Business is perhaps the simplest yet most challenging activity known to man. This is quite an oxymoron as well as a bold claim since we recently witnessed numerous businesses crumble amidst the 2020 COVID pandemic.
So let us begin with the definition, a business is an entity that consumes an input to create an output of greater value by utilizing human and/or capital assets. For instance, you buy lemon, water, salt and sugar to prepare lemonade, a product with perceived value greater than that of the individual ingredients combined. Business by itself, in isolation, is simple but its interactive nature makes it complex. And all businesses interacts with the following three faucets:
Human, Regulatory and Market
When you hire someone to make lemonade, you will be worried about their ability to deliver the same output. To ensure output quality, you may introduce a system, which in turn needs to be administered. Humans can be managed through systems while systems can be administered by perhaps wiser humans. Although this costs an average business a few hundred thousand dollars, being an internal factor it is relatively more manageable.
But once the FDA steps in with a regulation, you will require an expert to ensure that your system and material comply with the standards. This is also not a matter of concern unless it is once in a lifetime policy induced regulatory shift. In simple terms, an overnight shift in public opinion forcing politicians to change policy and subsequent regulations such as coal regulations owing to public opinion on green house gas induced global warming. Although this is an external parameter, a few consultants and experts with bit of liaison will get it sorted.
Everything until here is manageable, but what makes it truly complicated is the market, correctly referred to as market forces. Your business is fine as long as you are alone, but once more lemonade and beverages stalls enter the equation, things start to complicate. And this is also when things start to get out of your hands as the number of variables for your business success increases by folds. Although an MBA would argue that competitive tactics can rescue, such tactics can only command a few variables from the myriad of variables.
This is where the endless game of guesses and assumptions begins. Such as, how will the competition reach to our price cut? what if we reduce the sugar to sustain the price cut? will home delivery boost sales? how much profitability will home delivery consume? This is how an average business operates, maneuver after maneuver to cope up with market factors which include your customers as well as competitors. Perhaps some light on game theory that illustrates the interaction of market and businesses will help you better understand the concept.
Things that make it challenging are actually the things that you can neither control nor ascertain. And this requires judgement that can get the guesses right and help maneuver over the consequences of wrong assumptions. And such judgement comes from experience. If you want to ascertain that a pilot can land amidst a snowstorm you inquire about his previous experience and not about his knowledge of landing process. Hence, you should always have some experience onboard your management team, either external or internal, to fill the judgement gap.
Error of judgement is the most expensive error!
And if you want to gain more business know-how and acquire some sort of judgement, you can undertake our high appreciated course on Business Management Fundamentals or Product Cost Management and Pricing Strategy
Header Image by Wouter Supardi Salari on Unsplash
Savvy Munshi 