some point in the near future, products and especially software will reach full market saturation within weeks and even days.

What patterns do you see around you? Will these patterns affect your business? Are there opportunities in those patterns or just the satisfaction of knowing this is just one of those cycles and will eventually change?

If you’re familiar with The Hedgehog and The Fox, you know that the hedgehog revolves around one known truth, and the fox around many. The hedgehog is focused, and strategizes around that “one thing”, while the agile fox uses multiple strategies, many time uncoordinated and unrelated.

In Good to Great, Jim Collins uses this analogy to describe how some companies become great, and others never realize their goals. He says, “Those who built the good-to-great companies were, to one degree or another, hedgehogs. They used their hedgehog nature, to drive toward what we came to call, a Hedgehog Concept, for their companies. Those who led the comparison companies, tended to be foxes, never gaining the clarifying advantage, of a Hedgehog Concept, being instead, scattered, diffused, and inconsistent.”

In other words, focusing on one thing that you do best, that you are passionate about, gives you a strong competitive advantage against the fox in business. The hedgehog constantly sees victory in business over the fox because they drive their business around that focus.

Are you a hedgehog? Do you know what your focus is? Is it the right focus?

Collins asks these three questions to help you find your focus:

The idea is to find that one thing that you are good at, you are passionate about, and you can make money doing. Then define a strategy on how to do it, and follow through. Stay away from those things that you are only mediocre at, or better yet, know nothing about. There is someone else out there who knows it better, loves it more, and will be more successful at it. You have to find your own.