It wasn’t that many years ago that having a long history behind your business was a good thing.
Traditions, generations of family ownership, and having a well-known presence in the market were seen as the holy grail for small businesses. They were indicators of success!
That’s no longer the case. Now it’s the ability of your business to evolve to meet market requirements and customer expectations that are the hallmarks of success.
Business evolution is never risk-free
Once case that highlights the changing business landscape is that of family-owned business Salvio’s Shoes, located in Sydney. Salvio’s made and sold handmade dance shoes.
After 135 years of trading on 30 June 2016 Salvio’s Shoes closed their doors. Gone. Forever.
It was the last handmade dance shoe shop in Australia.
But the problems didn’t suddenly appear. In fact the current owner, fourth-generation shoe maker Philip, said “This has been happening over the last 5 years”. The warning signs they had noticed included:
- Online shopping was making cheaper overseas products easier to get.
- The cost of components was making manufacturing in Australia not financially viable.
- Wholesale sales were declining. “We used to be able cover our overheads with the wholesale side of it, but we’re not even getting that anymore because the shops aren’t buying because the bricks-and-mortar shops are closing,” he said.
But… rather than evolve into a more modern version of the traditional business, they simply stopped trading.
Are you watching the tide come in over your business?
There are plenty of signs to pay attention to. Don’t stick your head in the sand and claim that you don’t understand the new technologies or the new ways of doing business. This is the new reality.
Do you have a plan for how your business can evolve and remain relevant in tomorrow’s market? The last thing you want is to be like Salvio’s Shoes and see the threats to your business increasing for 5 years or more yet not make significant changes to survive.
Change is uncomfortable, but necessary
Human nature favours the status quo. It’s an ancient survival instinct. That’s why most people don’t like change. So it’s no surprise that business owners and CEO’s struggle with how to change, grow or improve their business.
Other human biases that create emotional distortion and affect our short term emotions – proved through scientific studies – include:
- The “mere exposure” principal which says that people develop a preference for things that are more familiar.
- “Loss aversion” which says that we find losses more painful than gains are pleasant.
- The “confirmation bias” which says that we more readily search for and accept information that fits our preexisting beliefs while giving less consideration to alternate possibilities.
In the business world change is often discussed as being about big strategic decisions. But more often there are situations within your business where change needs to be addressed one small step at a time.
Examples of these “everyday” change opportunities are:
- Addressing poor performance or disruptive behaviour.
- Implementing new sales reporting processes by the sales team.
- Implementing a performance improvement process such as regular reviews or one-to-one coaching.
- Adapting business processes to remain relevant such as introducing new workflow systems or implementing a new marketing plan.
What are the potential risks of making these changes?
- Wasted time and effort from the manager, if ongoing performance by the individual remain unsatisfactory.
- Reduced team morale.
- Negatively impacting productivity with poor use of, or confusion about, the new systems.
- Undermining managements authority and respect from the team.
- Potential legal issues with how the problem staff member is reprimanded and/or removed from their position.
Change requires risk.
Whilst change often involves a degree of risk, there are ways you can approach your decision making about the change to make the best decision possible.
How to make better decisions and reduce risk
In their book Decisive, authors Chip and Dan Heath draw on research to explain how our decision making process is inherently flawed by human biases and irrationalities. As a solution they present a framework for decision making using the acronym WRAP.
W = Widen your options
R = Reality-test your assumptions
A = Attain distance before deciding
P = Prepare to be wrong
Let’s have a brief look at some of the key ideas within each stage of the WRAP process and how they could be used in your business.
W = Widen Your Options
Expand your options: Get help to identify options you would not have originally considered. Remember, we don’t know what we don’t know.
Consider the opportunity cost: Find a way to measure the opportunity cost of the decision you are about to make. What is the impact if you do it? What is the impact if you don’t? What else could you do with the resources (time, effort and money) that you are putting into this decision?
Think AND not OR: In other words give yourself the option to pursue multiple paths of action at once. Or can you commit to one path yet still test out another path. Look for options.
Find someone who has solved your problem before: Use your personal network or your business connections, or search online for the decision you are making. Could you learn from someone who has done this before?
R = Reality-test Your Assumptions
Spark constructive disagreement: Find someone you can trust and who doesn’t have a personal agenda with the decision. Their role is to politely disagree with you if they think differently.
Ask disconfirming questions: To help avoid our own ‘confirmation bias’ ask questions that might identify potential problems such as “What’s the biggest obstacle to what I’m trying to do?” or “What are the three main reasons why I might fail at this?”.
Consider the opposite: Run some quick tests against your thinking by considering the opposite of what you have in mind. If you want to promote a team member, ask yourself why they might be the wrong person. If you want to win a new client, think about why they may not be a good fit for your business.
Test the water: Rather than making an all-or-nothing commitment can you instead start with a smaller action to validate that particular path, such as: run a trial, try out the new process for a period of time, or take a small step toward figuring out the solution. Then see what you learn from that small scale test.
Zoom out: It is human nature to over-emphasise the unique nature of our situation and think “this is different” when comparing to average outcomes from similar situations. Zooming out is the process of looking for benchmarks, or a summary of real-world experiences, to gain an outside view of your decision and provide a more rational expectation of results.
A = Attain Distance Before Deciding
Shift your perspective: Try to view the situation from another angle by asking yourself “What would I tell my best friend to do?” or (as a business owner or CEO) ask yourself “If I was replaced tomorrow what would my successor do?”
Identify and protect your core priorities: Make sure you don’t lose sight of your core objectives. When new opportunities arise consider the impact on your core priorities. Is it worth taking on the new initiative? What will the impact be on our core priorities?
Remove the short-term emotion: Using a tool known as 10/10/10 can help you take a longer term view of the decision you are considering. Imagine you resolve right now to make the decision. How will you feel about that decision 10 minutes from now? How would you feel 10 months from now? How would you feel about it 10 years from now?
P = Prepare To Be Wrong
Run a premortem: Why did it go wrong? Imagine it is one year from now and the decision you made turned out to be a disaster. Ask yourself “Why did this fail?”. Have your colleagues do the same thing and compare your answers.
Run a preparade: Why did it go right? Imagine it is one year from now and you are celebrating the fabulous success of the decision. Ask yourself and your colleagues: “Why did it work?” or “What did we do that made it a success?”. These answers aren’t always the simple opposite of the premortem.
Give yourself a safety factor: Allow extra time or resources, or underestimate your abilities, in order to create a margin for error, or a buffer factor.
Set a ‘trip wire’ to alert you when things are going off track: This will help you stay focused on doing the right things now. Trip wires can be set as a date for when to review performance, or based upon certain activities being done, or certain changes being observed. Set the trip wires in advance, and be sure to monitor those factors so you can more easily remain aware of your progress (or not) towards your goals.
Create a realistic preview of the situation: Speak with others who have done this before, or work up a likely scenario based on your knowledge, that will clearly show how things will be after the new decision has been made. How does that realistic scenario make you feel about the decision you are contemplating?
Business owners, CEO’s and other managers must recognise opportunities for evolution of the business and take action when the time is right. But making those decisions can be difficult and risky. However the risk can be mitigated by using a more rational approach to decision making that will help avoid our inbuilt human biases.
If you find you need help to assess your situation or to improve your decision making ability you are welcome to contact us.