Structures: Scaffolds for growth

 

     For many startups, the total rule is "lean, green, mean". Do what you most need to do, as fast as you can, with as little excess, or non-mandatory, work as possible. When I was co-founder of our company, it was not unusual to be working 80-hour weeks. We knew what we had to produce and we had a few methods to try to get it into the hands of people who would pay us for them. (We soon needed to expand that "marketing and sales" aspect of the business.)

     That is the basics of trade in a nutshell -- produce what is of value to others who will give back things of value to you.

     That works in a barter economy as well as in an industrialized, capitalistic, economy. It is also true within other viable economic systems. As the business, or economy, or government, grows it can often end up "abstracted" where it is difficult to say exactly what things of value are being exchanged.

     Leap ahead and start imagining a business that has thousands of people working to provide tens of thousands of things of value and having to keep track of a hundred thousand purchases and transactions. If it all works smoothly then it could be done in the same manner as when the trade was just between you and someone else -- that simple, basic, barter agreement.

     But this is reality. There are few one-to-one relationships between any person and any proceeding from start to finish. Person A does one part to process C and Person B does something different to process G which directly influences process C but A has no direct visibility to process G.

     Confusing? Absolutely. And this is still only a very simple situation. There needs to be some type of documentation -- method of communication -- between Person B and Person A that provides insight into relevant aspects of Process G without inundating Person A with all of the other knowledge and systems that Person B is handling.

     So, simple transactions have need of simple processes. High numbers of interrelated transactions, people, and processes have need of much better access to, and keeping track of, relevant information. How do you succeed in growing the business from simple to complex?

     The base answer is "structures" which can be loosely defined as ways to organize information about what is being done, (who/what/when/where/why) by the people who originate the information, to have it accessible to those who need to know that information. The other leg is "processes" -- which is involved with how that information is processed, saved, distributed, and otherwise not lost in the cascading effects of a successful large business.

     Processes can (and do) make use of various apps and programs. But without structures, the processes cannot do much of anything because they don't have the data with which to use those processes. Also, processes differ with every aspect of the business. A process for generating ideas. A process for estimating, and keeping track of, work. A process for manufacturing inventory and supply control chains. And so forth. But all of the processes rely on structures.

     The primary importance of determining just what information is needed for the business is that it remains approximately the same no matter how large the company gets. (Yes, as a business reaches certain growth points, new regulations may come into play.) This facilitates growth. The information has to be there but, when the company is small, it can be retained within various people's memories. Just like it seems to be true to a teenager, all employees of a startup are deemed to be immortal and those valuable data are always available.

     Absurd? Certainly. But it is so very easy to eliminate those items, that seem to not immediately affect the bottom line, when you are small, focused, and overworked. Resist. The data can be written on a large notepad or, for transitory data, on a white board. But get it written down. As the company grows, you are going to run out of room on those notepads or they will become too many to search through easily. So, you develop (or obtain) new processes and applications that help you to manage that data. But you already are used to getting, and documenting, that data. You are prepared for growth.

     

Free market achievement: A lack of control variables

 

     Academic, laboratory, and commercial studies have a common difficulty. In order to obtain valid conclusions about the specific factor, or quality, that is the focus of the study all other relevant factors must be kept constant. These constants are called control variables. If there are unidentified variables which might affect measurements or there are relevant variables that cannot be sufficiently taken into account, the measurements of the target factor do not necessarily support any conclusion. The measurements might not be due to the factors under study.

     This is true for studies on disease (possible environmental aspects -- known or unknown, genetic background, emotional and mental attitudes), social mediation techniques (lead contamination or other physical harmful aspects, social networks, personal history, etc.), sports, business success, or any other area in which a specific outcome is to be measured and quantified.

     It is currently popular for some to indicate that a person's outcome (physical, economic, education, social, business, ...) is due solely to their ability and their efforts. So, in this case, there are variables -- ability and efforts -- and measured outcomes (in the physical arena, educational achievements, business success, etc.) The harder you work and the more able you are, the better will be your results. And that is very likely true -- though luck (occurrences that you have no direct, or indirect, control over) will always play a part in the results.

     Once again, an individual, depending on luck, will be able to do better if they have greater ability and work harder.

     That conclusion is not possible when you compare two different individuals. If one person is just as able and works just as hard as another then they should be able to do as well? This is faulty logic -- there are too many variables that are not under control.

     It is similar to comparing two racers -- one of which is one foot from the finish line and has no obstacles and the other is a mile from the finish line with hurdles, landmines, broken glass, and dangerous animals attacking them along the way.

     What types of variables are not under control?

• Family income -- can they afford training/help/schooling?
  
  
• Family interaction and encouragement -- do they have encouragement, "cheerleaders", role models?
  
  
• Peer values -- is the goal of value to friends and associates?
  
  
• Biases and prejudices -- does everyone around them give them equal opportunities to achieve the goal?
  
  
• Physical health and environment -- have they had sufficient, and proper, food growing up? Have there been any inescapable toxic substances in their environment?
  
  
• Neighborhood -- includes peer values but also is it safe around their neighborhood? Do they have the opportunities needed to prepare themselves to achieve the goal?
  
  
• Factors X, Y, and Z -- like any other study, there are possibly other factors that vary between two people that are important in the achievement of the goal.

     It is possible to have a statistical conclusion when you compare equally varied pools of people. If you have large enough pools, the control variables will tend to average out between the two groups. But not for two individuals.

     People have achieved, and continue to achieve, fantastic things no matter how much the deck has been dealt against them. Working hard is always a positive factor. Striving to do one's best and to continue to improve must help in the journey to the goal.

     But comparing the effort, and abilities, needed to achieve a goal between two people just isn't possible if you cannot keep those control variables constant.

A level playing field -- the desirability of regulations.

     I am a firm believer that MOST companies want to be a good neighbor. They want to have fair and equitable wages and benefits for everyone. They want to do their share in the local economy so that they give as much, or more, than they take. They want to leave the world in as good of, or better, condition than how they found it. They want to produce safe products than are of benefit to people. The guiding forces of those companies want their children, neighbors, and communities to be proud of them, what they do, and how they do it.
     Alas, within the business world, what is desired is not always what can be done. This is especially true for public corporations which are in the public eye and which are often constrained to a short-term view to the next quarter's earnings. A company must be competitive if they want to continue to enable jobs, give dividends and earnings to stockholders, and continue to grow, innovate, and produce.
     When I was growing up, we had a large lumber and pulp mill as the primary economic force for the town. To the best of my knowledge, they produced high quality goods and treated their employees reasonably well. But one day I neglected to wipe off my glasses immediately after a brief shower. Later in the day, when I was cleaning them, I found that the rain had etched permanent spots in the lenses. The rain was highly acidic. Some of my friends, who had houses much closer to the mill, knew that they would have to paint their entire house at least once a year because the paint would not last longer than that. The town just considered it as part of the side effects of the company but I doubt that anyone, within or without of the company, truly liked or wanted the acid rain.
     Sometimes, doing things, that seem to be more costly, prove to be cost-effective in the long run. Thus, after examination and real-life testing, up front costs sometimes prove to be long-term savings. One example of this is a well-known bulk goods company that has a higher-than-average salary structure as well as better benefits than the general industry. Many would think that this would put them at a competitive disadvantage. However, the long-term result of this has been shown to be higher productivity, much less turnover of staff (which is very costly), and a more welcoming atmosphere for the ongoing customer stream. And all of that saves money and makes the company more competitive and profitable.
     In other cases, doing right cannot save money -- it costs money. One company that dumps all of their wastes directly into the local river or lake will have lower costs than a company which minimizes their wastes and treats remaining wastes such that they do not damage the environment. Unless the environmentally friendly company has other areas in which they are more efficient, they will not be competitive against the toxic company. (Note that the process of minimizing wastes often saves money -- but requires initial investment of time, effort, and money.)
     And this is where regulations come into play. If all the companies have the same positive requirements in place then meeting those requirements does not affect the competitive landscape of the business. All the companies can (and are indeed forced to) do the "right" thing without putting themselves into a poor competitive position.
     The regulations, in themselves, have a net neutral effect on companies' profits and cost of doing business. However, the monitoring and enforcement of those regulations do have a cost and sometimes that is a significant cost. This is the "burden of regulations" that is often discussed in political arenas and in public and social media. It is real and it can hit small businesses harder than large businesses because the gross amount is similar for the small and the large business such that, as a percentage of invested profit, it hits the small business much harder. In other words, if I make $100 profit, and I must use $35 to fulfill the needs of regulations, it will hit me much harder than a company that makes $100,000 profit and must use $5,000 to fulfill the needs of regulations.
     Regulations create a level playing field and are usually of benefit to everyone -- within and without of the company. We need to determine methods to keep that level playing field and that means ways to minimize, or distribute, the costs of monitoring and enforcement.

Life and work -- a closed energy cycle

     Recently, Jeff Bezos, of Amazon founding fame, gave an interview in which he stated that he did not believe in the idea of "work-life balance". He prefers to view it from a holistic point of view where each gives energy to the other. A more complete link to the interview, and his perspective, can be found here.
     Whether one considers it to be something to "balance" or whether it is to be considered a "holistic" exchange of energies, it is still an aspect of how life, work, and "play" is viewed. It is not the same for everyone. One potential definition of "work" is the set of things that you must do in order to support the necessities of life. One potential definition of "play" is that which you do because you enjoy it. And "life" is a combination of the time that is spent in work, play, and the other moments of your days, weeks, months, and years. So, work and play are subsets within the grouping called "life".
     The huge variety occurs (and creates the apparent dichotomy of Jeff Bezos' view on the "balance") because many people think of work and play (and life) as disjoint activities while others (like Jeff Bezos) feel that work and play can largely overlap -- you can greatly enjoy the things you do that provide for the necessities in life with only a minor part spent doing things you actually do not like.
     I have never read any poll results that indicate what percentage of people love almost all of their time at their work -- and I have considerable doubts that a valid poll could be conducted. But, we can probably agree that not all people love their work almost all of the time.
     For those people, like Jeff Bezos, who love everything they do at work, there really isn't any need to find any "balance" between work, play, and the rest of life. But, for those who are not in that category, there is a set of energy available and it needs to come out at least neutral or, preferably, positive.
     Everyone who does not have society supporting them (either through inherited wealth or via social subsidization programs), does need to have work -- based on the above definition of work being what is needed to be able to live. If you love your work but cannot stand what happens to you after work, then you need more work hours to give you the ability to cope with outside-of-work. If you do not love your work then you may need more time available outside-of-work in order to have the energy to do a good job while at work.
     This comes back full circle to the question of "how does one achieve a healthy work-life balance" (for those who do not love almost all of their work activities)? The place where you work very much wants, and needs, you to be productive while you are working. You cannot be productive if you are draining your batteries on a continuous basis.
     There are many methods used to help to promote the ability to work productively. These include flexible hours, shortened work hours or condensed work weeks, part or full-time remote work, provision of ergonomic furniture, career training opportunities at work, clubs, bonuses, recognition awards, and many, many other methods. What works for one person may not work for another person. We are each unique.
     The work environment can be adjusted to become a "better" place to work; it can change to require less energy or even, possibly, generate more positive energy. This is a combination of what your work organization can do and what you do for yourself to make work a positive place for you. Another approach is to do more of what you love during your off-work hours -- to generate that extra energy needed to pull you through the work days. What will not work -- for the business in which you work or for yourself -- is to keep putting in more and more time doing things that take away your energy. It may not be necessary to find your "bliss" but it is necessary to save energy to do the things that make your life enjoyable and, if that IS your work, then that is wonderful.
     In the long run, finding that "balance" is an ongoing journey of life.

Regulations create level playing fields for businesses

   It seems to be fairly "normal" for businesses to complain about, and fight, every new regulation that is proposed or enacted. This isn't unreasonable as it will be true that a new regulation will require different procedures (and probably additional paperwork). However, that is not the same as saying that regulations are bad for businesses -- but it can be a difficult balancing act within the global economy.

   Regulations are a way to tell businesses what practices are acceptable to the society in which they function. They fall into three general categories (actually, almost anything can be broken up into however many categories as are desired -- I am choosing three). These categories are economics, labor, and environment. There is also a fourth category which involves product regulations -- for the product quality and safety of the consumer but that does not directly apply to this blog.

   Economic regulations involve the way the products of a company become part of the general economy. This will involve taxes. Generally, businesses want to pay fewer taxes and the general population wants them to pay more taxes. It will also involve tariffs -- both import and export. Tariffs are special taxes that are involved with the movement of products and money across country borders. This is a part of the balancing act.

   Let us say that Country A, as part of the standards for their society, requires all businesses to ensure that any water used by the business to be cleaned to drinking standards before being released back to the environment. This requirement (or regulation) adds 5% to the cost of doing business in Country A. Country B does NOT have such a requirement and, thus, businesses can produce the same product for 5% less. This puts businesses in Country A at a price disadvantage. A tariff on products imported from country B gives the businesses a more equal competitive situation. (Note that the tariff does not help the environment in country B.)

   Regulations may also be in the category of labor use. Minimum wage laws (or "living wage" laws whenever they start being enacted) say that people cannot officially be employed without a certain level of pay. Restrictions on number of hours worked per day, or week, directly affect the number of people employed. "Child Labor laws" restrict the age of workers and the number of hours per day that they can work at what ages. Mandatory sick days allowed (paid or unpaid) create a situation where workers are not compelled to work even when sick (this also benefits the general population when the food industry is involved). Vacation days, holidays, and other types of paid, or unpaid, absences help the overall health of the people who work for a business.

   Environmental regulations are basically a matter of how businesses are allowed to affect the environment. Usually a person thinks of manufacturing companies for this. However, the requirement that a business have, and maintain, a parking garage would also be an example of an environmental regulation as it reduces the amount of land that cannot be used for vegetation. Another non-manufacturing law might be a requirement to turn off 70% of the lighting during non-working hours.

   Of course, environmental regulations apply more directly to manufacturing businesses. It is similar to teaching a child to "clean up their own mess". A business would, naturally, prefer other people to take care of their messes. Note that not having environmental regulations does NOT decrease the cost to clean up -- it moves it from the business to the general public. In fact, it probably costs less for the mess to be cleaned up at the site of creation of the mess than after it has dispersed and damaged other parts of the environment.

   It would be completely possible for a business to do everything well on their own initiative. They can treat their people well, be good to the environment, and be a good neighbor within their communities. There are many small businesses that strive hard to do such and other, larger, businesses that recognize that there are inherent benefits (lower turnover of staff, better public image, etc.) to do such. However, businesses that do NOT behave well can have financial advantages over their competitors -- and this does not help society as a whole.

   Regulations provide a framework that is acceptable to the local society that allows businesses to compete without having uneven costs of providing services.

Living Wages are not only affordable -- they help businesses

    It is often said by spokespeople for businesses that "we cannot afford to pay our workers living wages". However, there seems to be no difficulty in paying for increased costs for materials, or energy, or advertising, or increased costs of real estate, or any other such item. As I discussed in my blog about "supersizing", there are a number of things that go into the cost of an item versus its price.

    The composition, or gathering of different parts, of the cost of an item will vary depending on the item. Some things are "labor intensive" which means that labor costs are a higher percentage of the cost. Others are based on scarcity -- or an aspect of "we have what you want -- who is willing, and able, to pay the most for it". In general, for many items, the amount of labor cost within the total cost for things that are actively made by people is a minority of the cost -- call it 30%. For stores that have high "turnover" (things sold quickly and new, replacement, items put on the shelves for sale again), labor costs are much less (such as for mass merchandizing stores) -- perhaps 10%.

    For our discussion, let's just say that labor costs are 25% of the cost of the item.  Doubling the labor costs would NOT double the base cost of the item to sell. It just adds an extra 25% -- so the base cost is now 125% of the former price. Let's say that the retail price (price charged to a general customer) was twice that of the base cost -- or an extra 100%. This means that the price is 112.5% of the original price (100% original cost + 100% original profit + 25% extra labor costs gives 225% which is "normalized" (brought down to a comparison against 100%) to 112.5%.

    Now it is possible (even likely) that the merchant might want to keep their percentage profit rather than the actual amount. So, in the above comparison, the merchant got the same amount of profit as base cost. If we increase the base cost by 25%, the total amount doubled ends up at 125% of the original price (100% of original cost + 25% extra labor costs is equal to 125%; doubled gives us 250% and normalized brings it back to 125%).

    We can see that even doubling the labor costs does not add a huge percentage to either the base cost or a retail price without penalizing the retailer. It can be argued that a 25% increase is still something that people are not willing to pay. After all, people do comparison shopping and retailers have sales, and price cuts (temporary or permanent). If Item X is sold at one store for $1.25 and the very same item X is sold at another store is sold for $1 then many people will choose to buy for $1. What would make people able, or willing, to pay more for products?

    The first reason is that the above analysis is a simplification. Labor costs are NOT the same as wages. Although the blog on "supersizing" uses labor costs as a lump sum, labor costs are actually a combination of wages, benefits, the cost to find someone to work at the job, training, and other matters. Thus, doubling wages does not double labor costs. In reality, it will reduce "turnover" within the workplace and reduce the amount needed to find people to do the job and the training. So, a doubling of wages may actually only cause an increase of 20% overall (these numbers are all examples but probably in a reasonable range) so the product would only cost $1.20.

    The second reason is what do people do when they make more money? Well, hopefully they will save some more. But almost everyone would also spend more. The products may cost a bit more but the business is also creating more customers and a percentage will buy from their store.

    A third reason is that it creates a positive image. I am sure you can think of a company who does not treat their employees well and relies on charities and the benefits paid by taxpayers to subsidize the wages of their employees. Similarly, we can also think of companies who pay their people more than what is "required" and are known for treating their employees fairly and well. Because of these three reasons (and other reasons) these "good neighbor" companies often make a better profit than the ones who sponge off of the taxpayers to increase the owners' wealth.

    The last reason leads into a future blog (maybe the next one). And that is -- it isn't always a matter of "nice people finish last". The above three reasons come into play to help people who do the good, proper, thing benefit financially. Regulations also help -- because the companies who care about people (and environment, and health, and ...) are not penalized because they operate "on a level playing field". That is, if everyone is required to do something good then no company is at a financial disadvantage for doing what is good. Everyone has the same requirements.

    Can you think of other benefits to a company for paying living wages?