Small businesses are often touted as being nimble or agile in their response to market and industry changes. And this is true to an extent as long as the decision maker(s) are willing to manage their uncertainty and be honest with themselves. For many leaders and their teams, it means asking difficult questions and risking conflict.
*Jane and the darlings
One of my clients (we’ll call her Jane although that is not her real name) has recently taken on the role of CEO in her family’s manufacturing company. The company is currently experiencing a slowdown despite having products that sell well. Jane wants to steer the company away from the piecemeal approach they have taken with e-commerce and target specific customer segments that are more likely to be profitable and play to the company’s current strengths. In a recent team meeting, the response was mixed. On one hand, the company could use the revenue. On the other hand, the current e-commerce strategy does not produce predictable sales. It ties up energy and resources that could be devoted to marketing to more specific customer segments who are more likely to create sustainable revenues. And yet…there is an emotional attachment to this e-commerce approach.
But that is not all. Part of the team has been invested in landing a major distributor in their industry. The big win will make a huge difference in the bottom line. There has been some connection made but nothing concrete. It is so tantalizing to continue to approach this big distributor.
Maybe the darlings have to go
Jane’s dilemma is guiding the team to take a hard look at the current ecommerce strategy and the not-quite relationship with the big distributor and ask if it is really worth the small percentage of income it produces or the hope of income. It is not the information. In black and white, it is clear that focusing only on specific target customer segments will position the company better and increase revenues. The team has to decide whether sacrificing either the ecommerce part of the business, letting go of the uncertain relationship with the big distributor or both are the best strategic choices.
In John R. Bell’s book, Do Less, Better: The Power of Strategic Sacrifice In a Complex World, he writes about making short-term strategic sacrifices to set the stage for long-term growth and sustainability. In fact, he writes about how he had to eliminate a line of products (a money-making one, in fact!) to simplify and focus his company’s growth during a turnaround. A gutsy move that paid off! While logically one might see how a particular course of action is not producing a certain result, there is still the emotional side with which to contend. The catch here is that making a gutsy move is one choice and could be the best choice but it is also the scariest and most uncertain. This emotional stuff is where most of us get stuck.
3 Common obstacles that prevent us from strategic sacrifices
We have certain cognitive biases that create blinders and they are fueled by emotions. You may have even noticed them in yourself and called them mental blocks. They are the same thing. We experience a moment when we simply cannot conceive of another way.
- Sunk cost fallacy. I’ve written about this one before but it has a way of convincing us to continue a product line or a course of action simply because we have invested so much time, money and/or energy. There is a sense that “I gotta see this through” even when it is obviously unsustainable.
- Don’t want to get it wrong. Also known as loss aversion. We actually perceive loss in similar ways to how we perceive physical pain. It is much more difficult to let go of something that is almost working. It is even more difficult to let go of something that is working. Pruning away certain revenue lines might feel painfully risky.
- Overconfidence. You may have too much faith in yourself and/or your team so you follow the path that nothing much has to change and it is just a hiccup. Simply put, you (or your team) disregard new information because it does fit your mindset. Another client of mine has a tendency to tell me that he has led his company through turbulent times before and balks when I suggest that there are different circumstances in the current situation that need to be taken into account.
It is not that people want to make bad or shortsighted decisions. When it comes to getting rid of something you are emotionally invested in, it is tricky to circumvent our habitual thinking.
Do you kill your darlings or hold onto them?
Your emotions are going to play a role in how you choose whether a product line or service is terminated even if it is clearly time to stop and determine what still fits the business goals and the current vision. There may be products or services that were the lifeblood for the company in the early days or they may have taken so much energy, time and resources that you want them to pay you back. They could be the pet project of someone high up in the company. It may even simply be inertia that keeps certain products or services in place. Think of those as a kind of “we’ve always had them and people still buy them.” All of these become your darlings over time. Another thing that keeps people holding onto their darlings is the feeling that any revenue is better than no revenue during turbulent times.
Some questions to get you started in evaluating your darlings
The most natural time to have these conversations is during your quarterly reviews. You are already evaluating the progress of the business goals. Another time that makes sense is when you are beginning a transition of some kind.
- What are the darlings in our products and services?
- How much does each one contribute to current business goals?
- Why are we still offering them?
- If we didn’t have them, what would the company be offering instead?
- What emotions and thoughts do you notice when you ask these questions?
- What actions do we need to take now?
The discussion these questions should prompt will not be comfortable. Remember we put an emotional investment into these particular products and services. Our fears of change, failure, success, consequences and punishment as well as potentially disappointing or angering others are triggered when we start to critically think about the darlings. However, without even asking the questions, you may be stifling innovation and inviting stagnation. Sure, there is a risk of alienating someone or even choosing the wrong action. Leaders who use the CEO Mindset tolerate the discomfort and consciously choose what stays and what goes.
What would you do if you were Jane and her team?
How have you examined your darlings? What was the result?