When to Say When

Blog 395 – When to Say When

Nobody likes to admit defeat. Nobody enters into a deal expecting to lose. Nobody starts a project that they don’t expect to complete. But sometimes, unexpected stuff happens. Partners don’t live up to commitments. Suppliers can’t supply. Developers forget how to develop or run into unexpected issues. It happens. The question that is now faced is, when do you say “enough” and cut the loss?

First and foremost, this is a time for a “business” decision. Pride and emotion should not come into play. Multiple issues and disciplines need to be reviewed. Prioritizations need to be made and weighted values need to be assigned. There will always be multiple stakeholders in the decision that will believe that their specific issue should take precedence and be the basis for the decision. There will also be those who are probably best ignored in the greater scheme of things. I’ll try to sort through some of the various topics and inputs that should go into this decision.

The first input is one of the most critical inputs of all: Time. No one immediately finds themselves in a failure situation. It is usually the compounding of many items over time that causes the “Ah Hah” moment where the issue manifests. It must be understood that “All errors are Additive”. Two wrongs do in fact not make a right. It is usually a series of small errors or issues that add and multiply to create the failure state.

If you are interested, there is a Harvard University paper on error propagation that can provide you the mathematical foundations of this idea at http://ipl.physics.harvard.edu/wp-uploads/2013/03/PS3_Error_Propagation_sp13.pdf.

The business equivalent here is that there are usually many disassociated errors across time that add up to what can be viewed as a non-recoverable situation. Always correlate all error or issue reports, then review how long the failure condition really existed before it was noticed.

The second is based on the business nature of the issue: Is it an External – Customer Related Issue, or is it Internal to the Business itself? If it is a customer related issue, then the loss of business, both current and future should be the deciding factor. If the customer is committed and dependent on the product, good or service at question, then there probably is no alternative than to continue to commit resources (money, people, components) until either a resolution or work-around is achieved. Here the pain of the customer must outweigh the pain to the business. Effectively, the plug cannot be pulled.

If the customer has recognized the issue and has taken steps to mitigate their exposure, or made other plans based on expected non-compliance, move quickly to achieve an appropriate solution (give them their money back, substitute other products or solutions, etc.,) and move on quickly. The same would apply if the effect on the customer’s business can likewise be minimized.

Understand that engineers will always say that with a little more time and budget they should be able to find a solution. Developers will always say with a little more time and budget they should be able to get the solution working as desired. All will point to the amount that has already been spent and how with just a little more it should be possible to recoup it.

Personally, I have yet to see this work. This argument usually results in an incrementalistic approach that ends up costing more people, time, money, with little more in the way of deliverable results to show for it. One thing to remember here is that if you have hit the point where you have to examine the business case for continuing on along a certain path, then you have probably already passed the point when it was appropriate to stop doing whatever you were doing.

Internal programs, projects and developments are far easier to analyze. The question will always be: Is it strategic to the future of the business? And of course, the answer to this question from those responsible for the topic in question will always be “yes”. Just remember that strategic topics and programs usually encompass years on the timescale and similarly large values on the funding scale. A good rule of thumb is: If multiple years have not already passed by the time you are examining the “Stop / Continue” decision, then it is probably not a strategic topic that is being discussed.

There will always be those that want to continue whatever program, project or development that is being reviewed. These will be the people and groups that have budget and resources stemming from the program. There will always be those that will want the program to be stopped. They will be the people and groups with competing programs that want the budget and resources. These groups can also almost always be immediately discounted as input into the decision.

The internal stop / continue decision must be taken out of the hands of the technical groups (engineering, research and development, etc.,) and put in the hands of the financial and business management teams. How much more will it realistically take to complete? How much revenue or cost reduction will be foregone if not completed? How much longer will it take? What is the project’s trajectory? Will it take a restart / rewrite, or is it truly a defensible incremental piece of work (be very careful here)? It is here that the money should talk, not the desires or beliefs.

Occasionally a business may find itself at the mercy of another business group or supplier as the cause of the program, project or product delay. Instead of a stop / continue decision, you will be faced with a “wait / continue” decision. This means instead of stopping permanently and moving all resources to other projects, the decision is now do you stop temporarily, move resources to other projects and await the outcome of the delaying party, or do you continue with your piece of the project and just hope the offending party will be able to catch up?

Almost every time when presented with this decision, those associated with the project in question will want to continue on and hope the other group or supplier catches up. From their own budgeting and staff assignment point of view, this is the best and simplest solution for them. They will always try to justify this decision by stating that it will be more expensive to stop, reassign the resources, then reassemble them and restart the project at a later date.

Most of the time, since they are the technical resources associated with generating the costs associated with this decision, their assertion is not questioned.

This is a mistake.

Always question, quantify and justify costs to both stop and restart a project. Stopping should usually be nothing more than the cessation of charging to the project. Starting may require some re-familiarization with the project but should not entail significant time. What this means is that from a business and financial point of view, it will almost always be less expensive, and better for the business, to pause all efforts on a third party delayed program or development than it is to continue to work while the third party is delayed.

It may add complexity to those groups whose budgets are now in somewhat of disarray due to the pause and inability to keep charging, but it is better for the business overall.

The only potential mitigating circumstance is how long the third-party delay is forecasted to be. If it is on the order of days to a few weeks (less than four as an arbitrary limit) than continuing may be the right solution based on future resource availability. If it is on the level of a month or more, the decision starting point should be biased toward stopping the costs and investments until such time as the third party has caught up.

So, summarizing the decision tree associated with when to say when on failing or delayed programs, projects and developments:

If the customer business is dependent on the commitment, then whatever it takes to complete is required. Not only current customer business, but potentially all future customer business is dependent on competing the deliverable.

If the customer business is not dependent on the commitment, then the business case for stopping, substituting or finding a work around should be examined. Only the current customer business is dependent on completing the deliverable.

For internal programs and developments, the question of how strategic the program or development is will be key. We all know that nothing ever fully goes according to plan. For those strategic topics, requiring large budgets and long time-lines this is even more evident. Those that are truly strategic it may be best to continue to push on through, but with significant monitoring to make sure further issues and delays do not continue to show up, causing incremental failure.

For those non-strategic programs and developments, it should be a financial / business case decision based on the cost to complete versus the foregone revenues or cost reductions associated with a successful completion. Question all inputs and let the numbers fall where they may.

Finally, when the decision to wait or continue when a contributing entity is the cause of a delay, it is almost always a financially better decision to reassign resources and wait for the third party to complete their work than it is to continue to work in the expectation that they will catch up. It may be more complex and disruptive to those entities assigned to the program, but it will be better for the business.

Finally, understand that any time you ask for the inputs on the decision from the groups that are directly involved with the program in question, they will almost always declare that the program should continue at current funding and spending levels. While this may be beneficial and easier for them, it is the least financially viable approach to the decision in question. Always question inputs and justifications from all parties. Remember, when it comes to money, either internally to the business, or externally from the customer, there will be those that want it, and those that want to spend it.

Starting Something

I have been blogging for a while (has it really been 10+ years?) about business and sales and the situations that arise in both. It’s been fun. I figured it was time to actually listen to some of the things I was saying and put them back into practice, again. As time passes and our work evolves it is easy to leave some of those things that we learned and enjoyed behind. To wit, a couple of weeks ago I opened my own little sole proprietorship business. I’ll spend a little time talking about it, what I learned, and what I relearned in the process.

First off, for those wondering, I didn’t quit my “day job”. I still enjoy it and need it to pay the bills, or more importantly pay for the medical insurance that helps pay for my son’s insulin for his Type 1 Diabetes. In case you were not aware, the price of insulin has increased one thousand percent in the last fifteen years. Yes, that means that insulin now costs ten times what it did then. But it’s actually cheaper now to make. Make of that what you will.

Without insurance it would be a significant financial hardship in addition the other problems it presents for him going forward.

In any event, I am still in the technology and services industry. I find that even though we can and probably should apply many of the things we learned before, to today’s issues, our new processes, outsourcings and corporate structures may make it a little more cumbersome to do so. We seem to have less and less capability to provide input into our own business decisions and directions in today’s process driven business environment. This is part of the reason I have taken on this additional endeavor.

The first order of business (if you pardon the blatant pun) was to get all the state licenses, company names and banking accounts set up. This is the equivalent of starting your company, putting your sign out on the door, and setting up the place where you get, and send your money. It needs to be separate from your personal finances. It would have been easier to just use the accounts we had, but if you are going to do it, do it right. It also makes it easier to keep score on how well, or poorly you are doing.

The business I chose was probably at the other end of the business spectrum from technology equipment and services. I wanted a full separation of functions. There can’t and shouldn’t be any conflicts of interest. This is strictly an after-hours business. I’m making game-boards and games out of various metals in my garage. I don’t think I can get much further afield than that from my day job.

Setting priorities and remembering whose clock you are on at any given time is a requirement. You cannot cheat those who are paying you when you are on their time, and you cannot cheat yourself when you are on your own time.

Like any good Product Line Manager, I had done my market research in looking at what types of similar products were out there (you truly can get just about anything from China, or eBay for that matter). I also looked at the relative prices to make sure that I could actually make a profit at the then going rates for competitive products (another business case). Finally, I looked at the various types of suppliers that I would need, both local and on the internet, for my piece parts. Thank goodness for Home Depot.

The next was acquiring the raw materials I would need to create the goods I would sell, as well as the equipment I would need to make and finish the products. These would be my sunk costs. Regardless of my success or failure, I will not get my money back from these expenses, unless I earn it back.

This brought up the first set of business cases. Do I go for the high-end expensive equipment that could make the work easier and help generate a higher quality product, or do I go a little less expensive, take a little more time, and rely more on my skills to save money, at least initially? I didn’t choose either end of the spectrum of equipment but did tend to go toward the less expensive brands and platforms to start.

I felt that these would get me started and reduce both my capital risk as well as my breakeven point for the business.

Then came the learning process. Just because I thought I had a good idea and a plan didn’t mean that I had it all figured out. As I started producing products the learning curve kicked in. I learned which components were better than others. I learned which manufacturing techniques worked best for me. After a few tries, I started to produce some products that I thought were of an acceptable quality level.

Now that I had products that I was happy with, it was time to see if customers would be interested in them as well. There were essentially two discrete paths to market for the products I was creating: Face to Face (F2F) at business and craft trade shows, and over the internet on the various electronic market places that were available. To start I selected the internet / electronic marketplace approach.

I made this selection for a couple of reasons: The start-up cost of this approach was minimal (basically the cost of creating a product listing on existing market place web sites), the charges were directly proportional to the amount you actually sold, there was a predisposed customer set that used them, and the mercantile systems (Credit card, charging, collection, payment) were already in place. The two I started with were eBay and Etsy. Both well known and respected

Trade shows require an investment / entry fee up front, regardless of whether or not you make any sales, as well as the investment of real-time attendance at the show in order to make any sales. I did not feel I could make these overhead investments at this point in time for the business I had chosen. They would also require some sort of Point of Sale (POS) system in order to conduct business with credit cards, the now preferred way for most to do business. I have signed up with one (Square, mainly again because the upfront investment was minimal, and the expense would only grow as my sales grew), but am still not fully operational yet.

I will continue to prepare and will eventually go to some of these F2F shows for a couple of reasons. One is to get the direct feedback from dealing directly with a customer. The other will be to test this channel to market for profitability. Could I actually sell enough at one of these shows where the profit (not the revenue) generated would cover the upfront costs of entry, and time spent and again provide profitability?

In addition, I needed to create a web site where I could both tell my story and display my products. This blog has been and is hosted by GoDaddy. I have written in the past regarding the quality of their service and support. Please look up “A Great Service Story” (March 7, 2019) for my views on them. I used them to create https://metalgames.biz/. They had some great tools to aid in the rapid set-up of the site.

Again, I held off on creating the commercial system for taking orders directly from my website due to the upfront costs associated with setting it up. Instead I opted for links from each product page to my Etsy site (https://www.etsy.com/shop/MetalGames?ref=ss_profile ) where I could take advantage of the existing commercial system. There may come a time where I do set up the Point-Of-Sale system on the web site, but for right now, I felt managing the business’ cash-flow was a little more important.

So, there we go. I’m now in business. https://metalgames.biz/ and https://www.etsy.com/shop/MetalGames?ref=ss_profile are both live and believe it or not doing business. It may be primarily for personal enjoyment, but that doesn’t mean I will not take it seriously. To date I have received two orders from eBay and four orders from Etsy. I don’t think that is too bad for having been up and operational for approximately three weeks.

This has brought up the next several issues associated with Inventory and Fulfillment when it comes to getting the product into the customer’s hands in a timely, efficient and economic manner. With such a small number of orders one would think that this would not be a significant issue, but it actually is. In fact it is a bigger issue than I had expected.

Marketing and Advertising will also be interesting topics for discussion.

All costs affect margins and profitability. Being a small business means that you cannot take advantage of any volume-based efficiencies, for either the components associated with production, or the costs associated with shipment and delivery.

I will go into these topics (and others) and what I learned about them some other time.

The bottom line is, that it is fun. Even though I am making games, I don’t want to treat it as a game. If it is going to be a business, even a very small one, it deserves the attention and respect that is required to make it successful. I’ll keep you all posted as this evolves.