Transcript #163 Gaining Business Savvy: No Solutions, Only Trade-Offs

Intro:   Welcome to Arise2Live Podcast, episode 163. How do many savvy business owners consistently make smart decisions? They accept that there are no solutions in business, only tradeoffs.

This episode shares how you can be a more savvy leader with two foundational approaches to be successful.

Let’s continue with part 2 of the series on improving your business acumen.

Scott Weaver: 

Last week we talked about the difference between an answer and a solution, and why business owners need to provide solutions, not answers for their company, for their family, and for their success.  This is part 2 of a series about improving your business acumen, making you smarter at business. We’re going to talk about something that is a little controversial. That is ‘There are no solutions, only tradeoffs.’

Welcome folks, I am Scott Weaver, the Arise2Live business coach and glad that you are listening in today. Thank you so much. I’m also glad that you’re willing to step up and learn how to be better in handling real life.  To improve…your business acumen in areas that, quite frankly, many people around us don’t want to deal with. But we don’t want to put our heads in the sand and hope that real life does go away. That’s not how you have a successful business.

Please share this podcast. That helps the Arise2Live message out there more, helping more business owners, helping more people succeed. And that’s one of a major goal of the Arise2Live podcast. There is also a YouTube version on the Arise2Live channel.  Though I do have to admit, that sometimes the video release is delayed a couple days from the podcast release.  It’s something to do with time trade-offs and trade-offs is what we’ll talk a lot about today.

This episode is part 2 of a 3-part series to help business owners improve their business savvy and make better decisions.  While it is not necessary to listen to part one. The concept about the difference between an answer and a solution will be helpful to get all the nuggets from this episode. Part 3 we’ll continue about identifying your iron triangle, those limitations that each one of us has and how to get around them.

Often when I’m thinking about a podcast topic, I ask my wife what she thinks about it and another thing I have to admit, she has protected your ears from a lot of bad ideas. Not all my ideas are good, and she filters out a lot of bad ones, so that’s a good thing for us. So when I approached her, saying I was thinking about sharing about the fact that there are no solutions only trade-offs she had a surprising reaction and she challenged me on this.

“Entrepreneurs are supposed to be problem solvers. That’s what they do.  Solving problems for the customer, solving problems for the community, and making a difference. If there’s no solutions only Trade-offs, then are they really solving problems? I’ve been told that entrepreneurs solve problems and I believed it all this time, and now someone I trust tells me it’s wrong. I don’t know what to think.”

Aiya…I didn’t expect that response. Especially since I did a podcast episode titled “You are a problem solver”. How am I going to get out of this one?

Let’s see. On one hand business owners are indeed problem solvers.  They provide customers and even society answers to overcome their problems.  On the other hand, we live in the real world and that real world has trade-offs, serious, difficult tradeoffs.  We’re not that far into this episode and already I’m facing a dilemma, a tradeoff: Do I keep my wife happy and stay with the common internet wisdom or do I prepare my listeners for the real world?  Do I talk about words that are pleasing to the ears or do I share some hard truths about what it really takes, what it is really like to run a company and be successful at it?

Maybe this proves the point of this series: entrepreneurs are problem solvers by providing answers, and answers are the result of hard work when we create solutions.  Getting to the results, that requires solutions in the forms of methods and processes, or perhaps even more general completing the journey  that you have undertaken.

Facing these challenges and trade-offs is why we need business acumen. It takes wisdom and discernment to sort out things so that we can get the results that people want and we do this by creating and figuring out the difficult processes to get there.

Maybe we should rephrase saying, “entrepreneurs are solution creators.”

So…When we consider the phrase, “there are no solutions, only trade-offs” I think we’re actually talking about the processes, the methods to get the results that people want from us. They want us to be the entrepreneur that solves problems, but in the real world we have to handle the trade-offs to get that result.

Before we get much further, I think we should ask the question “What is a trade-off?”.

As a basic level, a trade-off is making a choice between two things we want, but we can’t have both at the same time.  We like fancy cars, but are we gonna spend $200,000 to buy one?  That’s a trade-off. Budget vs fancy car. Or how about the business owner with the family at the amusement park and their little girl wants a big ice cream cone 15 minutes before lunch.  The tradeoff is pleasing the cute girl or having an unhappy girl who eats a nutritious meal. Trade-offs can be very tough.

Another thing I’ve noticed, trade-offs seem to create themselves.  They just pop out of nowhere. I think a reason for this is there are just so many variables out there in the real world, so many things that we need to consider, that we overlook them.  We don’t see the details until we have to make an important decisions in our company.  Then things get complicated pretty fast.

We start facing the dilemmas that goals, our goals actually conflict with each other. We try to get something we want, only to realize that we have to give up something that we want, too.  Part of improving our business acumen is learning the discernment, wisdom, and leadership to sort through all the variables to make the right choices.  This takes time, practice, and learning from others to accomplish it and to get better at it.

One big source of Trade-offs is dealing with people. Because human beings are not perfect, they create a source of uncertainty and unpredictability.  Humans are emotional and social creatures.  And as business owners, we need to basically have that understanding to deal with them.

Yes, I know there is a whole academic theory approach that says business people need to be super rational, make data driven decisions, and develop business processes and manufacturing processes that work independent of humans.  I’m sorry to say that until artificial intelligence takes over the world, we business owners are going to have to deal with the people factor. It’s not going away.

So how has business owners before us approached this problem?  Business folks across the centuries have always had to deal with people problems, situations, an unexpected things thrown at them.  Such things are nothing new.  However, we do need to apply principles to our own particular business and our own unique situation.

There’s an economist called Thomas Sowell that is often quoted on the Internet saying ‘there are no solutions only trade-offs’.  However, I believe that concept has been around for centuries, only he has articulated it very well. I do need to say that, Thomas Sowell is a macro-economist and deals with the big picture like policy at the national level or the global level. In the show notes there’s a video link where he talks about this quote and some of the surrounding macroeconomic and policy issues.

However, for this podcast, I’ve taken a few of his concepts and applied it to business owners running a company. Concepts such as what questions to ask when choosing between different solutions and trade-offs.

Sowell has three general questions that we can use to compare different trade-offs and what we can do about it and choosing the best path.

1. Compared to what?
2. At what cost?
3. What hard evidence do you have?

These three questions lead to some pretty good insights and answering them separates our wishful thinking so that we can get a glimpse and see reality.

Let’s use the example of, um, buying a new piece of equipment.  Let’s say your company’s ability to produce stuff has hit capacity. You can’t build more widgets or if you are in construction can’t build more houses.  You find a super nifty piece of equipment that seems like it will double your capacity and triple your revenues.  A least that’s what the sales guy said. You start dreaming of the possibilities of using it and definitely tripling your revenues.

Before we go that far, let’s go through the three questions:

First question is compared to what?  The equipment sales person is trying to get you to buy that piece of equipment.  He is comparing the brand new machine to your old, existing, outdated, and wounded piece of equipment.  So the salesperson is not lying about doubling your capacity.  However, a savvy business owner will realize that is a false comparison.  The real comparison is the equipment from vendor 1 and vendor 2.  Which one is better for your company?  So always ask compared to what?

The second question is at what cost?  The piece of equipment from vendor 1 to double your capacity sounds great, but to buy it cost 10 years of the company’s total revenue.  That’s including the tripling your revenue. Is that really the smart thing to do for your finances in your company?  Maybe vendor two can only increase capacity by 20%, but you pay off the equipment in two years. Identifying the true trade-offs is always important.

The third question is what hard evidence do you have?  Did the salesperson give you a hypothetical, perfect world performance result and the real world says you’ll take 20 years of your total revenues to pay it off?  Is it possible for you to talk to other business owners who have purchased that equipment and see how they’re doing?  What problems and successes they’ve had? How about your employees?  How much retraining is needed to run this new ;piece of equipment?  You definitely want to know these answers before you buy a piece of equipment?

So this example, is intended to show that when you ask these three questions: compare to what? At what cost? What hard evidence do you have?  These questions can really improve your business acumen so that you can to make the right trade-offs in terms of financial, capacity, employees, and your sanity.

Unfortunately, Thomas Sowell also says that in the real world the best we can hope for is finding the best trade-off. That is pretty discouraging, but that is why business savvy is so important to the success of your company and why so few people want to talk about it.

Faster, cheaper, better  – choose 2 out of 3.    13:35

Okay, moving on to another way to identify trade-offs. One of the biggest trade-offs in the fields and many industries say engineering, construction, manufacturing, machining, etc. is the phrase “faster, cheaper, better.” I first heard about it when I was young design engineer. I was on a team designing a new computer chip. We had a demanding customer and I was struggling with my design.  A very senior engineer came up to me and said that I only have three options: “You can get it done fast, you can build it cheap, or you can make the performance better.  You can only pick two of them.”  I said that the boss wants all three!

“That’s not possible,” he said, “You can only pick two out of the three.”

Well, I was the young rebel engineer. I resisted the concept and struggled, and fell behind schedule and started looking like I didn’t know what I was doing. I couldn’t figure out how to get all three of these things to work at the same time. Fortunately, before I got fired, I decided to make it cheaper to build and pretty good performance.  I gave up trying to finish it fast whatever my boss said.  And you know what? I was no longer struggling with the design and I did my part to make the chip a success.  At the end of the day, the customer did complain about taking longer than it should, but the customer was quite happy at the per unit price they were paying and the superior performance beyond what they specified.

What I learned from that rough experience is that if you pick two out of the three upfront on day one, life is much, much easier and the customer ends up happier.

So you business owners out there building new things, building houses, building new widgets, choose early whether to make it faster, to make it cheaper, or to make it better performance.

There are no solutions only trade-offs.

So how do people get around this limitation? We all want things faster, cheaper, better.

One way to do this falls in in the category of continuous process improvement.  Let’s say you have a brand new customer and you have to build a new widget for him or maybe a new office complex for her.

Under a continuous process improvement approach, the first phase would be getting the first couple widgets or the first couple of offices – completing them at a slower pace, but focusing on the processes to make them cheaper at a quality that slightly exceeds the customer’s expectations.  So this first phase is more than just building something.  It’s figuring out how to build things that are repeatable and done cheaper that produces the needed quality.

Then in the second phase is to take the learning from the first phase and focus on making it faster and cheaper.  In other words, cranking it out knowing that the process will take care of the quality.

There are many variations on how to do this.  So I suggest taking five or 10 minutes or so and do some deep thinking about how you can sequence a continuous process improvement to get around these tradeoffs. What can be done now so that in a few months or half the year, the customer sees you doing things faster, cheaper, better?

Recapping here, this episode covers a couple key concepts about there are no solutions only trade-offs, and how to deal with trade-offs. Hopefully I gave you a lot of stuff to think about and encouragement to dive deeper into your business, to think about how you can make better decisions and develop better business savvy.

We covered my wife’s statement that entrepreneurs are problem solvers and how people expect the answer they are looking for, but as business owners, we need to identify the trade-offs and choose one to provide the solution via a method or process to get those results that are demanded of us.

For some practical tools to increase our business savvy, especially dealing with trade offs, we covered Thomas Sowell’s three-question approach:

1. Compared to what?
2. At what cost?
3. What hard evidence do you have?

And I gave an example of a new piece of equipment that asked those three questions.

The second practical tool is a better understanding of the “faster, cheaper, better” and that frustrating dilemma of picking two out of three when trying to make something.  How to get around that limitation with some continuous process improvement through some multi-step or multi-phased approach because everybody wants all three of those things.

I believe that in the real world, everyone wants an answer to their problems. A short, sweet and simple answer. But as business owners, we’re tasked with creating the solutions to the problem to get the simple results, get the answer that people want.

With this viewpoint, there are no solutions only trade-offs, but we business owners can improve our business savvy so that we can size-up the situations we face and use the tools to pick the best trade-offs for our company and for ourselves. Sorting out trade-offs is how we Arise2Live.

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