Tuesday, June 30, 2015

Business thinking

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     Our brains are like giant computers. But there is a big difference.

     Computers are built from little components that give them their power. They are organized in such a way to give us pathways to solve all sorts of problems.

     Brains also consist of little pieces. Brains have great potential. But until the brain is organized, it flails about from one perception to the next, absorbing everything it encounters.

     Brains get organized by moms and dads, by language and culture, by education and experience, and by trial and error. 

     People program computers, and people program brains. The process is somewhat similar. Garbage in, garbage out.

     Example: Adele loved the fiber arts. She tackled crochet, knitting, tatting, rug making and lace making using all sorts of materials. A friend encouraged her to establish a website and open a tiny studio open to the public. Adele soon discovered that she could do only so much with her own hands--but she did not want to have employees. She did not want to price her output too high because she felt sorry for many buyers of limited means. To her dismay, Adele quickly found that her income did not support her expenses. Her solution was to turn her small business back into a hobby which she pursued at home. 

     Example: Marge also loved fiber arts. She wanted to establish a small business, so she did several business plans. She discovered a good market for handmade rugs using her original designs. So she took the plunge with a website and a working studio. Today, Marge has two employees making rugs using her own designs and under her close supervision. To price her rugs, Marge sets prices at a level that defines her target market. She is not looking to sell a rug to every homeowner. Rather, she sets prices at levels that attract clients who appreciate the uniqueness, the design, the custom colors--and they have the money to indulge these preferences.

     Business works by the numbers. Those bottom line numbers tell us with a degree of certainty whether or not the business is viable. 

     When a business owner mixes feelings with business, the business heads down a slippery slope. When emotion crowds out the numbers, bankruptcy looms. 

     Bad bottom line numbers weed out business owners who fly with feelings and emotion. It rewards those who do the logical, numbers-based thinking. 

     This does not mean that business is amoral. The current loud mouths who bemoan greed don't know how to put greed to work in a moral way. A moral business tames greed and turns it into a good social mechanism.