Wednesday, April 19, 2017

Effect of Discovery-Driven Planning on small scale individual business units

While reading this week’s papers on the contribution of disruptions in failure of a large company, it struck me how not only the big giant companies are susceptible to disruptions but also, smaller companies can be affected too. Today, I draw the conclusion, from my limited experience but true heard stories from my family run business.

Background:
The current private limited company is found by my father dated back in late 1980’s. With limited technical and educational business knowledge back then the company started by selling ‘building raw materials’.

Plan to learn v/s plan to execute:
It started as a retail shop for building materials and a one-man business for the first 2 years. He went on to the market in person, to get hold of the construction projects. It was an important experience for him to discover the market that existed. However, in 1980’s with limited technological advantage and background knowledge, starting a company one-man was similar to discovering market that do not exist for his world.  As, I reflect to this story now, I believe an experience of visiting the market in early days of his business career had a plan of learning rather than plans for implementation.

Technological Disruption:
Technological disruption can also happen in a growing operational based company. In late 90’s and early millennial years, when the company had grown from a retail shop to a supplier, it was increasingly becoming difficult to handle the accounts and operations (In this case delivery of the materials ordered) of the company in physical records. During that time, the computer boom has started in India and market was growing its pace. As a need of the hour, and to upgrade the operations of his company, my father had to hire respective personnel with substantial technical expertise to handle the computational operational flow. That was the right move. Should he had shown his ego and maintained the same work-flow, today the company would have lost its base. He did not let arrogance blind the basic changes taking place in the market.

Failed Ideas versus Failed Business:
By 2010, the company growth rate was stable and was in for diversification from its main business. The diversification came under two type:

1. Extended Diversification: The company started its business with home décor and interior dealer. It had already a base of customers for construction projects and diversification in home décor seemed to be in perfect line.

2. New Market Diversification: The company attempted a Health-Care division. With no primary base in that direction the company occurred a loss for three years. However, with sustainable plan of learning policy the company grew to a profit making margins for the year 2016.

Several diversification has been attempted, few failed and few sustained. But, never did the company invested more than 20% of its value to initiate and fund a new diversification. And never did the company attempt to stop pursuing its original business even though the diversified business seemed lucrative. The mantra for the new diversification has always been to generate its self-sufficient margin within 2 years, else it is sold off.  

Conclusion:
What started a $1500 company in 1983, went on to become an annual gross profit of more than    $ 10 million company today. Still today, with no computer/laptop in his office room, this CEO runs a company with sheer Discovery-driven planning and acute market knowledge!

 Reference:

[1] Why Good Companies Fail to Thrive in Fast Moving Industries and Discovering New and Emerging Markets (Christensen, Introduction to and Chapter 7 of The Innovator’s Dilemma, 1997)

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