Life is uncertain, full of large unpredictable, consequential forces that can beat down the small business owner – or even sink successful ones. Certainly that’s what happened to thousands of kitchen/bath dealers after the new housing market crash and 2008 banking meltdown.
Quite a few of these fallen dealers were big fish to cabinet manufacturers, delivering $500K, $1M, $2M or more in annual purchases. Almost overnight, these companies vanished into thin air leaving behind millions in unpaid invoices. Some would say these dealers just experienced bad luck…they had key builder accounts that stiffed them…or that the owners had their money tied up in real estate where the equity was now greatly reduced and rendered inaccessible.
Professor and author Jim Collins would not agree. Based upon years of research on successful companies who thrived in tumultuous times, Collins would say – as he has in his book Great By Choice – that these kitchen/bath dealers did not experience bad luck, just a poor Return on Luck (ROL). His evidence demonstrates that luck doesn’t cause success or failure. People do.
Two Views of Luck
It’s human nature to write off someone’s huge success to good luck, such as being in the right place at the right time. Collins debunks that view. He concludes that our success – and our survival – derives entirely from thorough preparation, skill, hard work, inspiration and determination.
For Collins, the “luck event” must meet three tests. First, some significant aspect of the event needs to happen independent of the kitchen/bath design firm owner. Second, the event must have potentially good or bad consequences. And third, it must be totally unpredictable.
His research found that certain business leaders earned a high return on luck at pivotal moments that distinguished them from their competitors. Furthermore, this ROL had a “huge multiplicative effect” on their business going forward. That’s how they routinely outperformed competition over long periods of time. These leaders were capable of quickly “zooming out” to recognize when a “luck event” was happening. Then they “zoomed in” to consider whether they should let it disrupt their strategic plans or not.
Collins cites Bill Gates at Microsoft as a prime example of such leadership. Gates didn’t get a lucky break or cash in his chips. He learned how to write code, then dropped out of Harvard at age 19. He started his company and kept driving, pushing, working, staging the “20-Mile March,” hiring great people and building a culture of discipline. He sustained these concerted efforts over three decades to become the world’s #1 billionaire.
Business leaders like Gates use difficulty as a catalyst to deepen purpose, reconnect with values, increase the level of discipline, respond with a heightened degree of creativity and cultivate a greater sense of productive paranoia. Extreme preparation and incredible resilience together became the signature of their greatness.
Takeaways from the Recession
The philosopher Nietzsche once said: “To live is to suffer, to survive is to find some meaning in the suffering.” Those kitchen/bath design firm owners that suffered mightily through the Great Recession, most losing 50-60% on their sales volumes and draining their life savings to stay afloat and survive, are now finally enjoying the rising tide of a moderately growing economy. That’s wonderful news to hear.
But have they found meaning in their recent suffering? I think not.
For the most part, it seems to me that owners today are so happy to be busy, they are “too busy” to reflect on what should be meaningful takeaways from the Great Recession. They just don’t want to think about those dark days. At most, those that were successful high-end designers, enjoying highly visible industry profiles, may be a bit more humble today for their suffering. And while that’s probably a good thing, in my judgment, not much else has changed.
Nietzsche was also famous for another saying: “What does not kill me, makes me stronger.” We all experienced the pain of the Great Recession. For Collins, when adversity happens, the real question is: How can we leverage that bad luck to make us stronger, better, smarter?
Life’s roller coaster actually can help us produce strategies for managing the odds and managing luck – both good and bad. According to Collins, managing luck involves four things: (1) the ability to zoom out and recognize luck; (2) developing the wisdom to know when luck should disrupt your strategic plans; (3) being sufficiently prepared to endure an extended period of bad luck (like the Great Recession); and (4) zooming in to create a positive return on luck. Luck by itself isn’t a strategy – but earning a good ROL is.
People Luck Is Key
Today, I continue to be stunned, and a bit saddened, by the large number of kitchen/bath designers who continue to let life’s events just happen to them. It’s splendid that the economy has gotten better. But as a community of small business owners in a specialized field, we don’t seem to have gotten much smarter, better or stronger for our recent suffering.
We haven’t gotten smarter by gaining regular access to a group of select, non-competing peers that can help us truly realize when a pivotal moment is before us. Or by being brutally honest with us when we fail to confront a fatal flaw or fail to take swift action. Do we really still think it’s best to go it alone, keep doing the same pre-recession gig: just grinding out the business that’s coming in our doors, too busy and too blind to see an opportunity or storm coming our way?
Nor have we gotten better prepared to manage our businesses by carefully budgeting our operations to skillfully navigate the business forward. Or developed a written strategic plan that defines what our company should be when it is completely developed. Or applied the latest in industry-specific, management technology and cultivate a corporate climate of discipline.
Despite all the effort that goes into planning and executing a kitchen to fit like a glove (and earn the desired gross profit), do we really still believe that we can reach our corporate financial nirvana without precise planning and automated systems to achieve it? Or are we just “too busy,” perhaps too lazy, or, worse, too arrogant to put in the time?
For sure, we haven’t gotten stronger yet, generating multiple years of 8-10% pretax net profits (after owner’s market-rate salary), accumulating at least 12 months of fixed expenses and parking those dollars in a liquid investment portfolio (separate from retirement accounts) for ready access. Do we really still think that our current business models can generate that level of profitability year after year, regardless of the economic roller coaster, and become enduringly successful operations for decades on end?
And we haven’t engaged industry-specific business coaches to help zoom in on our operations and intimately advise us how to generate positive ROLs. Do we really think we can do this ourselves when those thousands of kitchen/bath owners couldn’t see the fatal flaws in their own business models? Or couldn’t strategize a successful course for their operations to follow with the market reversals that precipitated the Great Recession? These owners simply lacked the perspective to see the problem and execute the correct remedial action. Was it just their foolish pride that prevented them from actively seeking third-party assistance? Is that also what’s holding back owners today?
At least for most of us, none of this – getting smarter, better, or stronger – has happened as yet. That’s because we are “too busy” riding the wave of a positive economic sea at the moment.
Ours is a creative industry that hasn’t come close to reaching its revenue and profit potential because dealer/owners haven’t managed their luck very well.
Of all the luck we can get, Collins reports that the most critically important luck is “people luck.” The luck of finding the right teammate, manager, coach, peer group or advisory board is key. The best way to discover a strong current of good luck – to earn a great ROL – is to bring on board the best skilled, most committed people to help crew your boat. People who would rush to your business to help save it, and for whom you would do the same. All you have to do is find them. They are out there.
And now is the best time to do it while the industry’s swell of prosperity is still on the rise.
Ken Peterson, CKD, LPBC, is president of the Chapel Hill, NC-based SEN Design Group. For more info about this topic, please contact Peterson at 1-800-991-1711 or [email protected]. Peterson also welcomes comments, questions or concerns.