A Sustainable Business

We are in the midst of exploring sustainability in a business setting. Today I want to challenge you to think about an activity you can do right now to help assure a sustainable business. A sustainable business does not imply an unchanging business. Your high-tech consulting business might morph into a bio-tech training business as high-tech wanes and bio-tech booms. Your training business could morph into a coaching business as businesses seek more personalized help. Your life insurance business might morph into a long-term care insurance business as baby boomers age. For purposes of this discussion I’ll define a sustainable business as one that continues to support you and your goals at a consistent and growing level, while meeting customers’ needs in ways that satisfy their expectations and motivate them to want more of what you offer. How would you describe a sustainable business?

The starting point for sustainability is deciding what business you are in right now and what your strengths are. The classic examples are deciding whether you are in the railroad business or the transportation business, whether you are in the telephone business or the communication business. Rail companies today haul containers and have trucks. Amtrak runs buses. AT&T offers Internet access and television programming. Can you define your business in a way that does not paint you into a corner? Take a moment to make a first stab at it. It may take some serious pondering over the next weeks and months to come up with a satisfying answer.

To be sustainable a business must also adapt to changing surroundings. The sooner the business can start to adapt to the changing business realities, the better its chances of survival. IBM used to depend on large margins in its hardware businesses. Now it is largely a services company, and a very successful one at that. GM used to depend exclusively on margins on cars for its profits. Now their loan-making arm, GMAC, accounts for large contributions to corporate profits. This shift is less sustainable: As imports continue to eat away at GM market share, car loans for GM vehicles will be shrinking, too. Berkshire Hathaway used to make textiles. Now they are an investment company. Warren Buffett understands sustainability.

To adapt to changing surroundings, a business needs to recognize the change and then find a way to leverage their strengths into the new reality. The key word is “recognize.” Most businesses that peak and plunge do not recognize the threat until it is too late.

What are some possible changes that could become threats in your own business area? Whether you are a leader in an organization or an independent professional, nothing is forever. Remember when organizations eliminated middle management to “flatten the organization”? How many of those middle managers were expecting their jobs to go away? I was one who was not expecting it. It still went away.

Here is an exercise you can use to sharpen your awareness of potential threats. The process involves three steps. They are simple to state but challenging to do well. First, list the key ingredients in your success. Include people, processes, organizational structure, technology, products, services, business models, government action or policy, global realities (How will China’s voracious appetite for raw materials impact your custom cabinet business, for instance?), the customer problems you solve and the options they have to solve them, or anything else which, if it changed dramatically or went away, would radically change—or doom—your business. Be as specific as you can. Don’t just say, “Customers.” Use detail to narrow the list to your best, your most numerous, your target customers. You might for instance write, “Married couples with at least one child who own their own home and live within 30 miles of my business.” Don’t say, “Insurance.” Elaborate, as in, “health insurance and life insurance.” In a corporate setting, you might describe your customer as “the CFO” and your product as “the weekly operations cost analysis.” The more complete and detailed you make your list, the more sensitized you will be to watching for potential changes in an “ingredient” that could impact your business.

The next step is to list as many ways as you can think of that each ingredient could be changed and impact your business. For instance, the married couples above could lose their interest in health insurance if the government implements a comprehensive health care program. That would eliminate those costs from the family budget. The CFO could lose interest in your reports if the IT department implements a click on a web page to automatically produce the report you have spent hours creating every week for years and years. By the way, the danger here is that you will go into denial as you think of a possible change, “But that won’t happen.” Don’t evaluate the likelihood of the changes that come to mind. Just list the different threats and write them down. Your aim is a long, potential list rather than a brief, likely one.

The third step is to try to identify early warning signs that the potential changes you listed might be on their way: rising clamor about health care starts to get political traction, the IT department starts talking about package integration and online business reporting, a report comes out highlighting the next generation’s tendency to discard rather than collect—which bodes ill for your collectibles business, etc. Repeat or review your lists and this process at least once a year, looking for any early evidence of a potential threat and adding to your lists any new ideas, based on current events. One goal here is to sensitize your unconscious mind to make you aware of things your conscious mind might otherwise miss.

Using this exercise in conjunction with a classic S.W.O.T. analysis (strengths, weaknesses, threats and opportunities) can make it even more powerful and useful. Will it guarantee your business can avoid catastrophic market change? No, but having your eyes open gives you a chance to maybe anticipate a significant threat. That might give you time to do something about its impact before it does something to you.

Join me tomorrow to explore sustainable business practices.
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Leadership QuickTip Application Question: What are you willing to do today to take your preparedness for catastrophic change to the next level?
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Please feel free to use the blog comments to share hints from your personal experience about maintaining a sustainable business.
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Lead as though the future depends upon it!

(originally posted to my “Leadership QuickTips” blog in April 2007)