Posted by: rongeri | October 12, 2009

The Challenge of Changing Times–Part V

V.        Basic Economic Principles for Becoming a “Master Business Chief”

There are three key principles of business economics that apply with extra importance in order to meet the challenge of changing economic times. Here are those three principles and three questions related to each.

1. Selling Price Must Be Higher Than Your Cost

a)      Do you know what your costs are?

b)      How do you set your prices?

c)      Do you monitor your “gross profit margin”?

2. Funds Coming In Must Exceed Funds Going Out

a)      How do you know what your funds position is? When do you know?

b)      Do you confuse “profit” with cash?

c)      Do you manage cash? (To borrow a phrase from the popular movie Jerry Maguire, “Can you show me the Money!)

3. You Must Have Enough Funds To See Yourself Through.

a)      How do you know how much you need?

b)      What is your break-even?

c)      Can you “afford” to grow?

 In addition to understanding and applying these principles, you need to be able to answer the questions under each of the principles in order to begin becoming a master business chief who really knows “how to cook”! 

Cooking programs such as Iron Chef contain some examples from which business entrepreneurs can learn useful lessons. Those examples include using given resources and coordinating team work to successfully produce a product under tight time constraints.

But remember, no one becomes a master of anything overnight. A virtuoso master chef who produces results in Iron Chef’s Kitchen Stadium, a virtuoso such as Warren Buffett who produces consistent results in business, a virtuoso computer scientist and programmer such as Bill Joy a cofounder of Sun Microsystems, a virtuoso master musician such as Yo Yo Ma who produces results on stage, a virtuoso athlete who produces results on the field of competition, a virtuoso painter who produces a result on canvas, all have practiced developing their skills for sufficient time and intensity so as to have moved from technical mastery to artistry. [i]

 Just as a good cook knows that if you don’t watch the pot, you may burn what you are trying to cook, so too successful businesses know that there are some things you have to keep an eye on. These are the red flags of business. If you use these red flags to measure and monitor performance, they will help you to succeed. If you ignore them, like someone who forgets something is in the oven, you will not know you have a problem until it is too late to do anything about it. One of the things you need to watch in business cooking is how your business ratios are doing.

  


[i]               See “The 10,000-Hour Rule” in Outliers: The Story of Success by Malcom Gladwell. See for example, “Managing the Medici String Quartet”,  HBS Working Knowledge, September 10, 2007.


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