Unrealized Business Potential
“Opportunity is where you find it,” not where it finds you.
Luck, chance and catastrophe affect business as they do all human endeavors. But luck never built a business. Prosperity and growth come only to the business that systematically finds and exploits its potential. No matter how successfully a business organizes itself for the challenges and opportunities of the present, it will still be far below its optimum performance. Its potential is always greater than its realized actuality.
Dangers and weaknesses indicate where to look for business potential. To convert them from problems into opportunities brings extraordinary returns. Opportunities have to be reflected against the experience of a company and against its past success and failures. Sometimes all that is needed to accomplish this transformation is a change in the attitude of the executives. Three questions will bring out the hidden potential of a business:
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What are the restraints and limitations that make the business vulnerable?
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What are the imbalances of the business?
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What are we afraid of, what do we see as a threat to this business – and how can we use it as an opportunity?
Finding Opportunities in Vulnerabilities
Finding and realizing the potential of a business is psychologically difficult.
Finding and realizing the potential of a business is psychologically difficult. It will always be opposed from within because it means breaking with old, established habits. It often means giving up the very skill people are product of. To fight the threat, to manage an imbalance, and above all to make a process efficient despite its inherent weaknesses, requires great effort.
Searching for the potential of opportunity in a company’s vulnerabilities, limitations, and weaknesses is therefore likely to be resented by its most accomplished people as a direct attack on their position, pride, and power. This is the reason why the opportunities are often not realized by the industry leaders but by people on or near the outside. That this area is difficult, both objectively and psychologically, only means that businesses have to work hard at it and that managements have to stress it heavily.
Managing Cash in the New Venture
There is an old banker’s rule of thumb according to which one assumes that bills will have to be paid sixty days earlier than expected and receivables will come in sixty days later.
Entrepreneurs starting new ventures are rarely unmindful of money; on the contrary, they tend to be greedy. They therefore focus on profits. But this is the wrong focus for a new venture, or rather, it comes last rather than first. Cash flow, capital, and controls come much earlier. Without them, the profit figures are fiction – good for twelve to eighteen months, perhaps, after which they evaporate. Growth has to be fed. In financial terms this means that growth in a new venture demands adding financial resources rather than taking them out. The healthier a new venture and the faster it grows, the more financial feeding it requires.
The new venture needs cash-flow analysis, cash-flow forecasts, and cash management. The fact that America’s new ventures of the last few years (with the significant exception of high-tech companies) have been doing so much better than new ventures used to do is largely because the new entrepreneurs in the United Stated have learned that entrepreneurship demands financial management. Cash management is fairly easy if there are reliable cash-flow forecasts, with “reliable” meaning “worst case” assumptions rather than hopes. If the forecast is overly conservative, the worst that can happen is a temporary cash surplus.
Management Team for the New Venture
Key activities are not to be in books. They emerge from analysis of the specific enterprise.
Whenever the objective economic indicators of a new venture indicate that the business may double within three or five years, then it is the duty of the founder or founders to build the management team the new venture will soon require. First of all the founders, together with other key people in the firm, will have to think through the key activities of their business. What are the specific areas upon which the survival and success of this particular business depend? Every activity that any member of the group thinks belongs there should go down on the list.
The next step is, then, for each member of the group, beginning with the founder, to ask: “What are the activities that I am doing well? And what are the activities that each of my key associates in this business is actually doing well? “Next one asks: “Which of the key activities should each of us, therefore, take on as his or her first and major responsibility because they fit the individual’s strengths? Which individual fits which key activity?” Then the work on building a team can begin. But all key activities need to be covered by someone who has proven ability in performance.