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The book could be interesting/useful reading for entrepreneurs and investors for the simple reason that growth is a central concern for both. A better and more detailed understanding of growth might allow us to 1) better understand how the world works, and 2) apply growth-related ideas to our own circumstance.
Chapter 1 of the book is called Trajectories: or common patterns of growth. The chapter is 69 pages long with relatively small typeface so there is alot of content in this first chapter to the extent you might consider it a book. My strategy for reading this 634 pg. book is to consider each chapter as equivalent to reading a small book. When I finish the first chapter, it should result in a sense of accomplishment and allow me to drop the book for awhile until I have time to focus on it again.
Chapter 1 sets a technical background for the book. Vaclav discusses some math and models that have been used to account for and explain the trajectories of growth. Growth is generally plotted as some labelled variable on the y axis that increases over time plotted on the x axis. Within this view of growth, many possible trajectories can be plotted and many different maths can be used to describe these trajectories. The math used to describe these trajectories can in turn be explained by different models and theories of how that trajectory came about. The varieties of growth refer to this diversity of maths, models, and theories that are used to describe and explain growth phenomenon.
If you study visual representations of growth in many different areas like Vaclav and others have, you will begin to notice common patterns. One common pattern is an S-shaped or a Sigmoid growth pattern involving slow growth at first, followed by exponential growth, and then trailing off to slow growth again. The model explanation of this pattern might involve a positive feedback loop accounting for the exponential aspect of growth with a countervailing negative feedback loop accounting for the slowing of growth at the end. Growth can also appear in a more modest linear form involving a constant amount of growth each year perhaps plateauing at points along the way. Growth can also be fast right from the start without any slow buildup - what startups and investors might wish was the case. The pandemic has caused many micro and macro economic growth curves to oscillate off trend.
In the remainder of this blog, I want to do a deep dive into one of ideas mentioned in this chapter that interested me.
Explaining Technological Change
In 1971, Fisher and Fry published a classic paper called "A Simple Substitution Model of Technological Change" (1971) which you may be able to download if you google it.
The objective of the paper was to provide the reader with a simple-to-understand model that might be used to explain how the technologies we use change over time.
Fisher and Fry summarize their model as follows:
The model is based on three assumptions:
Many technological advances can be considered as competitive substitutions of one method of satisfying a need for another.
If a substitution has progressed as far as a few percent, it will proceed to completion.
The fractional rate of fractional substitution of new for old is proportional to the remaining amount of the old left to be
.... Experience shows that substitutions tend to proceed exponentially (i.e., with a constant percentage annual growth increment) in the early years, and to follow an S-shaped curve. (p. 75-76).
This substitution model can be used to generate S-shaped curves using logistic type equations. The particular version of these equations Fisher and Fry used allows you to enter a point in time and return the market fraction (f) of a new method. Vaclav summarized the rest of Fisher and Fry's paper by saying they "used their substitution method to forecast the outcome of simple two-variable substitutions and applied it initially to competitions between synthetic and natural fibers, plastics and leather, open hearth furnaces and Bessemer converters, electric arc furnaces and open-hearth steelmaking, and water-based and oil-based paints" (p. 48).
The variety of technology changes they modelled in this paper is one reason the paper is considered a classic. Also the simplicity of the proposed model is a good starting point for thinking about technology change before formulating more complex models.
To better understand some of the concepts in Chapter 1, I felt the need to deep dive into some of the primary research Vaclav cited. If you decide to read this book, you might want to anticipate doing so as well out of interest and/or to more fully understand the concepts.
Posted on April 4, 2019 @ 09:44:00 AM by Paul Meagher
There are many businesses that can produce a nice side income. There will always be those, however, who take a modest side business and have the drive to turn it into something truly colossal.
Every year me and my joint-venture partner make around 2500 square bales of hay from the hay fields on the farm. It can generate around $10,000 dollars a year before costs (2500 x $4 per bale). We split the revenues and some costs. The shared costs usually include worker pay, fuel, baler twine and lots of beer to quench the hay makers and keep them happy. My partner is now using his half of the hay to feed his 5 beef heifers and getting more benefit that way.
There are some farmers around here who make 10,000 bales a year and make between $40,000 and $50,000 a year before expenses just on the hay sales. They might make quite a bit more if they offer delivery and not just pickup. Making hay and delivering it can be their main source of income.
In Ohio, JD Russell Hay and Straw Inc. takes the hay business to a whole other level of large scale choreographed production. When you have nice flat productive land like they do, a passion for high quality hay, and an extended family all willing to be involved in the business, then going bigtime in the hay business is a viable option. Here is a video of how they make hay at JD Russell's farm.
According to their website:
Neither John Russell nor his wife Denise came from a farm family. But in 1985 they sowed the seeds of their dream, working together part-time with less than $1500 in equipment.
Expanding every year, and paying cash for equipment, the Russells worked hard until they were able to devote themselves full-time to the business in 1992.
The Russells did not get this big overnight and appear to have self-financed their growth in the early days. Not sure if they still self-finance with the amount of machinery and buildings they have, but it does go to show that what is a nice side income for some (e.g., 2500 bales a year) can be a large business for others (e.g., 500,000+ bales a year?).
Posted on January 18, 2019 @ 07:37:00 AM by Paul Meagher
Over the last few days as the temperatures have gotten colder, I noticed that the river has become more iced over. There is a particular pattern to how ice forms on the surface of a free flowing river. Ice moves in from the sides and begins on sections of the river with gentler slopes. There is probably a positive feedback cycle as ice begets more ice. It appears that sections of the river that have the most momentum are the last to freeze.
In physics, we use the equation P = M x V to define what momentum is. Momentum P varies as a function the Mass M of the volume and the Velocity V of the volume.
When studying stream behavior it is important to study it under frigid conditions because cold has a major influence on the mass M and velocity V of water in a steam channel. For details, see the classic Determination of stream flow during the frozen season (PDF) by Burrows & Horton.
The concept of momentum gets applied to business in many ways. For the metaphor to make sense in these contexts it should behave in a manner similar to the defining equation.
To increase the momentum P in a business requires increasing the Mass, the Velocity or Both at the same time.
Businesses such as Facebook have alot of momentum. In the early days the increased momentum came more from the rate of new users joining the platform, the Velocity component V. As Facebook has
matured, the momentum is coming more from the shear size of the platform, the Mass component M.
How does a business achieve momentum?
Sigmanow offers several suggestions for how to achieve momentum. I like the simple example of adding one new sales person a month to your business. Ideally, this strategy would have the effect of increasing the velocity and mass of sales on a month by month basis. It might be one of the most potent strategies for achieving high levels of momentum quickly. Of course, if you can't deliver on the orders then in the big picture the momentum of the business is alot less than order volume would suggest.
There are lots of other strategies for increasing business momentum that you can find by googling "business momentum". I'm not convinced in many instances that the suggestions would actually lead to an increase
in business momentum - they seems like motivational prescriptions with no strong connection to improving business momentum.
Momentum features very prominently in day trading strategies and there are lots of metrics for measuring momentum. If you are looking for momentum metrics studying momentum indicators used in day trading might be useful. The fundamental equation for momentum for day traders looks like this:
M = V - Vx
Where V is the latest price, and Vx is the closing price x number of days ago.
Posted on September 5, 2018 @ 10:27:00 AM by Paul Meagher
When companies say they want to "scale up" their existing business, we might ask them to be more precise. If they want to double their business, then that would be a 2x scaling factor. If they they wanted to increase revenues from 1 million to 10 million then that would be a 10x scaling factor for revenues
On Youtube, one of the channels I like to watch is Stefan Sobkowiak's channel. He has a unique take on Permaculture orcharding and life in general. In the video below Stephan talks about a 10x scaling pattern for planting an orchard that involves planting 1/2 an acre, then scaling up to 5 acres (10x), and then scaling up to 50 acres (10x), etc... His discussion of this planting pattern takes place early in the video.
I am discussing this planting pattern because it provides an interesting example of how one might go about scaling up an enterprise. The number 10x was recommended by Stephen if you want to get serious about orcharding. That seems a bit extreme in general, but it is helpful to be as precise as you can be about how much you want to scale up your business.
It is also useful to imagine what you would need to do in order to achieve 10x growth. Perhaps you limit yourself to only imagining what it would take to achieve 2x growth - tweak this, tweak that. You can't tweak your way to 10x growth - some more fundamental changes will be required. These are often points at which a promising venture seeks additional funding (Series A, B, C, etc...).
Posted on February 22, 2018 @ 05:15:00 AM by Paul Meagher
The Amazon is the largest river in the world. One of the reasons Jeff Bezos named his company after this river is because he intended his original online bookstore to be the biggest in the world.
Today I want to explore what it takes to be the biggest river in the world. I'm sure Jeff Bezos understands perfectly well why the Amazon is the biggest river. It is possible that he is using this knowledge to scale his own company.
One of the main reasons the Amazon river is the largest river in the world is because it has a Strahler number of 12. A Strahler number is a way of classifying streams based on the number and size of tributaries that feed into it. It is easiest to understand this numbering system by seeing an example:
The number assigned to a stream segment only increases when 1) two streams join, and 2) the number of both these rivers is 1 less then the stream they combine to form. When you get to the end of the Amazon river, adding a small tributary with Strahler number 1 does not increase the Strahler number of the river. It is only when two massive streams with Strahler numbers of 11 combine that the Strahler number of the ensuring stream becomes 12.
In the early days of Amazon the company, it grew by adding hard to find books to its inventory. Alot of small revenue streams from book sales fed into Amazon. Now that Amazon is a huge company, adding small revenue streams makes very little difference to its revenue flow. To grow significantly bigger, Amazon has to merge with some huge revenue streams such as grocery shopping and entertainment.
A stream is the visible manifestation of groundwater. The presence or absence of water stored in soil determines the flow characteristics of a river. Groundwater is like the customers that feed a business. The size of the Amazon river is a reflection of the groundwater that it has accumulated.
To compete against Amazon the company you would have to take the flow from one or more of its revenue streams. Amazon would be unlikely to notice flow lost as a result diverting small revenue streams, but it would likely notice if you tried to divert a revenue stream with a high Strahler number. The key is to not to get noticed by Amazon until you have a high enough Strahler number that you can fight back or maintain your ground. You may eventually decide to sell your flow back to Amazon.
Can a startup go from a small tributary to a huge river the size of Amazon without alot of merging? Very unlikely. The history of all the behemoths of industry is one of acquiring companies to become bigger companies. They merge like the Amazon river to become bigger companies.
In conclusion, the study of river networks may offer some insight into how companies grow over time.
This diagram offers a way to think about change and succession in the natural world and possibly also in the business world. The basic idea is that when a new niche opens up there are companies that are effective at exploiting that niche and a large cohort who are not. Some of the successful ones will eventually scale up, gather up more resources and occupy more land, and will become more complex to the point where a reckoning of some sort leads to a phase of release and reorganization in the context, perhaps, of a transformed niche.
As an example, we might think about a company like Facebook who were successful at exploiting a social media niche and building on that early success to become a dominant social media company. The complexity of the company only grows as it welds increasing influence in personal, community and political affairs. Mark Zuckerberg has acknowledged that there are problems with Facebook and made a resolution to "Fix Facebook" in 2018. Perhaps Mark is acknowledging the need for an adaptive cycle of release and reorganization in order to evolve the company to the next stage. He may also be anticipating that if he does not signal a willingness to "fix facebook" then powerful government organizations might make that decision for him. At any rate, we may be witnessing the midpoint of an adaptive cycle where Facebook will release and reorganize perhaps like Google did when it turned into Alphabet but with some deeper fixes as well.
What is true of Facebook and Google may be true also of smaller companies. In the startup literature there is the concept of a "pivot". A startup may launch with the conviction that a certain business model will be successful and eventually realize that the business model is not working. At that point they might persist in their folly giving it "one more chance", they might fold the company and call it a day, or they might "pivot" to a new business model that is more likely to be viable and test if that is so. The psychology of sunk costs often makes it very difficult to recognize the need for and motivation to pivot.
One suggestion might be that instead of framing these major decision points as exceptional "pivot" moments we might frame them as part of an adaptive cycle and expect to encounter multiple release/reoganization phases as a company regenerates itself in response to a changing niche or changing corporate objectives.
In conclusion, the Adaptive Cycle is a tool for through that is meant to help you think about how growth and succession happens. Nature appears to generally follow this cycle (i.e., animal or plant death and subsequent nutrient recycling are the release and reorganization phases in the diagram). The Adaptive Cycle concept may not have much usefulness for thinking about company dynamics but it is worth googling the concept a bit more before you draw that conclusion. I have not done justice to the extensive research behind the concept but decided to blog about it because I think the diagram is a potentially useful "tool for thought" for startups and more established businesses facing the challenges of growth and succession.
Enrst makes the point that, in business, gigantism is generally considered a goal or a good thing. We all want to grow and become big. As a corrective to this idolatry of bigness, Ernst argues that we should spend some time thinking about why big might be bad, and small might be good.
The question of "how big" a business is or should be is a relative judgement. There is no absolute business scale of smallness, only a comparative scale where we judge how big one business is relative to another along some dimension or set of dimensions.
On the issue of why smallness might be beautiful (i.e., good) he points out that many of the biggest companies of his day created subsidiary companies, smaller autonomous units, so that the company
could be managed better. When I read this I was reminded of the
recent announcement by Google that they would be restructuring under the umbrella of a company called Alphabet. According to Larry Page, "the whole point is that Alphabet companies
should have independence and develop their own brands".
I think it is useful to question whether gigantism is the goal of business. Google is of course huge under any size metric, but for it to function effectively they feel the need to split the company up into smaller units that have independence and can develop their own brands. The same
principle might apply for "smaller" companies that can decide if proceeding as one entity that becomes bigger is the proper way to go, or whether splitting things up into smaller companies with their own mandate, branding and independence is the way to go. You enjoy better portfolio effects when you split up companies like this and it is a good way to mitigate overall risk for the whole enterprise.
Schumacher makes many arguments in favor of smallness. This is only one of them.
Subconsciously, the reason I may have started reading and thinking about this book is that I am currently engaged in pruning some 3 yr old grape vines. The objective of this type of work is to manage vine growth and form in order to manage and harvest the vines effectively.
Pruning involves picking the best cane to become the main trunk and cutting all the rest of the bottom growth away. The pruning of these 3 year olds is not about fruit production this year, but about trying to get the vine to grow properly in preparation for fruit production next year.
Picking the best cane and figuring out everything that needs to be cut away and tied up feels like more of an art than a science. Each vine is an individual and has to be tackled uniquely.
So I just want to reiterate the dual concepts of growth and form which seem so abstract have relevance to determining the micro details of our actions. In managing horticultural plants that require alot of training, the concept of pruning becomes necessary as growth can be too uncontrolled and chaotic if left to its own devices. Prune back to create the main cane of your business. From that main cane you only want two main shoots, and a third for insurance that can be cut away the next year if not needed.
My brother is helping me and is weeding, pruning and tieing some vines in this photo.
The "Introductory" chapter is the main chapter I have read so far. This is a philosophical chapter and D'Arcy made a few remarks on growth and form that I found thought providing and which I want to discuss in this blog.
For D'Arcy the form of an organism and its growth over time are the result of forces acting upon the organism.
The form, then of any portion of matter, whether it be living or dead, and the changes of form which are apparent in its movements and in its growth, may in all cases alike be described as due to the action of force. In short, the form of an object is a "diagram of forces".
Likewise, we might find it useful to think of a business as a diagram of forces and we might put our business in the center of such a diagram along with the principle forces that determine its present form. These forces, like physical forces, should have a magnitude (or size) and a direction so that we can think like an engineer about it's form and manner of growth.
To terms of magnitude, and of direction, must we refer all our conception of Form. For the form of an object is defined when we know its magnitude, actual or relative, in various directions; and Growth involves the same concepts of magnitude and direction, related to the further concept, or "dimension", of Time.
To understand growth and form, D'Arcy argues that we should think about them in terms of immediate causes (i.e., mechanical cause) and final causes (i.e., problem it solves or the teleological cause). Ideal understanding occurs when the mechanical causes explain the final causes and vice versa.
Still, all the while, like warp and woof, mechanism and teleology are interwoven together, and we must not cleave to the one nor despise the other; for their union is rooted in the very nature of totality. We may grow shy or weary of looking to a final cause for an explanation of our phenomenon; but after we have acccounted for these on the plainest principles of mechanical causation it may be useful and appropriate to see how the final cause would tally with the other, and lead towards the same conclusion.
So we might think that it is our mission statement, goals or objectives that explain our success, but it is also the low level mechanical stuff we do each day that explains that success.
The purpose of today's blog is to begin exploring the concepts of growth and form using D'Arcy Thompson as our guide. His success in finding mathematical and physical laws to understand the size, shape, and growth of organisms might be one reason to follow his approach to understanding growth and form in other contexts such as business. I'll conclude with a final quote from the introduction where he explains the book's title.
The terms Growth and Form, which make up the title of this book are to be understood, as I need hardly say, in their relation to the study of organisms. We want to see how, in some cases at least, the forms of living things, and of the parts of living things, can be explained by physical considerations, and to realise that in general no organic forms exist save such as are in conformity with physical and mathematical laws. And while growth is a somewhat vague word for a very complex matter, which may depend on various things, from simple imbibation of water to the complicated results of the chemistry of nutrition, it deserves to be studied in relation to form: whether it proceed by simple increase of size without obvious alteration of form, or whether it so proceed as to bring about a gradual change of form and the slow development of a more or less complicated structure.
So can the study of growth and form as it applies to organisms to used to understand growth and form as it applies to business? Seems to me that the concepts of growth and form apply in the first instance to plant and animal organisms and, by metaphorical extension, to business, love, and other areas of human concern. So my answer would be that studying growth and form in the natural world likely be a fruitful avenue to explore as a means to understanding the corresponding concepts in other domains of human experience.
Posted on December 4, 2014 @ 05:21:00 AM by Paul Meagher
According to Wikipedia, the
law of the minimum states that "growth is controlled not by the total amount of resources available, but by the scarcest resource (limiting factor)". The law of the minimum is the modern basis of nutrient management for soils and in practical terms means that if your soil is low in nitrogen then your plants will be nitrogen limited until you
correct this deficiency by adding nitrogen. The plants will not grow well until you meet the minimal nitrogen requirements
for your plants. The growth of you plants is dictated by the level of nutrient that is in shortest supply. This situation can
be visualized using Leibig's Barrel (after Justus von Leibig who popularized this law based on the work of Carl Sprengel).
The law of the minimum can also be applied at a higher level than nutrients. You can also talk about sunlight, water, heat,
and nutrients as the main factors and formulate a law of the minimum in terms of these higher level factors. The growth of a
plant is determined by which high-level factor is in shortest supply.
The law of the minimum is called a law because it is believed to have a wide range of applicability. It would also appear to have applications to understanding business growth as well: "the growth of a business is controlled not by the total amount of resources available, but by the scarcest resource (limiting factor)". So if you parcel up your company into various factors that contribute to its growth such as capital, equipment, labor, market, management, and so on, the factor that will control the growth of your company is the resource in shortest supply. If you want to grow a company, then you need to 1) identify what
your limiting factor is (e.g., capital, equipment, labor, market, management), and 2) take actions to correct that deficiency.
The limiting factor changes as a company grows. At first capital and markets may be the main limiting factors, but as the company grows capital, labor, management might become the main limiting factors. At each stage in a company's growth it has to re-identify what the limiting factor is and takes steps to address the deficiency. The process of growing a company is a process of overcoming the limits to growth.
The role of capital in limiting the growth of a business plays a special role insofar as capital can affect the level of the other limiting factors by adding more equipment, more labor, more advertising, and better management. Working capital is required to stay ahead of the bills but capital over and above the requirements of working capital can be used to grow the business by overcoming current limiting factors. Mind you, new equipment can also reduce the need for labor so there are some
equivalencies among the other factors, but capital has the most equivalencies (or ability to change the levels of the other factors). Capital alone can't fix a broken management structure or a wasteful production line so it is not limitless in what it can do and it is not always the limiting factor for a business.
So keep the law of the minimum in mind the next time you think about the requirements of growing your business. What is the most limiting factor now and how can I correct that deficiency? Once that deficiency is corrected, what is the next most limiting factor. Growing a business is much like gardening, ever attentive to possible deficiencies, attending to them, and then noticing or wondering about other possible deficiencies and attending to them. If you want to transition from home gardening to
market gardening, then a new list of limiting factors comes into play. Your limiting factor is either capital, labor, equipment, market, or management or some combination thereof. You need to figure it out in order to make a successful transition to the next level of growth. So don't just keep an eye on where you want to go with your business, make sure you also attend to what factor might be holding you back the most in your present circumstance and perform the necessary corrective actions.
Posted on May 15, 2014 @ 11:27:00 PM by Paul Meagher
Today's blog title, "Limits to Growth", is inspired by the work of Donella Meadows whose work I've been reading lately. See my last few blogs.
"Limits To Growth" was a pioneering and best-selling book from 1972 whose main author was Donella Meadows. This book has been updated 3 times since then,the most recent version was published in 2005 (4 yrs after her death). It is a foundational book on sustainability.
For me, "Limits to Growth" also refers to a specific section in Donella's posthumously published book "Thinking in Systems" (2008, 7 years after her death) in which she provides some very insightful advice to startups. The specific passage occurs between pages 100-103 in a section
called "Layers of Limits". The basic idea is that startups grow by overcoming limits. They stop growing if they can
not overcome such limits. Simple ideas, but operating in reverse to the way we might normally think about growth (i.e, focus on positive growth factors only if you want a recipe for growth).
You can focus on trying to "grow" your company by listening to advice about how to grow your business.
Donella would argue you should focus on identifying and overcoming the "limits" of your company to grow your business.
There are four key paragraphs in "Thinking In Systems" in which Donella lays out her argument for the importance of
overcoming limits as the key to startup growth:
It was with regard to grain that Justus von Liebig came up with his famous "law of the minimum." It doesn't matter how much
nitrogen is available to the grain, he said, if what's short is phosphorus. It does no good to pour on more phosphorus, if
the problem is low potassium.
This concept of a Limiting Factor is simple and widely misunderstood. Agronomists assume, for example, that they know
what to put in an artificial fertilizer, because they have identified many of the major and minor ingredients in good soil. Are
there any essential nutrients they have not identified? How do artifical fertilizers affect soil microbe communities? Do they
interfere with, and therefore limit, any other functions of good soil? And what limits the production of artifical fertilizers?
There are layers of limits around every growing plant, child, epidemic, new product, techological advance, company, city, economy,
and population. Insight comes not only from recognizing which factor is limiting, but from seeing that growth itself
depletes or enhances limits and therefore changes what is limiting. The interplay between plant growth and the soil, a growing
company and its market, a growing economy and its resouce base, is dynamic. Whenever one factor ceases to be limiting, growth occurs,
and the growth itself changes the relative scarcity of factors until another potential limiting factor is to gain real understanding
of, and control over, the growth process.
The company may hire salespeople, for example, who are so good that they generate orders faster than the factory can produce.
Delivery delays increase and customers are lost, because production capacity is the most limiting factor. So the managers expand
the capital stock of production plants. New people are hired in a hurry and trained too little. Quality suffers and customers
are lost because labor skill is the most limiting factor. So manage the order-fulfillment and record-keeping system clogs.
And so forth.
So, in one book, Donella argues that there are ecological limits to growth in general. In another book, she argues that startup growth
is also subject to "layers of limits". The concepts of growth and limits appear to be inseparable in many ways and at many layers of a company.
Posted on January 13, 2014 @ 05:56:00 AM by Paul Meagher
In today's blog I will offer up some thoughts on how growth occurs in an ecological garden and compare that to how it might occur in a business.
An ecological garden is different than a traditional garden because in an ecological garden we are concerned with making sure that each plant offers an ecological service to the other plants in a planting guild. Plants can fix nitrogen, attract pollinators, repel pests, cycle nutrients via deep tap roots, offer shade, offer mulch, act as a fortress plant preventing the incursion of grass, offer ground cover, act as a nurse plant, etc.... When all of these needs and relationships are attended to and you have planted a guild accordingly, then you wait and see what works and fix what doesn't. There comes a point, however, when a properly planted ecological garden "pops", meaning that it becomes highly productive and highly resilient. Whereas you may have struggled to establish a plant before, now a rich array of plants and soil micro-organisms are all working together to promote growth within the guild. At this stage, it is easy to expand the guild by setting up a nearby guild and forming supportive connections between them.
There is no rule book on how to setup an ecological garden but two important aspects to attend to are your soil and building a nucleus.
The soil has to be prepped for growth. Adding a thick layer of mulch in the fall and adding more as you go is one very important strategy because it adds organic matter and multiplies your soil microorganisms. You can also do soil testing and add amendments. The point is that prior to growing anything you need to get your soil house in order so that whatever you plant has a good chance to get established. Likewise,
a business needs to get it's house in order before it can grow. Most businesses can look at what they do or intend to do and figure out how they will be slowed down in their growth if specific processes, legalities, tax issues, company vision, or human resource issues are not in alignment. If these processes and issues are not in alignment prior to trying to grow your business, there is a good chance that your attempts to grow will not take root.
In addition to making sure your soil is ready for growth, you also need to consider how you will begin planting your guild. One option is to go big right from the beginning. Prepare alot of soil and plant alot of plants. Not only is this very costly, it is much less likely to succeed than a strategy that involves starting small by planting the nucleus and then extending that nucleus, or planting other nuclei in such a way that you can form supportive connections between each nuclei. Once you have a working nucleus of plants it involves less effort and cost to setup another
nucleus of plants. Not only can you use cuttings, divisions, and seeds from your first nucleus of plants, you can also use the shade, nitrogen fixing, and pollinators supplied by your first planting to help establish plants in your extended garden of plants. Similarly, when we want to grow our business, it is generally better to start small and get something working and extend from there, than to try to take over all of the market in one big undertaking. Figure out where to position your business in the initial stages so that you can readily grow into other parts of your market once your nucleus is established.
To summarize, to make your business "pop" you need to get the soil of your business ready for growth, start small and strategically, and then be very careful in selecting the companion businesses that you want to include in your business guild (your business in association with other reinforcing businesses). If you proceed in this manner there is a better chance that, in time, your business will "pop" just like an ecological garden "pops" when all the connections you have built into it start to self-organize to become productive and resilient.
I want to leave you with Toby Hemenway's description of what it is like when an ecological garden "pops" so you have a better feel for the metaphor I'm applying to businesses. Much of today's blog drew inspiration from my reading of Toby's book, Gaia's Garden, this weekend.
In chapter 12, Pop Goes the Garden, Toby marvelously describes revisiting an ecological garden 5 years after his initial visit when the plants weren't doing so well:
The strategies worked. In about the fifth year, life began to take hold and gain momentum. The soil was rich enough, the shade amply dense, the leaf litter so abundant, the roots sufficiently deep, for the pieces to coalesce into a whole. The system "popped." Plants that had struggled in the harsh desert for several years suddenly were detonating, growing several feet in a season. The soil stayed moist through month-long droughts. Glistening fruit shouldered through the thick foliage. The most useful tools were no longer shovel and sprinkler, but bushel basket and pruning saw. Birds filled the new forest with song. And a nearby closed canopy of greenery now cast cool shade that offered refuge from the intense New Mexico sun and kept the soil from burning to a dry powder. A completely different energy now suffused the place. Someone with a mystical bent would say that a spirit had come to inhabit the land and give it life (p. 264).
While ecological gardens and businesses are very different beasts, they are complex interconnected systems that might be expected to exhibit similar discontinuities (i.e., they are both capable of "popping" into a new steady state) in how they grow over time. Why this occurs might be clearer if we use ecological gardens as a frame of reference for understanding the positive feedback loops that arise over time in properly constructed plant and business guilds.
For Lakoff, the development of thought has been the process of developing better metaphors. The application of one domain of knowledge to another domain of knowledge offers new perceptions and understandings.
In my last blog on Business Guilds I argued that the concept of "Growth" as applied to business is a metaphor based upon our presumptions about how growth in nature occurs. The richness of our thinking about business growth may be limited by our understanding of how growth in nature occurs. Many of us have simplistic notions of how growth in nature occurs which potentially leads to a simplistic notion of how growth in business occurs. The concept of a business guild was an attempt to reframe how business growth occurs based upon an understanding of the permaculture concept of plant guilds: associations of plants that mutually reinforce each other and lead to more biomass production (one measure of growth) than plants without such associations. As such, I argued that business growth occurs best in the context of business guilds. This would be in contrast to a view of growth as originating from individualistic company efforts to innovate or improve. I think these efforts are important, but if nature is any guide, the level of growth you will achieve outside of a business guild will be less than if you exist within a guild structure.
One approach to learning from nature is to observe and study how nature at it's best works and attempt to consciously apply that understanding to how business should work. Nature at it's best does not grow monocultural crops, denude soil, and import large quantities of energy to keep growth cycles happening so industrial agriculture is probably not the example of nature that you should focus on as your basis for extrapolating to how business growth should or might occur. A mature ecosystem or a permacultural garden that tries to imitate nature may be a better source for metaphorical understanding.
If you accept that our understanding of abstract concepts like growth is based on metaphors, then you can have alot of fun trying to apply an evolving understanding of natural growth to the concept of business growth. For example, does nitrogen in natural growth play a similar role to money in business growth? Does it matter where your nitrogen comes from - from a fertilizer bag, from a companion-planted legume, from a green manure, etc... How are relationships between business like relationships between plants? In plant guilds, some of the relationships include mulch makers, nutrient accumulators, nitrogen fixers, pest repellants, beneficial insect attractors, fortress plants, soil texturizers, shelterbelts, etc... The guild vocabulary is rich and concrete so gives us ample opportunities to think about business relationships in new ways that might turn out to be useful, yield insight, or simply be entertaining to think or talk about.
Posted on December 23, 2013 @ 05:15:00 PM by Paul Meagher
An icy rain continues to impede my xmas travel plans, so I'm thinking happy thoughts of the gardening techniques I will try out when spring arrives. One Permaculture gardening technique that I'm quite interested in is planting a guild. This is where you plant multiple species of plants together in such a way that they benefit each other in some way. Sort of like companion planting on steriods. Some plants will be nitrogen fixers, others will be nutrient cyclers, others will attract beneficial insects like bees, others will repel unwanted insects like aphids, others will supply food for us to eat, others will supply mulching material, and others might just be planted because they look good. Instead of just concerning yourself with one planting at a time without focusing on how it relates functionally to your other plantings, you think about the community of plants you will be establishing and how they might alll work together in a low maintenance and productive manner.
Permaculture PA is a good YouTube channel to learn about Permaculture-based growing techniques. Here Phil Williams, permaculture consultant and designer, illustrates how to install a guild based around his fruit trees. Often when we plant fruit trees we stop at putting some mulch around the base of the tree but there is much more that can be done if you view the fruit tree as one component in a guild planting. Note, I'm not advocating using Round Up to install a guild system like he does but I admire his honesty in coming clean and also appreciate his pragmatic approach. Also, Phil clarifies that permaculture is not affiliated with any specific approach to agriculture such as organic gardening.
Here is an update on how the guild turned out.
So why am I talking about Guilds in what is supposed to be a site about business investing? Like my last blog on Edge Effects, I think that nature potentially has lessons to teach us about how to grow a business. In business investing we use the metaphor of "growth" all the time but the phenomenon of growth is not as simple as putting a seed in the ground and watching it thrive and take off through its own individual initiative. The phenomenon of guild planting provides a different view on how business growth can be achieved - by seeking out good companion companies to grow with so that you all thrive together because one supplies what another company is missing. Microsoft has been good at planning growth strategies at an ecosystems level and chastised open-source as a weed that would destroy the whole guild they had put together. This was a bit self-serving but I give Microsoft credit for offering up a more metaphorically sophisticated view on how their growth was achieved.
The concept of a guild goes beyond companion planting because it looks at more than just the relationship between two plants. Often there can be 5 to 10 plants involved in a guild. Many companies exist within supply and retail chains that mean this number of companies may not be unrealistic for some business guilds. The concept of "supply chains" and "retail chains" seems a bit too linear to map onto the concept of a guild as it exists in nature where mutually reinforcing activities seems be going on simultaneously. Perhaps business is a bit more linear than nature and we have to accept that the reinforcing activities between companies are often more linearly organized? Or should we be attending more to nature's example?
Posted on December 16, 2013 @ 05:57:00 AM by Paul Meagher
The term "Edge Effect" is used in Permaculture Design (I'm studying for the certificate) to refer to the observation that interesting things happen at the point where two different environments come together (e.g., land/water, grass/forest, grass/pavement, etc..). The rate of plant growth, type of plant growth, type of species composition, diversity of species composition and other measurable outcomes change at the boundaries between environments. Permaculturists are encouraged to pay close attention to these edges in the landscape and design landscapes with an eye towards increasing and optimizing edge to promote species diversity, better growing conditions, etc...
An example of applying the edge effect principle to landscape design would be that instead of designing a pond that is circular and all at the same depth, a permaculturist would want to increase edge effects by having an irregularly formed boundary between the water and the land (e.g., micro harbors) to encourage diversity of plants and animals that can exist around the pond. Pieces of land jutting into the pond would be home to more plant and animal species than land confined to a circular perimeter around the pond. The depth might be varied as well so that different organisms (e.g., fish) and plants could live in the shallow parts of the pond versus the deeper parts (e.g., creating a 3 dimensional edge through height differences in the pond).
Angelo Eliades in his excellent blog Deep Green Permaculture offers up a nice visualization of one reason why species diversity increases around edges:
The ‘edge effect’ – Where two ecosystems overlap, the overlapping area supports species from both, plus another species that is only found in the overlapping area.
What I like to think about is how permaculture principles such as the edge effect might apply more broadly to the project of growing a businesses. This is a form of biomimetics where we take a principle regarding how nature works and see if it can teach us something about how other systems should be designed, such as a business. Are there edge effects in business? If we want to grow our business should we focus more on the edges of our business or the internals of our business? Where are the edges of our business and how do they overlap with other businesses? Are these areas of overlap the areas we should focus on more if we want to grow our business?
I do not have the answers to these questions. They are abstract questions and we all have to define the concepts according to our own particular business circumstances. The concept of an "edge effect" gives us a cognitive tool that can get us looking at our business differently and asking different questions about it. This may or may not be a productive exercise. To the extent that nature is a good teacher you may want take to heart some of her lessons as they apply to physical reality and see if they also apply to business reality. Are there edge effects in business? Do they occur for similar reasons?
Posted on May 22, 2013 @ 12:21:00 PM by Paul Meagher
I finished planting all my potatoes last weekend. I now have 800 lbs of potatoes planted into the hay rows I prepared last fall for planting into this spring. The stakes in the picture below mark where different varieties of potatoes begin and end.
The next step in the growing process involves supplying the plant with all the things it needs to grow. Some of these elements are not under my control (e.g., weather) while others are (e.g, adding additional hay mulch to supply more area for potatoes to grow into). If all goes well, I should have a crop at the end of the season to either sell directly, process into another form, and/or save for next year's seed potatoes. This is my first time planting at a larger scale so for me this year is all about trying things out and seeing whether it is worthwhile to do again next year and at what scale.
The process of growing food might be compared to the process of growing a business. It could be argued that there is a planting stage, a cultivation stage, and a harvesting stage. The planting stage is the stage where you commit to a set of ideas that you think will be viable in the longer term. You decide to commit resources to getting a project underway. The cultivation stage is where you nurture the ideas so that they grow into something that a customer is likely to want. The harvesting stage is where you start supplying customers with the product or service you have nurtured.
Growing vegetables is a nice metaphor for thinking about how to grow a business. It can be used to stimulate thinking about the amount and type of work involved in growing a business.
Posted on March 5, 2013 @ 05:14:00 AM by Paul Meagher
When an investor does due diligence on your company it is important that you have a good idea, that there is a market for your product or service, that there are no undisclosed financial or personal liabilities that could derail your company, and that you appear to be a person of high integrity with a good knowledge of the industry. The due diligence process does not happen overnight because it takes awhile to assess these factors which involves considerable communication, exchange of documents, and attempts to hammer out a term sheet that defines the basis for a agreement to provide capital.
The due diligence process not only deals with the idea, the market, the financials, disclosure of potential liabilities, and personal assessments;
it also deals with the people, processes, and controls you have in place, or will put in place, to ensure that growth will occur as planned.
If you receive an influx of capital in order to expand there is a good chance that the money will not achieve the desired objectives if you do not have the proper people, processes, and controls in place so it is important that you be able to demonstrate to an investor your capabilities in this regard.
The people aspect has to do with who is working in the company, their role, their educational background, their experience in the industry, and their ability to handle issues that will arise as you scale you business.
The processes are the recipes or checklists that people use on how to do the key things in your business. If you are an existing business and your processes are still not running smoothly, there is a good chance that the influx of capital will not help the situation. So make sure you have processes that are running relatively smoothly and you know how they will be affected when scaled up before you seek capital to expand.
Finally, there is the issue of controls which comes down to what tools you have to monitor how your business is doing and to deal with issues that arise in light of the feedback your monitoring tools provide. Your ability to monitor your financial status, your sales levels, the quality of your product or service are some of the controls you should be able to address as part of the due diligence process.
There is no escaping the fact that businesses operate in a chaotic environment with many elements that are hard to predict. That does not lessen the need for people, processes, and controls to help tame that chaos. Adding more capital to a chaotic system with inadequate people, processes, and controls is not likely help matters; in fact, it may make things worse. A critical part of determining whether you are ready for growth capital is determining whether you have the proper people, processes, and controls in place to handle existing growth and the growth that is expected to occur when more capital is injected into your business.
Posted on February 28, 2013 @ 10:48:00 AM by Paul Meagher
Julie Allinson, founder and owner of the successful eyewear company eyebobs, offers the following advice to those starting and growing a business:
Decide early on if you want to own the whole company or if you want investors involved. If it is a capital intensive business, then investors may be required.
The main person you need to listen to is the customer. You might not like their advice, but you need to listen.
Regarding employees: Surround yourself with employees you like and trust because they are running your business. Hire slow, fire fast. If it is not the right fit, then it is unlikely in a small business that you are going to make it the right fit because you do not have enough bodies around, especially when you are just starting out. The hardest lesson to learn for a growing company is that some of the people who helped you get to a certain level of growth may not be the people who will help you get to the next level. Feelings of loyalty may conflict with the requirements for further growth. Some employees either can't or won't peddle as fast as required in a growing company. Others can pick up the pace and will continue to find a place in the company.
It is important to create an atmosphere were employees can have fun, contribute, and feel comfortable.
Move towards open book management if trust is central to your business philosophy. Open book management is an ongoing learning process.
Energy and passion for the business comes from learning best practices in other businesses (for Julie, mostly non eye-wear related companies) and thinking about how their approach might apply to her own business, learning from employees on the front line, and the constant feeling that there is more that they can be doing for their customer. Learning is what keeps business interesting.
He makes the interesting point that growth is not always good if you are not ready for it; in fact, it can do major damage to a company that is not ready for it. With that in mind he came up with a Growth Risks Assessment Tool that consists of a series of questions companies should answer before deciding to pursue a path of further growth:
Why should I grow?
How will we grow?
How much should we grow?
How much growth can we afford?
Do we have enough people?
Do we have the right people?
Do we have hiring and training processes?
Do we have adequate financial controls?
Do we have adequate quality controls?
How will growth create risks for ...
Supply chain, raw materials and suppliers?
Distribution and delivery?
Financial safety net?
How will we mitigate those risks?
Do we have adequate daily information to monitor these risks?
Who will help us monitor, manage, and correct such risks or results?
Do we need to pace growth?
As an example of growth that was not so good for a company, we can learn from Toyota who became the number 1 automotive company but ended up having severe quality issues that has set them back significantly. Perhaps if they had used the Growth Risks Assessment Tool before rushing headfirst into being number 1, they would have recognized some of the risks that lay in their path and taken appropriate steps to mitigate those risks.
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