How Small Businesses Compete Using Their Data: A Narrative (Pt. 2)
Value Area: Analytics
New Learnings for Brad and Alicia
Alicia booked a time the following week for her and Brad to have a coffee with Emily. Alicia had noticed that things had changed for the better at Watson’s, but she was skeptical that their two businesses were similar enough to really leverage Emily’s experience with their own. She had previously visited the coffee bar at Watson’s and enjoyed their coffee blends, so she figured there wasn’t much to lose.
Emily was waiting for them at the door, and, although it was a small gesture, it was one of those little things that helped Alicia feel welcomed. One of the tables in the coffee bar had a “Reserved” sign and 3 chairs prepared.
As Emily led Brad and Alicia to the counter to order their coffees, Brad said “You know, Emily, in all fairness, we should be buying you coffee for being willing to share your journey with us.”
Emily smiled. “Thanks for the thought, Brad, but in all fairness, there are others that I owe a debt of gratitude to for helping me. This is just a small way of paying things forward. I don’t know what I would have done without the help and support of Dr. Shep. No pun intended, but Shep more or less “shepherded” Watson’s Book Merchants to the business I manage today.“
“Huh, you hadn’t mentioned anything about Shep when we spoke two weeks ago,” said Brad.
“I think I made reference to him,” replied Emily. “I’m pretty sure I had mentioned working with a Subject Matter Expert. That would have been Dr. Shep.”
Alicia chimed in “Is he the IT guy that got your system up and running for you?”
After a short pause, Emily just smiled, “No, Shep isn’t an IT guy. Shep has a very special skill set that brings together the various subject matter areas needed to transition Watson’s into a thriving enterprise. If I had gone looking for a guy like Shep, I wouldn’t have found him in a hundred years. I can only be grateful our paths crossed.”
Emily began by sharing how she met Shep, by chance, two and half years prior. She had been seated next to him at a piano recital at the Chamber Music Society’s concert hall downtown, and they started chatting. Shep had recognized her last name, “Watson”, and asked if she had any connection with the book store. She mentioned having taken over the business from her Dad. It was fun, but at times overwhelming. Shep had a formidable library of rare scientific, financial, and operational texts he had collected. That was just one of his many interests. Some of the texts he had sourced through Watson’s. During the intermission of the recital, Shep asked if it would be all right for him to pose some pointed questions about Watson’s business. Shep had been an experimental physicist and had transitioned into industrial research after he completed his Ph.D. He subsequently moved around the corporate world into operations and financial management. The questions he was asking went to the heart of what Watson’s had been struggling with. From that first chance encounter, Emily knew this was someone who could help her untangle the complexities of Watson’s and bring the business to the next level.
Brad was really intrigued. In the back of his mind, he was exactly thinking that his chance conversation with Emily was similar to her having met Shep. “Wow, what a stroke of luck,” he commented. “ Of all places at a piano recital.”
“You’re absolutely right,” said Emily. “I never would have guessed that my love of Beethoven piano Sonatas would forge the way to helping me solve my business problems.”
“If I can be so forward,” said Alicia, “Would you be willing to share some of the details of your business struggles? I’m trying to get a sense of how similar our businesses may or may not be.”
“Alicia,” Emily said with a kind smile, “I am willing to be completely open and vulnerable with you as a local business leader. I really believe my journey is a common enough experience with most businesses, and that almost everyone can repeat the journey Shep led me through.”
A New Focus on Data-Driven Financial Improvements
Emily continued with her story.
“At the time I met Shep, Dad was my biggest cheerleader, but he knew things had to change. He also knew I would be living with the consequences of future decisions, so it was important to him that they be my decisions. If I’m honest with myself,” continued Emily, “the way the business functioned was mysterious to me. I would make changes that seemed to be common sense, but any improvements were short-lived. Shep explained that the most important asset in the business was the data telling me a story. He kept asking me what data I was collecting and if the data was telling me a story.”
“In the beginning, I was kind of embarrassed to tell him I didn’t really know what he meant. What data should I be reviewing that would tell me a story?. In the early stages of assembling data lakes, Shep showed me that financial data had to be the priority. All other stories played out in financial data. He wanted to know how current my financial data was. What were the trends in operational performance? Was the business system behaving in the expected ways? If not, what was misbehaving and why was the behavior unexpected?”
As Emily paused, she could see that Brad and Alicia were paying very close attention. She noticed them glancing at each other as they were processing the questions Shep had asked her of her business. Emily deliberately sat silent for a bit while Brad and Alicia were processing. Emily was really trying to go back in her memory and relive all aspects of those events.
Emily reflected for a moment and then continued. “Before meeting Shep, I thought we were doing pretty well if our financials were 30-60 days behind. Wasn’t that typical?”
Brad and Alicia threw each other a glance. That was pretty normal in their world.
Emily continued. “I guess at that point in time, I didn’t really understand why he was referring to the business as a system. Shep was patient in working with me to help me see that financial reporting had to be current enough so that I could track down unexpected results and understand exactly what had happened. Even if I could not change things, was I in a position to learn from unexpected results? Did they add to my knowledge of managing the system? Occasionally, the reporting had been incorrect and needed to be edited. In other cases, something undesirable had really occurred, but I was on it quickly enough to either correct it or learn a hard lesson of exactly how my business system was responding to an undesirable event.”
“It took work to change our expectations”, said Emily, ”but, with new attention to the timeliness of our bookkeeping and accounting adjustments, I now get financials 3 days into the new month. Any necessary reviews are pursued right away. By 5 days into the month, all accounts are settled and needed actions are complete.” Emily stated with emphasis, “ Things feel very different now.”
“In time, I was learning that the business was not so mysterious. My problem was, that without accurate and timely data, I couldn’t see how parts of the business were related, and without seeing those relationships, I couldn’t tell when undesirable things happened. Shep could explain and show me how things were connected and how to recognize the signs early that something was not working as I had intended. The good news is I could act quickly enough to address the problem. I learned a lot of things about my business and how my employees’ work patterns affected the business.”
Brad asked, “Emily, I’m with you in the big picture, but can you explain what you mean about things not behaving as expected?”
“Brad, That’s a really great question,” Emily replied. “Before I met Shep, I would review the latest financial report starting at the bottom and quickly working my way to the top. What was the bottom line and what were the sales for that time period? I expected everything on financial reports to shift around, so I was satisfied to know the top number and the bottom number. I pretty much ignored the data in the middle because I didn’t understand how things were related. My simple idea was to grow the top number, and the bottom number would follow. Well, guess what? It didn’t! That’s what I meant when I said I did things that seemed to be common sense to grow the top line, but improvements in earnings didn’t follow. The stuff in the middle was too complicated to understand. You just had to live with it.”
Emily went on, “That’s where my understanding was limited. Shep explained my financial reporting should be prepared in a very systematic way from top to bottom. This restructuring would expose important relationships between the various aspects of Watson’s business. If sales went up, one would expect certain other of the chart of accounts would be affected in a predictable way. If that didn’t happen, something was not behaving properly. It took time for Shep to convince me that big swings in the various chart of accounts pointed to random behaviors that by nature included waste.”
Emily continued, “I also began to understand that big swings in cost accounts were not only not my friend, but it was also a sign of some greater inefficiency you might describe as bad behavior. Shep showed me that understanding the reasons for big number swings and learning how to reduce the swings could really improve the overall performance of the business “system”. It would not only make the business “system” more predictable, the process of removing fluctuations always had the effect of making the “system” more efficient. The most important advantage was gaining the needed oversight to see that the business was working like a well-choreographed ballet.”
Emily summarized, “The financial part of my data journey was taking a business that was more or less managing me, and empowering me to influence the business. That transition brought tremendous peace of mind. I now oversee how all parts of Watson’s are connected through financial reporting. My attention is instantly drawn to areas that may need attention. In truth, there is less and less of that these days. My view had been cast on things in the past, then transitioned to things that were very present and ultimately, now my view is forward-looking. I feel so much more effective as a leader when I am in a position to influence the future, rather than be a kind of victim of the past.”
Emily sighed, “Sorry for that monologue. I hope you aren’t fatigued from hearing this part of the Watson story.”
Brad and Alicia both responded with comments of enthusiasm. “ Are you kidding me?” Brad jumped in. “As I’m listening to you share your story, the whole thing resonates with me.”
Alicia was also totally connected. “Emily, I’m just trying to imagine how our business might be different from yours.”
Emily thought a bit, “In truth, Alicia, if your business has a stable revenue stream, every part of my story should pretty closely map to your experience.”
Brad was conscious of the time and wanted to settle on the next steps. “Emily, thanks so much for being so open with us. That kind of openness is not very common. Is there any way you would be willing to introduce us to Shep?”
“He is a pretty busy guy,” Emily responded, “but I can ask him. I think he is spending more time with Beethoven Sonatas these days. I’ll tell you what, I’ll give him a call and get back to you by the end of the week. Shep does a much better job of explaining why it is critical to move any business to predictive modeling in order to create sustainable growth.”
As a final thought, Emily passed along her hopes. “I would be super excited if others can benefit from my good fortune. It was such a blessing that Watson had a strong revenue stream. With that, Shep could immediately begin our transition into a data-centered organization.”
With the normal farewells, Brad and Alicia were on their way. They had a quiet ride home, thinking of all they had heard. As they pulled into their driveway, Alicia reached over and caught Brad’s arm. “Bradley”, she said, “I think part of our prayers has been answered.”
Brad just smiled. He was thinking the same thing.
To be continued…
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