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Start Quickly and Shut-Down Even Quicker - Finish First!

Perfect advice this morning from Seth Godin regarding the shutting down of an under-performing business unit. Almost every serious mistake I have made has been due to lack of speed when shutting something down.

It is easy to fall into this trap - you had a great idea.

You worked your ass off to build that idea.

You may have even made some money with the idea.

Your competitors may be making money (or appearing to) with the idea.

You are in love with the idea plus you have invested so much already...

But a fact of business and life is that you have a finite amount of resources - both monetary and human. You have to be relentless in how you allocate both. Do you have a strong team working on something that is not performing that well? Most likely they would be better off deployed to another project.

A key difference in thinking between companies that hang-on versus those that start quickly and stop even quicker is this:

Companies that hang-on tend to look at each market or project strictly on a P&L (Profit & Loss) basis and if it is making money they use that to justify hanging on. A P&L is a relatively simple calculation.

A much more difficult calculation is ROI (Return on Investment) which will then force you to look at each project or market and compare them regardless of size. A market or project making $100,000 may actually have a much higher ROI than a market making $1,000,000. The smart way to allocate resources is to continually evaluate ROI and shift resources to those areas with the best ROI.

Thinking about this another way - if you have a stock portfolio and one investment was returning 2% annually on your money (but still making a "profit") and another was returning 12% would you leave your money invested in the stock with the 2% return? Don't you shift around your investments according to ROI balanced with risk?

Are you and your team as relentless with the allocation of resources inside your company as you are with your personal investment portfolios?
Posted by David on December 1, 2006 06:11 AM|Permalink

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