I believe there are business lessons that we can learn from the movie "The Lion King". My kids are big fans of the movie and just about everyone with kids (and many without) are familiar with the general plot line. As I was thinking about 2011 results heading into 2012 for some reason I was struck by the scene in the movie when Rafiki, the monkey, is with a mature Simba working to convince him to return to Pride Rock. The quote I was thinking "Asante sana squash banana!!!" Just kidding (but this is fun to say). Rather, the quote is "does it matter, it's in the past."
I think this important for all of us to consider as we head into 2012 and we think about where we've been for the last few years. As Rafiki also said, "yes the past can hurt, but the way I see it is you can either run from it or learn from it."
So, what does this really have to do with business? A lot, actually. It's very easy in business, and generally in life, to get too hung up on the past mistakes. I am especially prone to this since I am an accountant – most of my training was designed to look over the past for mistakes you made! However, what the data suggests is that for planning purposes, the past only has very simple relevance to tomorrow, so no sense being bothered too much by it in terms of looking towards future financial performance.
If you look at the financial results of 2000 public companies over a 30 year time span, what you tend to find is that, contrary to business school teachings (and Jim Collins) that you can consistently outperform your peers over time, you really can't. This is even more relevant when you look at the book "Good to Great" today, as many of the companies are no longer in existence, or are shells of the companies that Jim Collins evaluated. Even he has admitted that the companies evaluated where great over the time period he evaluated them, not necessarily great today. So how does this apply to you? Simple – follow three easy rules:
- Based on historical data, it is very difficult to be more profitable by % than your peers over time. So, if you are already at industry benchmarks, don't spend a lot more time trying to improve in this area – there are likely better and more strategic ways you could be using your time to increase the value of your company.
- If you are not at industry benchmarks, uncover why. It's likely something wrong in your fixed cost structure – which can be fixed by increasing sales and your contribution margin.
- In order to predict profits and cash flow, all you really need is sales growth percentages - see my earlier post. So spend your time focused on a better, more predictable sales process.
So yes, the past does hurt. But, learn from it. Think about what hurt, financials or emotions (e.g. a customer didn't pay – did that hurt more emotionally or financially?). With regard to financial measures, the past really is only relevant for a limited data set, sales growth and profit margin. You can't really manipulate profit margin easily over a sustained period, so the logical conclusion is to focus on sales – where the past (e.g. what worked to close a deal, what hasn't worked) can help you learn what to do in the future.