A Tale of Two Businesses

A Tale of Two Businesses

In despair at ever finding the key to success in my own small business I stumbled on this fable

Ted and Tom were twin brothers who inherited a business from their father, a farmer outside of a Sacramento Valley town.  Dad had invented an innovative piece of farm equipment, and in time, the business included manufacturing other farm implements.  At the time of Dad’s death, the business had been successful for 20 years. 

But, after a couple of years, without Dad’s touch, profits started to wane.  Conflicts rose between the brothers. Rather than bicker, they split the product lines in two. Ted, the older brother, stayed in the existing building and Tom moved directly across the street.  Both businesses flourished in what were good times for farmers. But over the years, the two brothers and their businesses and grew apart.

Quiet Success—the Secret of the White Board

But then a series of events transpired.  From appearances, Tom hadn’t changed anything except enlarge the employee parking lot.  A year later he put an addition on the building, later, he did this again.  After a couple of years of puzzling over this, Ted was secretly pleased when one of his brother’s foremen applied for a job and agreed to come to work for him.

From outward appearances, Tom hadn’t changed anything except enlarge the employee parking lot

After a few weeks, Ted took his new foreman aside. “What’s Tom doing that seems to be so successful?”  The foreman thought about it for a minute. “Well,” he said, “you both manage like your dad, but Tom introduced an idea that seems to work.”

“What do you mean?” asked Ted.  “Can you give me an example?”

“Well,” said the foreman, “for one, they have a 30-minute weekly ‘stand-up meeting’ in the lunch-room where everyone looks at a big white-board that summarizes the problems they’ve been facing.  They add problems that came up, in both the office and the shop.  They talk through these problems till they come up with a solution. Then someone takes charge of seeing that the problem is fixed. 

“The next week the ‘fix-it person’ reports on how things worked out. Once a problem is fixed for good, they wipe it off the board.  This white board is a summary of everybody’s effort to improve the process.  They call it the ‘value stream’. It takes little time and involves no written reports.  It gives the team a focus on what’s next in importance. 

“The white-board also has a column that tracks metrics; for example, they track the ‘order-to-bank’ time each week—the time from an order to the deposit in the bank.  The accountants calculate the ‘order-to-bank’ time and posts it in a ‘one-year rolling average’ column on the white board and in a graph. The one-year-rolling average smooths out the highs and lows and shows long-term progress. Each week they drop the ‘year-ago-week’ and add the most recent week to the average.”

The changes are achieved quietly — no drama

The foreman continued, “The big benefit is that everybody sees and ‘owns’ the complete process and can see progress being made. The meeting keeps everyone alert for opportunities to save time and eliminate waste. The changes are achieved quietly—with no drama—but without this reminder it would be easy to lose focus.”

The Power of Increasing Returns

After this conversation, Ted started his own program of “value stream improvement” using a white-board and a lunch-room meeting. Sure enough, his business slowly grew. But, as it grew, so did his brother’s. And, since Tom had a two-year head-start he managed to stay one step ahead.

Years later, in a downturn in the economy, Tom’s business had the resources to survive, while Ted’s did not. While there were other factors at play here, Tom’s earlier adoption of tracking “product and process innovation” was a key difference.

The business that figures out a solution to a problem first, gets a leg-up on the businesses that lag

This fable reflects the experience of several of my clients. It illustrates what economists call the law of increasing returns.  The business that figures out a solution to a problem first, gets a leg-up on the businesses that lag. It's then hard to catch the leader. This lead is referred to as the first mover advantage

This idea is at the heart of The Profit Process®. It is a strategy whose basic tenet is measuring the constant improvement of every product and every process in the value stream. No business can be content to rest on its laurels.  If you are not constantly innovating, you are falling behind businesses that are. Like the tale of the brothers, it’s a continuing process of both internal creativity and outward action responding to the market.