My Big Bang Theory
The other night the Big Bang Theory was on TV. Its not a show that I usually watch however, the episodes that I’ve seen can be amusing.
One of the discussions in the show was a debate about what is more important – a good idea, or the execution of the idea.
Obviously the debate was in a humorous manner and the arguments were from the perspectives of the individual characters. It did however get me thinking.
I recently spent a few days in Bali with my family. I always find Bali businesses intriguing. We think that there is a lot of competition in Australian business, but the Balinese take competition to the extreme. Most buildings have some sort of business attached to them and everyone seems to be connected to other businesses through a ‘referral network’ of some sort. Even when you go to the beach, there are numerous vendors, selling a range of products from drinks, to clothing, to sun-lounges. Each of them works their own little patch and they are all competing for their slice of the tourist dollar.
Restaurants are another example, Bali has an enormous range of restaurants and the choice of price and quality is almost endless. For the purpose of this discussion, I would propose that all restaurants are basically the same idea – the restaurateur has some premises, they make food and sell it to customers. If the customers like the food and the premises, they come back again and hopefully recommend the restaurant to their friends.
We were only there for a few nights, but we managed to sample meals at both ends of the spectrum. We had cheap lunches that only cost a few dollars, we also had some really nice meals with all the accompaniments. The price differential between the two was probably close to 10x. Interestingly, the expensive restaurants that we ate at, or passed were all busy – some even have waiting lists.
Rationally, this does not make sense. All have the same idea however, despite the fact that there is lots of choice, the hardest restaurants to get into are the most expensive ones.
I would argue that the difference lies in the execution. At the bottom end of the scale, the premises are cheap, the food is not premium quality and the service can be hit and miss (but is always cheerful). At the top end, the best restaurants focus solely on quality of food, quality of service and quality of their venue. Everything that they do is aligned towards the customer and I think these restaurants are world-class. Because of their quality focus, they are able to charge premium prices and (presumably) make premium profits.
It’s relatively easy to see examples of good (and bad) examples of execution in the hospitality industry. Most of us have been to excellent restaurants or hotels and many of us have had too many ‘Fawlty Towers’ experiences. It’s perhaps not always so easy to observe the attention to detail (‘execution of the idea’) in other businesses.
I’m fortunate to see ‘behind the doors’ of a lot of businesses and I’ve seen many examples of good business ideas that are not executed properly. Some recent examples that spring to mind include:
1. A company established with a strategy to purchase other businesses. The company employed a dedicated Business Development team (at significant cost) however, they had not arranged access to finance hence they were carrying a whole team that could not do their job.
2. Two separate service companies that purchased a shareholding in a range of other businesses. Each of these businesses was to be run on a stand-alone basis by the vendors and the companies were dependent on the continuity of each of these businesses. Unfortunately the vendors left and simply re-started their business on their own.
3. A company that has all of their senior staff without defined roles, causing significant overlap of roles and difficulties with performance measurement.
4. Companies that have reduced staff in an effort to reduce costs to match the current cost conscious environment. The problem is that they reduced ‘customer facing’ staff and end up with service issues (and more pressure on revenue). This can be a difficult cycle to break.
5. A mining-service business that invested significant money into real estate. When the mining economy slowed, they were caught with a large property portfolio (and large loan commitments) that they could not change in a hurry.
6. Companies that significantly changed their strategy – rapidly moving out of one market and trying to break into another. The work from the previous market segment slows down (because of the lack of focus) and the work from the new sector takes more time than expected to arrive. This means that overall income reduces.
There are numerous other examples. The key factor with all of these examples is that they could have all been avoided. The business idea remained sound however, the decisions were not executed well.
The decisions made by the companies listed between 1-4 above were not necessarily bad, they simply didn’t implement the decisions in a systematic manner that considered risk.
The companies listed in examples 5&6 lost their focus on what they were actually set-up to do. Company 5 invested outside of the business ,whereby the cash would have been much better used within the business. Company 6 lost sight of their original purpose and struggled to break into their new market.
So, what is the more important – a good idea, or the execution of the idea? I’ve got a theory on this. I’m interested in yours. Please comment with your thoughts.