How Small Businesses Compete Using Their Data: A Narrative (Pt. 3)
Value Area: Analytics
First Introduction to Dr. Shep
As it turned out, Emily was mistaken. Dr. Shep did not have the availability she had supposed. It was three weeks before they were able to schedule a coffee meeting at Watsons. On the day of the meeting, Brad and Alicia arrived a bit early. They had a few minutes to catch up with Emily before the doctor came.
Emily had been surprised to discover Dr. Shep was actively traveling. It had been a week before he had returned her initial phone call. Very apologetic, Shep explained he had been in Stockholm on business for two weeks. He was in quite high demand as a consultant.
It was already past the scheduled time when Dr. Shep arrived. With obvious energy in his stride, he aimed directly for Emily. After the friendly hugs and introductions, Emily asked Shep how his progress was coming on Beethoven’s Waldstein Sonata. He quickly pointed out that the notes were there, but the musicality was still a work in progress. He had been studying a performance by the late Australian-American pianist Bruce Hungerford. Shep described Hungerford’s opening to the Waldstein Sonata as being the envy of any serious pianist.
As they sat down with their coffees, Shep remarked that he was happy to meet Brad and Alicia. They would be an excellent excuse to turn down other requests and stay at home. He always took an interest in Columbus area businesses and especially in small businesses.
Brad and Alicia expressed gratitude for having met Emily and her introductions to Dr. Shep. Shep began.
“So, you are interested in data-based thinking as small business owners?” he asked.
“Well,” said Brad,” from talking to Emily, it sounds like we should be.”
Shep glanced at Emily and smiled, “I see Emily has become a data evangelist,” he said. “She always was a quick study.”
Brad and Alicia proceeded to tell Dr. Shep about their business. They went on for a while about the company’s expansion, the number of employees, and the different markets and services they offered. They explained that their top line grew, but the bottom line was about the same. At times during their story, it seemed Shep’s attention was waxing and waning. When finished, he thanked them for the thorough briefing of their business.
“You’re very welcome,” Alicia offered. “Thank you for listening. For a minute there, I thought you were getting bored.”
Shep advanced, “Not at all, I was listening very carefully to every word. I was waiting for you to get to the important characteristics of your present business situation. I think you left them out,” he said.
Brad and Alicia looked at each other. After a short pause, Brad said, “No, I don’t think so. That about sums it up.”
Shep’s expression was very kind. He took another sip of his coffee while raising his eyebrows.
“Well,” he said, “You did tell me your sales grew, but your earnings remained the same. Were the earnings the same, or did they go down?”
With a bit of disappointment, Brad said, “Well, the earnings did go down some, but it was like normal swings we have seen in the earnings, so I said it’s about the same.”
“Hm, I see,” said Shep, “That is one of the other data points I was anticipating. There has been no earnings growth over time. The earnings fluctuate.”
“Well, yes,” Brad said, wondering how Shep could have known that.
“Anything else important?” Shep asked.
“Don’t think so,” said Brad while looking at an equally perplexed Alicia.
Shep turned to Emily. “Emily, what are the other two critical things about their business they haven’t mentioned yet?”
Emily rolled her eyes and didn’t want to look at Brad and Alicia. “ I was afraid you were going to ask me that,” she said. She softened her voice and leaned their way. “Don’t feel bad, ”she said. “I have already lived this dream. You’ve told us two things. 1. You grew sales and lost earnings 2. There has been no earnings growth over time previous to revenue growth. There are two more things you forgot to say, or maybe, you’re just not aware of them.”
“What?” asked Brad.
Emily hesitantly continued, “ You forgot to say that 3. There are no cash assets in the business and 4. The monthly characteristics of cost center expenses have big swings.”
Brad and Alicia looked at each other in disbelief. Was Shep Houdini?
Alicia replied slowly, “Full disclosure, yes we are sometimes a bit cash strapped, but isn’t that why businesses have lines of credit? As far as cost center expenses swinging, I wouldn’t know off the top of my head.”
“Your small business is behaving like almost all other small businesses.”
Shep was careful to reply. He didn’t want to hurt their feelings. “Brad and Alicia,” Shep said “ Yes, your small business is behaving like almost all other small businesses. This is nothing I haven’t seen a hundred times over. They are all the same. Do you know why?” he asked.
No one volunteered.
“Small businesses are all systems with the same characteristic behaviors. Unless some knowledgeable person intervenes, they are all the same and will converge around the same classic symptoms.” Shep said. “Emily can tell you Watson was the same way. In her situation, Inventories, along with swings in expenses, were also consuming cash assets. These behaviors are on the level of physical law.”
“Small Businesses are all systems with the same characteristic behaviors. They are all the same and will converge around the same classic symptoms.”
After a few moments’ pause, Shep offered a path forward
“Your data journey has a clear beginning,” he said. “When we meet next at my house, we will look at the monthly data from the cost centers.”
They exchanged all the necessary contact information and began to pack up. On Shep’s way out, he offered, “Brad, you or Alicia can give me a call once you have had time to pull the data together. Twenty-four months should be good.”
“I look forward to hearing from you.”
Confessions
After Shep left, Brad and Alicia still had questions for Emily.
Alicia took a deep breath. With raised eyebrows, she commented, “Well, that didn’t go so well. He must think we’re real rookies at business.”
Emily let the comment linger a bit and replied, “Alicia, he doesn’t think that. In the beginning, I was tempted with the same thoughts, but I soon changed my mind. You have to realize that Dr. Shep will ask questions mostly for your benefit. He already has a pretty good idea what the answers will be.”
Brad jumped in, “We’ll get over it. We know we have a lot to learn when it comes to data. Emily, I have a question. What is this cost center stuff?”
Emily laughed. “ Caught you off guard with that one, did he? I’ll tell you what; I’ll email the structure of my Financial Statements to you. It might take some effort, but believe me, it’s worth restructuring them this way. You’ll be best prepared to benefit from your next conversation with Dr. Shep.”
As a parting thought, Brad confessed, “ I’m not sure I get the connection between our cash flow, big swings, and earnings growth.”
Emily pointed out, “Brad, that’s part of the journey. You’ll be asking yourself many things. It’s all part of sorting things out on the way to discovery.”
To be continued…
Informed Decisions. Better Solutions
Stillwater Group LLC can create the analytics to meet you specific business need.
Visit us at:
or schedule an appointment at: