Tuesday, April 27, 2010

Coping with Job Loss

You’re going along you merry way in life, work, family and so forth when one day you get called into the bosses’ office to learn that you’ve been “let go.”  It is a total shock, you never saw it coming.  Now what, look for another job?  In this economy, there are almost no jobs available.  What about starting a business?

Perhaps you should step back and deal with the job loss before you try to make huge life-changing decisions like whether to start a business.  In my own coaching I see this at least a couple of times a month.  Someone lost a job for a reason they believe had nothing to do with their own job performance and seek to start a business before they’ve gotten over the grief of dealing with the job loss.

Job loss creates a grief situation not much different than a death of a loved one.  Professional phychologists long ago identified the stages of grief.  As someone who has lost a job on more than one occasion, I have felt and dealt with these stages personally.  I think it’s helpful to review the stages to help you identify and calm your frustrations and fears.

Shock and Denial – How could this happen to me?  During this phase, you need a little time to grieve the loss.  This is not the time start out on a new adventure, start a business or any other major life-changing activity.  Many people say that losing a job is like losing part of yourself. Take a few days to deal with the numbness. 

Fear and Panic – How will I survive?  After the shock wears off, the panic sets in.  Worries of financial pressures and other real and imagined worries will tend to take control of your thoughts.

Anger – How can they do this to me?  The fear will create anger that can tear you apart if you aren’t careful.  Learn to channel your anger into productive activities or physical exertion.  Learn to process the anger and then let it go.

Bargaining – Maybe it was just a mistake.  The bad news is there’s probably no one who will swoop in to make it all better.  You are responsible for getting your career and financial stability back on track.  Don’t give the responsibility to someone else.

Depression – I’m worthless, just leave me alone!  Just as you weren’t worthless the day before you were fired, you’re not worthless today either.  If you can’t let go of your anger and develop strategies to reengage in the business world, depression could become a serious problem requiring professional help.  Manifestations of job loss can be real and deliberating. 

Temporary Acceptance – The past is the past, it’s time to move on.  Acceptance is a difficult stage hold, because every rejection or rebuff will cause you to revisit the cycle in some way.  That’s why it’s called ‘temporary’ acceptance.  Your emotions will be on a roller coaster and your feelings exaggerated.  You must learn not to take the actions of others personally.

NEXT:  Strategies for Rebuilding Your Future

Monday, April 19, 2010

The Pareto Principle and Business Profitability

How to Use the 80-20 Rule to Improve Your Business

This is a follow-up to the April 14th post about using Pareto Charts to improve profitability in your business.

Vilfredo Pareto (1848-1923), an Italian economist, philosopher and industrialist, created a mathematical formula to describe the unequal distribution of wealth.  In a paper written in 1906, he observed that approximately 20% of the Italian population owned 80% of the wealth in their country.  Pareto’s Principle, sometimes known as the 80/20 Rule, was made famous by U.S. quality poineer Dr. Joseph Juran in the 1930s and 40s.  Dr. Juran recognized a universal principle he called the “vital few and trivial many.”  Mostly as a result of Dr. Juran’s work showing that 20% of something is usually responsible for 80% of the results, Pareto’s Principle or the 80/20 Rule became widely know and adopted by scientists in many different disciplines.

What Is It?

The 80/20 Rule suggests that in most anyting, the few (20%) are vital and the many (80%) are trivial.  In Pareto’s theory, he suggested that only 20% of the population held 80% of the wealth.  In your business, it might mean that 80% of your warehouse space is taken up by 20% of your inventory.  Customer service professionals understand that 20% of the customers are responsible for 80% of the order volume and additionally, 80% of the complaints come from only 20% of the customers, though probably not the same 20%.

Why Is It Important?

Unless you’re asleep, you probably already understand why this is important to your business.  If not, keep reading.

The Pareto Principle teaches us that most of our business problems (80%) come from a small source (20%) and just as importantly, that a small group of customers (roughly 20%) generate most of our revenue (80%).  As a business owner, the principle suggests that the bulk of your daily activity, in terms of time, is trivial and that only a small amount of your daily calendar actually contributes to your wallet.

How Do I Use It?

Let’s use a couple of specific examples to illustrate how to use the Pareto Principle to improve your business profitability.

Example 1 – Applying the 80/20 Rule to your sales revenue suggests that 80% of your net sales are generated by only 20% of your customer base.  Do the math yourself and confirm the rough estimates.  It may be that 23% of the customers represent 84% of your revenue or another variation, the exact percentages are not important.  What’s important to recognize is that a vital few customers are responsible for the bulk of your sales.  There are at least two very important take-aways from this analysis in your own business: 1) you’d better make sure you are taking care of the top 20% of your customers and keeping them satisfied, and 2) if you want to grow you business, look to the other 80% of customers.  They represent the best chance to generate more repeat sales or to cross-sell other products or services.  It’s likely that these 80% of customers are not buying up to their potential.

Example 2 – Applying the 80/20 Rule to your customer service function suggests that 80% of the complaints come from 20% of the customers.  It also suggests that 80% of your problems in properly taking, filling and delivering customer orders correctly, come from 20% of the activity.  Like using the Pareto Chart, this example requires collecting data (You really should already be doing this!) about the complaints in your order fullfilment function.  If you use a bar chart to display the complaints by type (this sounds familiar) and then rank them by frequency of occurrence (yes, I’m sure I’ve read this somewhere before), the top 20% of complaint types should account for 80% of the number of compaints.   Start with the top complaint type, get to the root cause of the issue and correct the problem.  Put the correction in place and track the results.  Wash, rinse and repeat.


You can apply the Pareto Principle to most any aspect of your business.  By using the 80/20 Rule to observe the track the problems hurting your customer relationships and opportunities to improve profitability and reduce costs, making improvements to your processes and tracking the results, you’ll be more efficient and profitable in no time.

Wednesday, April 14, 2010

Using Pareto Charts to Improve Profitability

Vilfredo Pareto (1848-1923) was an Italian economist, philosopher, and industrialist who contributed much to the field of economics and quality.  Many of his economic philosophies led to the field of economics to move from one of social philosophy into a data intensive field of scientific research and mathematical equations.  However, as much as Pareto did for the study of economics and quality control, we can apply some of his theories and principles to help us run better businesses and help entrepreneurs make their businesses more profitable.

What Is It?

The Pareto Chart is one of the ‘Seven Basic Tools of Quality Control.’  It helps highlight the most important factors from among a group of many factors. In quality control, it is often used to represent the most common sources of defects or the highest occurrence of defects.  It is a simple bar chart that displays the number of occurrences on the left vertical axis and the category of occurrences on the horizontal axis.  While not required, you can add a right vertical axis which represents the cumulative percentage of the left axis to the total.  It’s self-explanatory when you see an example.

While this is a silly example, it shows the most common occurrence of reasons for students not having their homework in school. You can use this same chart tool to evaluate most any business process on which you can collect data.

Why Is This Important?

As an entrepreneur, this is a valuable tool for managing your business.  Even though you don’t care why students didn’t hand in their homework, you probably do care why you get complaints from your customer service or your delivery function, or why your accounting department can’t get the books closed on time or maybe what are you biggest overhead expenses.  There are as many applications as there are brilliant entrepreneurial minds to think of them.  Obviously, if you manufacture widgets or something else, you’ll want to use this quality tool on your manufacturing process.  However, you can also use it to help you improve any process in your business.

How To Use It

Identify any process within your company.  Collect data on the makeup of the issue.  Chart the data by number of occurrences, ranking the data in highest to lowest number order.  You don’t need to chart every issue, just those with the highest frequency.  Start working on the issue which is ranked first.  Make changes to your process and then collect more data.  Repeat the process until the first item is no longer the most frequent problem.  Once that happens, start working on the new number one problem.  You should be able to make improvements to those issues which cause you the most worries.  If you aren’t seeing any improvement, you probably aren’t getting to the root cause of the problem.  You may have identified and made changes to symptoms of the problem, without actually fixing the problem itself.  If you find that you aren’t making any progress, look at your causes again and try to get to the root cause of the problem.

Give Us Some Real Examples!

Here’s a list of a few problems I’ve run into on previous jobs, maybe you can think of other areas where this type of analysis would be helpful.

  • Customer Service Errors
  • Shipping Errors
  • Overhead Expenses Have Grown
  • Delays in Closing Accounting Period
  • Meetings Run Long
  • Low Volume of Website Orders


You can apply the Pareto chart to most any problem or process in your business to identify those issues that cause the most problems, cost the most money, or cause you customers to buy elsewhere.  It’s limited only by your imagination and ability to collect meaningful data.
P.S.  I'm a big fan of Pareto and will be looking at some of his other theories and tool and how they can be used to improve your business over the next few weeks.

Tuesday, April 6, 2010

Heilmeier's Catechism

George Heilmeier, born in 1936, was an electrical engineer with Ph.D.s in solid state materials and electronics.  He spent most of the 1970s working at the Department of Defense at the Defense Advanced Research Projects Agency (DARPA) and went on to work at and head several other companies such as Texas Instruments and Bellcore.  Heilmeier was awarded numerous prizes and awards from prestigeous science and engineering organizations and holds 15 patents.  He’s credited with being one of the pioneers to develop liquid crystal displays.

While George Heilmeier was indeed one of the brightest stars in the world of science and engineering in the second half of the 20th Century, he’s most well known for a set of criteria he developed for analyzing research projects and product development efforts.  Those criteria, know as Heilmeier’s Catechism, were aimed at project managers.  Heilmeier reckoned that any project manager should be able to answer these questions relating to project success before funding of the project or product would move forward.  The interesting thing about these criteria is that they can be applied to almost any kind of project, including starting a business.

Let’s look at the questions, and see how they might apply to starting or running a business:

  • What are you trying to do? (Articulate your objectives using absolutely no jargon.)
    Sounds like the beginnings of a business plan to me.  What are the goals and objectives of the company described in plain language.
  • How is it done today, and what are the limits of current practice?
    A SWOT analysis of your competition and industry will fulfull this question.
  • What's new in your approach and why do you think it will be successful?
    Branding and a Marketing Plan are just the ticket to answer this question.
  • Who cares?
    Who are your customers and what do they want.
  • If you're successful, what difference will it make?
    What does it take to be successful and if you are, will you actually make any money.  It sounds like financial analysis to me.
  • What are the risks and the payoffs?
    What are the assumptions that you used to build your financial statements and how conservative are your projections?
  • How much will it cost?
    Have you done your cost analysis?
  • How long will it take?
    A break-even analysis will answer this question.
  • What are the midterm and final "exams" to check for success.
    What a novel approach.  Let’s build in some early and mid-term success measures to make sure we’re on course to meet our plan objectives.
What we find is that Heilmeier’s Catechism is nothing more than standard business planning.  Perhaps it’s a ‘chicken or the egg’ issue; but really, who cares?  Heilmeier has applied common sense and standard business practices to the area of scientific inquiry.  And we can use his model to double check our plans to insure our business plans and projects are on track for success.