EDYLA Business Consulting Edgar Sanchez’s blog

Management Rules: 80/20 Rule, Rule of 72 and the Rule of 150

nobody@vox.com(Edgar Sanchez) — Tue, 04 Nov 2008 21:26:43 -0800

Three practical rules anyone could benefit from are the 80/20 rule, the rule of 72 and the rule of 150. Alone or together these rules provide an easy way to make better business management decisions.

The 80/20 rule was developed by Pareto. An Italian economist who observed that 80% of income in Italy went to 20% of the population. Today, this rule is widely applied. When in doubt it is a good rule of thumb. For example, 80% of sales comes from 20% of the customer base.

Rule of 72 is a financial rule. Perhaps the most important rule when it comes to understanding the power of compounding interest and investments. It is powerful for its simplicity, yet quickly gives you a good grasp in understanding your money.

The rule of 72 simply states that if you invest your money at a certain rate of return your money will double by dividing the rate into 72. For example, if you are getting an 8% return on your investments then (72/8) your money ought to double in 9 years. It also works if you want to know what rate of return you need to double your money. For example, if you want to double your money in 6 years you will need a rate of return of (72/6) 12%. Please note this assumes that the rate is consistent throughout the life of your investment.

The Rule of 150 states that the optimal size for a group size is 150. Humans could only properly maintain proper relationships in a group no bigger than 150. Perhaps the best example of the use of this rule is Gore Associates, the maker of Gore-Tex fabric. When asked when they know to build a new plant, the answer is simple, when all 150 parking spots are full.

Three simple, practical business management rules that help.

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Persistence Trumps Talent

nobody@vox.com(Edgar Sanchez) — Fri, 31 Oct 2008 19:48:55 -0700

Dan Pink says that in his life he has learned that persistence trumps talent. A chapter is devoted to it in his new book, “The Adventures of Johnny Bunko: The last career guide you’ll ever need.” He is better known for his books, “A Whole New Mind” and “Free Agent Nation” and for being at one time a speech writer for Al Gore.

I met Dan at a management speaking engagement that took place at Rotman School on September 30, 2008. It was an hour event. Dan spent a quarter of the time explaining Manga. The reason for this was that his latest book is written in this format. Manga is a Japanese form of a comic book. Apparently in Japan pretty much any subject is written in Manga, including a book on Budhism.

The Adventures of Johny Bunko is targeted to the “Y” generation but I think anyone would benefit from reading it. It takes less than hour to read it. You will learn as Johnny does the six most important lessons for a satisfying successful career. They are:

There is no plan
Think Strengths, not Weaknesses
It’s not about you
Persistence trumps talent
Make excellent mistakes
Leave an imprint

I completely agree with Dan on number four and often emphasize it to those who are starting a business. Hard work is key to success. There are countless examples of ordinary people doing extraordinarily things. The opposite is also true, there are very smart and talented people who do nothing close to their potential. The differentiators are hard work and persistence.

For those of you in a hiring role here are few tips from Dan:

Hire with the intention with your candidate bringing out the best in people
See what have they done–Portfolio
In an interview divert from typical questions and ask, “Are you lucky?” The correct answer is yes, because it shows positive attitude.

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Where do Entrepreneurs get an idea for a business?

nobody@vox.com(Edgar Sanchez) — Wed, 23 Jul 2008 21:59:00 -0700

As shown by Google, you don’t have to invent the wheel to create a successful business. All you have to do is improve on one. If you thought Google invented Search, you would be wrong. Google did not invent Search. Larry Page and Sergey Brin, the founders of Google where able to work on a search algorithm due to a grant made to Stanford by the NSF Digital Library project. At this time many search engines existed including Yahoo’s. What did not exist and what the two founders did invent was search by PageRank. They quit school to start Google and improve on the algorithm based on PageRank. Today there is no doubt that they have the best Search engine and an innovative company

At first, Google had great technology but not a business. They had no clear defined business model. At first they tried selling their search engine to Yahoo for $1 million. But Yahoo passed. Then they thought about selling intranet search services to companies.

The business model did not come to light until two Google employees improved on Overture’s (formerly Goto.com) advertisement auction technology.

If you lack a good idea for a business perhaps a good place to start is where someone already has.

See the full story as told by Hal Varian, currently on leave from Berkley to serve as Google’s Chief Economist

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Who will drive Social Change? Answer: Entrepreneurs

nobody@vox.com(Edgar Sanchez) — Wed, 23 Jul 2008 20:28:24 -0700

I have to agree. Entrepreneurs have always led change. In fact, one of the world’s foremost thinkers, Malcom Gladwell, thinks so.

Malcom Gladwell, a writer for The New Yorker but best known for his two number one best selling books “Blink” and “The Tipping Point” discussed Social Change with another respected thinker Mark Kingwell, a philosophy professor from the University of Toronto.

I attended the seminar that was held on May 13, 2008 at Convocation Hall, in Toronto, Canada. The one point I came out with was that nothing beats doing, and best doers are entrepreneurs.

Gladwell argued that social change is brought about action and not so much about knowing. As an example, he asked the question: What has Al Gore accomplished in the last 8 years of creating awareness for climate change? Gladwell argued that not much. Sure he has created awareness of a problem, but where are the results.

The hope for action lies in entrepreneurs and technical experts, Gladwell said. True enough, a clear example would be organizations like kiva.org and International Development Enterprise (IDE).

Kiva.org is the online micro lender that has helped thousands of poor people connect with lenders to start businesses. Everyone told founders’ Matt and Jessica Flannery that their idea would not work. That making small loans of $25 to entrepreneurs in developing countries would not work. Yet today, Kiva.org has a welcomed problem any organization would have; They have too much money and not enough entrepreneurs to lend to. Maclean’s wrote about it last year in an article entitled “No more Cash please we are drowning in it”

Through IDE, Paul Polak has been fighting poverty for the past 25 years and is the author of new book entitled “Out of Poverty”. Watch Paul Polak on The Hour where Paul Polak discusses how he has helped 17 million people out of poverty and his plan to continue to help the 1.2 billion impoverished people around the world who live on less than $1 a day.

The model for successful social change as shown by entrepreneurs according to Gladwell, Doing first, small Goals second, Focus third and finally, fourth, create awareness.

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Who will drive Social Change? Answer: Entrepreneurs

nobody@vox.com(Edgar Sanchez) — Wed, 23 Jul 2008 20:28:23 -0700

I have to agree. Entrepreneurs have always led change. In fact, one of the world’s foremost thinkers, Malcom Gladwell, thinks so.

I attended the seminar that was held on May 13, 2008 at Convocation Hall, in Toronto, Canada. The one point I came out with was that nothing beats doing, and best doers are entrepreneurs.

The hope for action lies in entrepreneurs and technical experts, Gladwell said. True enough, a clear example would be organizations like kiva.org and International Development Enterprise (IDE).

The model for successful social change as shown by entrepreneurs according to Gladwell, Doing first, small Goals second, Focus third and finally, fourth, create awareness.

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Why your Organization needs a Marketing Strategy

nobody@vox.com(Edgar Sanchez) — Wed, 30 Apr 2008 20:32:40 -0700

....coming May 1st 2008

Marketing strategy entails an organization doing 5 key things.

Air Canada example

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From an Idea to Successful Business

nobody@vox.com(Edgar Sanchez) — Fri, 04 Apr 2008 12:39:11 -0700

If you are entrepreneur this article is for you.

In an interview with Wharton, two Latin American entrepreneurs and writers reveal what I succinctly believe you need to do to make your business a success.

UK@W: What steps does an entrepreneur have to take from the time he or she gets the idea until the time when it is put into practice? Is there a trick for speeding up the process?

H.H./D.B.: The first step is to show in practice that the idea is viable. That means that you have to create a prototype of the business – an action plan that you carry out. The business model will be valid only if it produces sales in the volume and at the speed that you forecast. In this respect, you have to be as creative as possible; your tests must involve conditions that are as close to reality as possible. Some people will say, “For my business idea, it isn’t possible to create a prototype.” We think that is just an excuse. There is always a way to create a prototype and sell it.

In the United States , an entrepreneur wanted to build a spa that would provide hydrotherapy. It was hard for him to create a prototype in that area, but he could create a business model. So he invested in virtual models and rented space in a shopping center. His goal was to get 1,000 members to subscribe by asking them for a symbolic registration fee. The club needed at least 200 members to be profitable, and they knew that if they signed up 1,000 people, it was more likely that once the project was launched, only 500 people would pay their fee. If there hadn’t been 1,000 subscribers, the entrepreneur would have returned the fees to the people who had paid them. If it had more than 1,000 subscribers, it would be clear that all of its investments were justified. The principal was clear: An economy of resources, economy of efforts and the minimization of risks.

In that example, would it have been worth the trouble to go through every step and make all the investments, only to realize that the business plan would work? When a model is validated through a prototype, the costs of registration and financing and all the other costs that you need will be much easier to get. So you should never risk what you don’t have without having proved the validity of your business model.

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How to Manage a Company Properly

nobody@vox.com(Edgar Sanchez) — Mon, 31 Mar 2008 20:40:07 -0700

The first 10 pages of the recently released annual report from Berkshire Hathaway Inc., Warren Buffett, describes how a company should be managed.

Key to Buffett's investment success is the fact that he takes managing controlling ownership in the companies he owns or buys stock in companies that have long term competitive advantage or a strong global brand. Bottom line management is key for Buffett.

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Realizing a Return on Investment on Your Trade Show

nobody@vox.com(Edgar Sanchez) — Fri, 29 Feb 2008 10:39:36 -0800

I attended the Canadian Food and Beverage show a the Direct Energy Centre over weekend. Great show!

Exhibiting at a trade show is an excellent way to create awareness for product or service at a reasonable cost. Like any other marketing effort companies need to be strategic about it.

However, I am always surprised how many companies fail to address all the different components to ensure a certain level of return on investment. Where many companies fall short is in the staffing area. The people staffing your booth are arguably the most important aspect of your exhibition.

Here is what Skyline Toronto, a company that specializes in trade show has to say:

“Most important, be sure to train your staffers how your company has segmented its market, how to recognize which segment attendees fit into, and what benefits matter most to each segment. And if you can, once you choose shows based on market segments, try to pick staffers that have a similar demographic as the show's attendees. For example, let's say you've been selling to the building and construction industry. You will likely have more success if you pick your staffers based on their match up with those audiences -- more artsy for the architects, more analytical for the engineers, and more business-oriented for the general contractors.”

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Marketing and Sales begins and ends with the Customer

nobody@vox.com(Edgar Sanchez) — Thu, 31 Jan 2008 16:10:34 -0800

Marketing guru and the inventor of the of the 4ps (Product, Place, Promotion, Price) Phip Kotler maintains that the two most important things that marketers should be doing today is:

1. Getting to know your customer better and to get closer to them

2. Differentiating your product through branding

Getting to know the customer is exactly what Lou Gesner did when he transformed IBM from a hardware focused company to a solutions based company.

Between 1991 and 1993 IBM was bleeding cash, it reported losses of $16 Billion. The market research IBM conducted showed that customers cared less about computer parts and where more concerned about solving IT related problems. As a result Gesner created IBM Global Services, and today arguably IBM is the third most recognized brand behind Coke and Microsoft. Listening and getting closer to the customer has paid off great dividends for IBM.

It is easy to create a package for your product or service, by having a nifty logo, and catchy slogan. But this does not represent a brand. A brand is a promise by your company to your customer. It entails everything a company does from manufacturing to the way a retail person greets a customer at a store. Any violation of your promise erodes any brand equity you might have built up.

So how does a company build a solid brand? The brand is direct reflection of the company’s mission, vision and values. In other words the company brand is a reflection of the company’s leadership. If a company has great leadership it can create a brand that will provide it with the opportunity to differentiate itself in the market place. A great brand lives vividly in a customer’s mind and provides a competitive advantage.

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