Savvy business owners know that good decisions are made by recognizing the trades-offs and not striving for perfect solutions. This episode shares how you can be a more savvy leader with two foundational approaches to move forward with: Thomas Sowell’s 3 general questions and Faster-Cheaper-Better trade-off with continuous process improvement.
This episode is part 2 of a 3-part series to help business owners improve their business acumen to run a successful company. Business acumen is a key element of Arise2live Profit-Loop coaching.
#Arise2LIve #inflation #businessowners #strategy
The purpose of this series of podcast episodes is to answer the question: How do people gain business savvy to make the right decisions for their company in a complex world? The starting point is knowing the difference between an answer and a solution to the problem. This is followed by recognizing the trade-offs instead of forcing a solution.
The business acumen is not so much having a particular skill, but uniting the unique skills into a single solution. In other words, we can say business savvy is the ability to understand the dynamics and situation of the business and make smart decisions.
What is a Trade-Off?
At the basic level, the trade-off is making a choice between two things we want, but can’t have both at the same time. We like fancy cars, but are we going to spend $200,000 to buy one? That’s a trade-off. Budget vs fancy car. .
Economist Thomas Sowell’s Three General Questions When Comparing Different Solutions and Trade-offs:
- Compared to what?
- At what cost?
- What hard evidence do you have?
These questions can be applied to things like buying a new piece of equipment.
- Is the new equipment compared to the old or competitor’s new equipment?
- What is the cost-capacity increase for the new equipment? Do employees need re-training?
- Does the equipment sales person have real world evidence of performance?
Faster, Cheaper, Better Trade-off (Choose 2 out of 3)
Plenty of smart people of the centuries have tried to defy this, but have failed. To get around this, employ continuous process improvements in your company to get the results the customer wants. An example of building a new office complex: Step one is building the first by choosing the trade-off to create a process to make things better and cheaper, but this step takes longer to complete. Step two focus on the faster, cheaper building process while trusting the ‘better’ process in step one to take care of the quality.