What's In the Pipeline?

"Never look back unless you are planning to go that way."

Never look back unless you are planning to go that way.

Henry David Thoreau

Read more at http://www.brainyquote.com/quotes/quotes/h/henrydavid382352.html#QM8prUD8Qs8v7uYb.99

--Henry David Thoreau

This is the second installment on the topic of business growth. We begin where we left off in our 1 March 2014 post, "The Mystery of Process."

Here's a long-held belief underscored in the instructive book, "The Alchemy of Growth:"

That a one-dimensional strategy is insufficient to achieve sustained growth and create a future for the enterprise. And healthy growth, with the right people and processes, is as much "mystery" as it is intended strategy.

What does a healthy business look like? The authors use the term "horizons" and there are three:

• Horizon I:     The core of an existing business is extended and strengthened
• Horizon II:   New entities are developed
• Horizon III:  There is a learning process for creating viable options (H-III, a mind-stretching time for future possibilities, is often the missing piece to the pipeline puzzle)

At all costs avoid the following predicament:

• The core is in poor shape
• There is little in the pipeline
• Nothing new is on the horizon

The reality

Very few businesses (and nonprofits) sustain average growth year after year. Think about that statement and what it means if you're the owner, shareholder, or person in charge--maybe all three. For most the road to profitability is an uphill climb.  

Additionally, businesses mature and decline.  

As the authors point out, "Successful organizations can and must outlive their individual business units. If continued growth is the goal, the pace of replenishment must be faster than the pace of decline," they write. 

The challenge is to innovate at the core and build new ventures at the same time. That's easier said than done for the smaller business but can be as difficult for the largest of corporations.  

Dr. Mark Perry, Professor of Economics at the University of Michigan, posted on his Carpe Diem blog:

Comparing the Fortune 500 companies in 1955 and 2011, there are only 67 companies that appear in both lists. In other words, only 13.4% of the Fortune 500 companies in 1955 were still on the list 56 years later in 2011, and almost 87% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top Fortune 500 companies (ranked by gross revenue)." 

Who's managing the pipeline?

It's a juggling act to run a business. 

So as we come back to the idea of stewarding the pipeline--short, medium, and longer-term--the reference to juggling multiple product or service ideas, along with processes, needs further attention.

How to convert promising ideas into future generators of profitable income is what someone has to contemplate even while running the company or one of its units. That's precisely why management should periodically step aside from the urgent to think ahead. This requires moving outside the press of daily operations (preferably away from the office) and into a future mindset with others where things like budgets and reviews are off limits, at least in that setting. 

A "future mindset" practice should be on the calendar just like staff meetings and lunch.

Growth in a business comes from thinking and acting a certain way. Having said that, the book cautions about an excessive focus on growth, which can be just as much of a problem as ignoring it. This has more to do with being "obsessed" with all things new and the novelty of new opportunities.  

Keep in mind that if everyone is in charge of the pipeline no one is in charge.

What about efficiency?

There's no question that overhead and other types of expenses have to be carefully monitored and controlled. That may be the biggest lesson from the "great recession"--the importance of liquidity and cash flow.

Those who impose financial controls stay in business longer than those that don't. However, expense management has its limits. 

Everyone needs to find ways to develop and take advantage of new opportunities that are a good match with the company's values and capabilities--as well as the needs of its current and potential customers. That means freeing up cash to fund new ventures. 

What are your top two or three priorities and possible sources to fund them?

Improving vision

How is the future created?

• The core business is strengthened and extended
• New products or services are created
• The creation of new ideas is institutionalized  
• Offerings that have run their course are abandoned

Leadership throughout a business or nonprofit is good. Having strategic thinkers and implementers in the right places is even better. 


Up next:  Overcoming inertia in the organization

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(C) Bredholt & Co.

The Next Bubble

The Spruce

"In the end, all bubbles pop. That's what bubbles do."  

--Stanley Bing, Fortune Magazine

Supposedly, at the peak of the Dutch tulip mania in 1637, certain bulbs sold for more than 10 times the annual income of a skilled craftsman. The reporting of this so-called "bubble" was first popularized in 1841 by British journalist Charles MacKay in his book, Extraordinary Popular Delusions and the Madness of Crowds. 

Recent examinations of MacKay's understanding of the tulip mania question his context of that phenomenon. Nevertheless, something suddenly happened to change the price/value relationships of tulip bulbs with the consuming public.  

It's hard to see up close

Whether it's 17th-century tulip bulbs or a 21st-century global housing bust, few buyers or investors seem to have the experience or judgment to sense when bubbles are going to burst.

Why? 

One reason is that bubbles, by their very nature, are difficult to time. Otherwise, more people would be on the upside of downturns. Bubbles are best understood in retrospect.

Another is that leaders tend to be wired as optimists. Who wants to be labeled a "corporate Cassandra?"  

Also, success can be a deceptive state of mind. If all one knows is up, it's hard to recognize the beginning of a downward slope. Warning signals go off, but they're not strong enough at first to get leadership's attention. Besides, no one relishes being at the helm of an organization in decline.

Timely recognition of significant changes in the marketplace or regulatory environment is essential. Transitions, not necessarily change, provide opportunities, if you know where to look. Miss the moment and a business or nonprofit runs the risk of short-circuiting its future. 

What's the next bubble

The cotton industry bubble already burst. A year ago it looked as though many households wouldn't be able to afford towels or clothing due to high cotton prices. Twelve months later, raw material prices have fallen sharply (even with a drought), mostly due to strong global output, especially in China.   

Maybe it's the manufacturing of commercial airplanes. The head of a European Aeronautic Defense & Space Co. unit recently issued a statement denying his industry was a bubble about to pop. "There is 'no bubble' in airplane production," said Airbus CEO Fabrice Bergier.

A higher education bubble

If one Googles the above question, the search produces around six million web pages on this topic as of this post.

Dr. Mark Perry at the University of Michigan writes about higher education being an unsustainable course. Even with discounting from the "sticker price" and financial aid packages, student indebtedness hovers around a trillion dollars in the U. S. (See graphic below)

Source:  Dr. Mark Perry, University of Michigan

Glenn Harlan Reynolds, a law professor at the University of Tennessee, says that an education bubble exists for the same reason as the 2007-2009 housing bubble.  

In a recent interview, Professor Reynolds stated, "The government decided that too few people owned homes/went to college, so government money was poured into subsidized and sometimes subprime mortgages/student loans, with the predictable result that housing prices/college tuitions soared and many borrowers went bust."

More attention is being paid to the plight of college students, putting higher education on the political agenda of the 2012 American presidential election.

Strong winds are blowing

The driving forces pushing higher education in a different direction include:

• Rising university overhead
• Disruptive technologies
• A 9% unemployment rate for 2011 graduates with a bachelor's degree
• Reduced middle-class income
• Reductions in funding from state governments 

A recent study by Bain Consulting and Sterling Partners shows a deterioration of university balance sheets. Their report indicates that the "build, spend and diversify" strategy has over-leveraged a growing number of schools. Long-term debt is increasing at an average rate of about 12% a year with a corresponding growth in interest expense.  

The findings include top-tier schools such as Harvard, Yale, and Duke. However, it's the second-and third-tier institutions that are most vulnerable, says the study. 

The termination of Teresa Sullivan in June this year as president of the University of Virginia, and her reinstatement 16 days later, had to do with her supposed lack of vision to address challenges facing UVA. This was the main charge by the lead trustee, Helen Dragas, who reversed course and voted to keep Ms. Williams.

The about-face comes after a threat by Virginia Governor Bob McDonnell to replace all trustees if they couldn't resolve the matter.

Does anyone want to be a university president?

A new kind of semester

There's no shortage of ideas as to what might be done — including the merger option. 

A recent article in The Wall Street Journal by columnist David Wessel looks at a "technology/in-class hybrid" teaching model as a way to cap tuition. A study by Ithaka S + R, a higher education think tank, and Carnegie Mellon University's Online Learning Initiative found that students who took an online course did just as well as those in the conventional course.

Florida is looking into the possibility of launching an all-online university. Referred to as "Online U," it would be the first state in the U.S. to go in this direction. If Online U becomes reality, it will be Florida's 13th university.

Reducing operating costs without losing institutional purpose, values, and, for many, residential experience may be the immediate concerns facing administrators and trustees. This is especially true among independent colleges, which tend to be tuition-driven with small endowments.

Whether talking about administrative efficiencies, a market correction for higher education, or a tuition bubble, perhaps there is something to learn from William Shakespeare. The English poet and playwright wrote in Hamlet, "If it be not now, yet it will come. Readiness is all."

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© Bredholt & Co.