What Can You Optimize
One of the reasons Permanent Equity invests in existing businesses that already have customers, suppliers, earnings, and employees is because we know that efforts to help optimize something that’s working are far more likely to be successful than those starting something from scratch. And there’s data to back that up. For example, of the 632 thousand businesses that started in the year ended March 2012, 132 thousand of them (20%) failed in their first year. But fast forward 10 years and of the 234 thousand survivors, just 13 thousand (5%) failed last year, their tenth year of operations. In other words, the Lindy effect is real.
What’s more, we believe this lesson to be true at the project level when it comes to working on a business as well. Yet instead of spending time optimizing strategies that are working reasonably well, we often see leaders get either bogged down in fixing something that’s broken or distracted by the glamor of inventing what to do next. Don’t get me wrong, there is a time, place, and circumstance to engage in both of these activities, but – and it’s a big but – our experience has taught us that the most significant returns come from leveling up parts of a business that are working well.
Here’s how that thinking can apply to several different areas of a business:
Now, I recognize that business and operations are hard and that things don’t always go your way or according to plan. When that happens, everyone needs to spend time fixing things. But know ahead of time that this work is a grind and it will be breakeven, at best. Many times, the best outcome from these efforts will be the status quo, i.e., the preservation of your reputation.
That’s nothing to sneeze at, of course, nor is a new idea that works brilliantly. But if you want to be able to consistently and sustainably level up, regularly ask and answer, “What can I optimize?”
– By Tim Hanson
