Tuesday, May 25, 2010

Science of Business – Made Easy! [Inertia]

The law of inertia is very simple.  It states that an object in motion will stay in motion until it is acted upon by something that changes it direction or speed of motion.  The law of inertia also states that an object at rest - motionless - will remain at rest until an external force causes motion of the object.
So how does the law of inertia apply to a business?

The laws of inertia apply to businesses in a wide variety of ways.  Let’s start with motion.  Within every company, the act of delivering a product or service to a customer involves motion.  More deliveries equals more motion.  Less deliveries equals less motion.   Sending out flyers to prospects equals more motion.  Asking for referrals equals more motion.  Behind each of these motions is someone putting forth effort.

Essentially, inertia is a product of effort; effort from employees and effort from customers.  Employees contribute to the inertia levels through their actions to help grow the company.  Whether it be selling, delivering, servicing or supporting those who do these things, each employee’s efforts towards making the company a success contributes to a higher level of inertia. 

Customers contribute to the inertia-building effort too.  Buying products or services are the obvious means of contribution.  Sharing their positive experience with others and making recommendations to friends and acquaintances contributes greatly to the inertia-building effort.  A new restaurant relies on customers telling their friends of “their great meal” if they hope to survive more than a month. 

As motion is equated to inertia, the more motion, the higher the level of inertia.   Inertia translates into customers buying more products without a direct selling effort.  Inertia is what keeps a company relevant in a marketplace though the newest product was announced long ago.  Inertia is the momentum that produces sales without constant promotion, incentives and discounts.  In short, inertia is what allows a company to get through the dips in the sales numbers and ride out the occasional rough spots that happen to every business.

So does every company have the same level of inertia?  No.  Inertia is not just a function of effort.  It is also a function of velocity and size.  Let’s start with velocity.

Velocity refers to the speed at which an object is moving.  The same object traveling at half the speed will have half the inertia.  The company whose “speed of business” is half that of its same-sized competitors will have half the inertia.  Its ability to weather the downtimes will be less than its competitors as it has less inertia.  Velocity is evidenced by the speed of order delivery, the number of sales calls made per day versus the nearest competitor and the speed of service delivered to customers.  Want more velocity?  Do these things faster and without errors and you will have more velocity.  Faster but with lots of mistakes will reduce velocity and inertia. 
Size or mass is the other factor influencing inertia.

If you roll a billiard ball and a bowling ball down a sidewalk at the same speed, which is harder to stop?  Exactly, the bowling ball.  Its mass is so much greater than that of the billiard ball, it has more inertia.  It is much the same situation in business.
The large, multi-national companies we read about every day have a tremendous amount of inertia.  Years in the making, these companies have many thousands of employees and customers helping to create more inertia every day.  For them, economic downturns are unpleasant but rarely fatal.  The inertia they have built up over many years of growing to become a large company gives them the inertia needed to get through the rough spots.
The small business does not enjoy the same inertia without having a much higher velocity level; higher velocity making up for the lack of mass.  The small business needs to be much more diligent about inertia-directed efforts every business day.  The small business needs to make sure every customer is an advocate and every employee determined to make the company a success.  There is no “down-time” for the small business as its inertia can quickly slip away.

Back to the rolling balls.  How much more effort does it take to keep the billiard ball rolling down the sidewalk as compared to the bowling ball?  A lot more!  The billiard ball has a lot less inertia to keep it rolling without a constant push.  That’s the same in business.  The benefit of the billiard ball is that it takes a lot less effort to impart a greater level of velocity than the bowling ball.  In a large business, it takes a lot more people exerting effort to enjoy the velocity that fewer people can produce within the small business.   

We’ve covered the differences between the small business and the large company from the standpoint of existing operations, but what about starting a new business?  How does a business get inertia when it is just starting?  Good question.

Our 2 balls are now sitting side by side.  Per the definition of inertia, both balls have inertia, the amount of which is tied to their respective masses.  Which is easier to start rolling?  That’s right.  The billiard ball is much easier to start rolling than the bowling ball.  Less mass means less effort to get started.  Again, the same rule applies to the world of business.

The small business, like the billiard ball, takes less “effort” to get rolling.  The financial resources required to start a small business are generally less than that of a large company, the number of employees needed is smaller and the timeframe to go from idea to door-opening is generally much shorter.  The large business is on the other end of the scale.  Starting a large company takes much more start-up capital, more employees and often much longer to organize.  As you might imagine, very few companies start out as large companies.

In fact, most large companies of today were small companies when they started.  Southwest Airlines started with 3 planes.  McDonald’s was a single restaurant.   General Electric started with a single light bulb.

Just in case you get the idea that the singular objective of every business ought to be maximum size, let’s put that notion to rest.  While it would be silly to suggest that keeping a company small by inhibiting its growth is a sound business strategy, I would suggest that growing the company at all costs may also not be the ideal objective.  As I have pointed out, there are certain advantages to large companies that small companies do not enjoy.  Inertia is one of those distinct advantages.  Inertia does come with a downside however.  Nimbleness.

Let’s go back one more time to the rolling balls.  Assuming they are both rolling at the same speed, which ball is easier to divert or change the direction of its motion?  That’s right.  The billiard ball.  Its smaller mass and smaller inertia make the billiard ball much easier to divert than the bowling ball.

Again, the same holds true in business.  A change of business direction is much easier to accomplish in a small company than a large company.  There are less employees to recruit to the new idea.  There are less customers to notify.  There are fewer barriers in the way.  In business, any major change of direction produces an upset of routine that needs to be addressed throughout the organization.  Everyone needs to understand what is happening, why it is happening and how they will be effected.  In a company of 100 employees, that is much easier to manage than a company with 10,000 employees.   Remember that every employee is contributing their part to the company’s inertia.  To get everyone to change the focus of their inertia-generating efforts is no small task.  It takes a lot more than a few memos and phone calls to get all the employees in a large company to be fully productive after a major operational change. 

Mergers of large companies are great examples of this.  When Nations Bank bought Bank of America – and kept the Bank of America name – it took over 4 years to bring the 2 organizations into a single entity.  Changing the names on the branches and buildings alone took over a year.   America West Airlines and US Air have taken over 2 years to merge and there is still no singular name in place.  We’ll see if United Airlines and Continental Airlines can merge any faster.

The fact is that really large companies find it very difficult to change directions because of the large amount of inertia they have developed.  It is much easier for a large company to acquire a small company who leads in a market where the large company wants to enter than it is to try to take existing resources and have them start a new company in the same market.  It is this nimbleness that makes small companies the pioneers behind so many new technologies and new markets.
The final item to point out in this discussion of inertia has to do with the inertia of a conglomerate.  Today, there are only a handful of conglomerate companies left in the world.  Conglomerates are companies that own businesses in a wide variety of unrelated markets.   Berkshire Hathaway is a well known conglomerate owning an insurance company, railroad, bakery and many other companies.  What makes a conglomerate different from a singular company of equivalent size has to do with how the individual businesses behind the conglomerate are operated.  The wise leader allows each individual business to operate independent of the other entities.  In this way, each operating business is able to build and manage its own inertia without the distractions of the other businesses.  The inertia of such a conglomerate is the sum total of the inertia of the individual companies.
The poorly run conglomerate attempts to create “efficiencies” by collapsing common business services into a single entity while the individual companies try to remain independent.  Sadly, the benefit brought about by the cost savings is far less than the loss of productivity as layers of bureaucracy within the common services effort slow down even the most simple of business tasks.  The net result is that the “efficient” conglomerate resembles a handful of billiard balls held together by duct tape trying to roll down the sidewalk.

The lesson here is to realize that inertia is a result of efforts acting on the mass of the business to produce velocity.  It is a result of efforts by employees and customers to create forward motion within the business.  The small business can enjoy great levels of inertia from a handful of focused and motivated employees because its mass is small.  The large company requires similar efforts from its employees but the impact of any one person’s efforts are much harder to measure due to the difference in the mass of the business.

Regardless of whether you business is small, large or something in between, inertia is something every business owner needs to understand.  It is a law of the physical universe and it is a law of the business world and it impacts your business every day.

If you would like help understanding what is creating and what is hindering inertia in your company, please call me regarding available consulting services:  602-492-1088

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