Volume 2   |   Number 3   |   March 2014
The big project around our house these days is actually under our house.

home improvement The basement - the final frontier - had long been the home of holiday decorations, warehouse club specials and objects d'art like old tax returns (hey, 1999 was a good year) and my personal, personal computer museum. 

However, some long needed solace from the incessant beatings of our teenage drummer (love that percussionist) finally overwhelmed our inertia to clean things up.

While painful to divest the accumulations of a lifetime (especially for those of us with a sentimental attachment to obsolete technology and sore knees), the excitement of creating new spaces and moving forward was worth the pain and expense.

This got me thinking - how do businesses deal effectively with the difficult decision of resource allocation?

Bob Katz, President
Financial Analysis and Control Technology Services LLC (F.A.C.T.S.)

 You are right not because others agree with you but because your facts and reasoning are sound"
- Benjamin Graham
Speaking of free space, with the Lawrence mayor in attendance, the Merrimack Valley Sandbox Winter 2014 award winners were named and my mentoree, Gary Chamberlin, owner of ProVizual, was given 18 months of free incubator space to hatch his new software company. Go Gary!

Ctrl Alt Delete by Mitch Joel discusses how current business models no longer work and offers things you can do personally to reboot yourself to adapt to the changing realities.

Outsiders by William Thorndike provides useful stories of large company CEOs who had pivoted their businesses in response to significant change or declining performance. His action to do list at the back suggests ways to improve your reallocation process.

articleOneHome Improvement

With so much of their time and energy spent building their businesses, executives can often get blind sided by the speed of macroeconomic, competitive and technological change. And much like the clutter in my basement, parts of their business or product portfolio may no longer serve a strategic purpose or may require disproportionate resources no longer justified by the return it generates.


In this day and age of "lean startups", "lean manufacturing" and "leaning in", executives can ill afford maintaining "basements" because scarce operational and financial resources and underperforming assets make businesses bloated and less responsive to change.


For many executives who are personally invested in businesses they've created, parting with an underperforming product line or operation is an emotional decision considered tantamount to admitting a mistake. In addition, recent academic studies show that almost half of all acquisitions fail to achieve their original objectives. So there seems to be much room for process improvement (much like my '80s wardrobe, which I remember seeing somewhere around here...).


To that end, the financial services industry tells us a lot about portfolio management; capital preservation and asset allocation are the core tenets of building wealth. If an investment fails to achieve its targets (and even when it does), prudent portfolio managers sell to cut their losses or use profits to invest (or reinvest) in companies with greater likelihood of success.


Sure, buying and selling stocks may be easier to transact than businesses but the process and the discipline is much the same.


When viewing your business portfolio, how do you arrive at the critical decisions to invest or divest?


Here are a few things you can try:

  1. Lead a systemic review and resource allocation process for your business. Use the process to review investment/business results in the context of current conditions, technological and market trends and other potential disruptive events.
  2. Consider a decentralized organizational model or establish an accountable business "owner" for any new investments
  3. Establish acceptable performance and financial metrics based upon industry norms or your own cost of capital.
  4. Decide realistic company baselines and milestones before making any significant investment to measure progress.


Most importantly, if a decision to invest or divest is required, don't rationalize and don't look back (something is definitely gaining on you). Rather, review the process outcomes to decide if adjustments are needed without compromising key performance criteria. Improving the allocation process should be the objective.


There's an apocryphal story of Intel's founders who, when faced with intense Japanese competition, couldn't decide whether to remain in the DRAM memory business or pivot to the emerging microprocessors. 


Andy Grove, then Intel's CEO, told Gordon Moore (he of Moore's Law), "If we got kicked out and the board brought in a new CEO, what do you think he would do?" Gordon answered without hesitation, "He would get us out of memories." Grove stared at him, numb, then said, "Why shouldn't you and I walk out the door, come back and do it ourselves?"


Sometimes a fresh perspective is all that's needed to say goodbye to your "memories" and commit yourself (and your organization) to a more purposeful and rewarding future.


About Us: With our unique insights and expertise, F.A.C.T.S. provides practical, cost-effective solutions to clarify and execute your business vision and objectives.
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