Venture Capital is Still Out There

10 October 2008

In the last few days there have been a number of posts about a venture capital crisis yet there are still venture capitalists out there, looking for good opportunities.  Here are a few of the doom and gloom posts from Michael Arrington at TechCrunch:

On the positive

Despite the positive tone, getting financing these days is going to be tougher.  The WACC has gone up.  Plan accordingly.


The Law of Unintended Consequences

9 October 2008
CF-18 in high-g pull-up
CF-18 in high-g pull-up

Akin to Murphy’s Law, the Law of Unintended Consequences is a warning against the belief that you can control the world around you.  As well as the direct consequences, any action will also have other consequences which were unintended and which may be counter to the original intent.

As an example, in my early military career, I was an aeronautical engineer, a maintainer, working with CF-5 and CF-18 aircraft in Cold Lake.  In the early years of the CF-18 introduction, the maintenance community became concerned with the stresses imposed on the airframes by high-g loads.  Repeated stresses would shorten the life cycle of the airframe and could possibly create a flight safety issue.  To prevent these over stresses, the aircraft was modified with a g-limiter which would limit the g-loads in normal operation to about 7.5g.  The pilots could override this in emergencies and pull up to the aircraft’s limit which was above 11g.
Prior to the addition of the g-limiter, the maximum g pulled on any flight followed a statistical bell curve that averaged about 5g for all flights.  At the high end, there was a small percentage of flights with maximum g loads above 7.5 g.  After the g limiter was installed, the average g for all flights went up despite the fact that there were fewer cases of high-g maneuvers.  This higher average, the unintended consequence, represented more danger to the aircraft structural life than the small number of high-g maneuvers.
How did this happen?  The pilots, informed about the g-limiter, started to use it as a guide.  They no longer judged how much acceleration was required, they just pulled until they hit the limiter and felt safe doing so.  The statistics of the flight loads became very skewed towards 7.5g and the stress on the fleet went up not down.
What does all this have to do with business?  It is just an anecdote to highlight the need to always be measuring the results of your strategic decisions and to look for the effects of the unintended consequences.  In the story above, the maintenance community was tracking the aircraft stress loads and was intent on extending the life of the airframes.  The analysis of the data showed that the opposite effect was occurring so action was taken – not to remove the limiter, but to better inform the pilots about the original problem so that they could use their judgement as well as the limiter.
In business, many strategic decisions and tactical actions are taken but once taken, leaders and managers need measure the results and ensure the actions are having the intended results. 
MJM Consulting – helping companies grow.

Alternatives to Layoffs

8 October 2008

If you are preparing for the downturn by cutting costs, consider the advice of Mike Elgan.  In his article on “Three Ways SMBs can Survive the Economic Meltdown“, Mike highlights three alternatives to layoffs that can help reduce the overhead costs of running a business:

  1. Send people home.  Companies often consider transport and associated costs as included in employee pay.  Consider cutting a portion of this pay and let employees work from home.
  2. Use all the on-line tools to travel virtually and collaborate without actually leaving home.
  3. At the extreme, consider closing your office and becoming a Bedouin organization.

I like these ideas but I have to ask, why wait for a downturn?