Out of Whack

Whatever you did to rescue this year, you did to rescue last year, and the year before that. It worked every time. That's the problem.

Nothing is broken. Out of whack means every part still works and the parts no longer line up. The tactic that built the company is the one now costing it, a point of margin at a time, and you're the last to see it because you're doing exactly what you've always done, and the numbers that would show it are two budgets away.

Picture a founder who has one answer for a soft quarter. He gets in the truck and goes to see customers. Three a day, a handshake, a discount he decides in the parking lot, and the quarter closes. It worked at $5 million in revenue and it worked at $20 million. This year he went out again. The trips ran longer, the discounts ran bigger, and the quarter closed two weeks late and a point short of plan. He came back with an explanation for every account, and every explanation was true. A West Coast customer had a new manager. A distributor got bought. A competitor's founder had been through the territory in August and left a price behind. His directors like the trips, customers mention them, and nobody in the building has ever suggested he stop.

There's an old Texas line: he blames everything on the weather or his raising. The founder isn't that man. He's looking at his hands, and his hands are doing what they always did, and that's the one place the problem can't be seen.

It works...until it doesn't.

What changed under the trip

The trip is the same trip. The company underneath it isn't, in any of the ways that made the trip work.

When the road trip worked, the company had 40 customers and the founder knew every one by first name. It has 400 now, and the 12 he visits are the 12 he likes.

A discount from the founder used to be an event. The sales team has watched him do it for a decade and prices every deal expecting his visit. There was no sales team when the trip worked. He built one, which was the right move, and then kept making the calls it was built to make.

Two people used to ride with him who knew the customers as well as he did. Both are gone, and the people who replaced them know the customers from a dashboard, which has the renewal date and not the fact that the plant manager who signed the first contract retired in June. Nobody else's founder used to show up. Now three competitors send theirs, and the visit that used to be the difference is the price of admission. The product used to need him to explain it. Now anyone who has heard of it buys it without him, and what a customer wants from the visit is a price, which is the one thing the trip was never for.

Clayton Christensen, back in 1997, spent a book on why good companies lose and came to a conclusion: "good management itself was the root cause. Managers played the game the way it was supposed to be played." The companies that lost were run exactly as they had been run when they were winning.

"Today's problems come from yesterday's 'solutions,'" Peter Senge wrote in 1990. The pricing everyone now expects was built out of two solutions that each worked, the road trip and the sales team.

A strategy is about success. Success can seal our defeat.

Why you're the last to know

A tactic that has failed is easy to see. One that has stopped working is nearly impossible to see, because it hasn't failed yet. It's costing more and paying less, a little more and a little less each year, and every year has its explanation.

Three things hide it from the person running it.

The first is that the feedback is late. The customer who didn't renew on time because he learned from the founder's discounts to wait for a better one doesn't send a note saying so. He renews a year later at the lower price, and the loss shows up as margin, two budgets from now, under a heading nobody connects to a handshake in a parking lot, unless someone is watching renewal price by account, and at this company nobody is. A point of margin on $60 million is $600,000 a year, and no quarterly review has ever attributed $600,000 to a handshake.

The second is that the trip is who you are by now. The hammer only sees a nail. The hammer wants a nail. A founder who built a company on the road doesn't experience the trip as a tactic he could stop. He experiences it as the job. When the quarter softens, the only question he asks is when to leave.

The third is harder to catch. Seasons change and sometimes we miss how we are changing too. The founder who made those calls at $5 million was hungry and unknown, and the customer was doing him a favor. The founder who makes them at $60 million is the customer's biggest vendor, and the customer is doing the math. The same sentence out of the same mouth lands differently, and the founder is the last to hear it.

When we defend what we are instead of changing, Jennifer Garvey Berger writes, "we end up perfectly designed for a world that happened already." Every year the trip worked tightened the fit between the founder and a company that no longer exists.

How to see it early

You'll see these in a meeting before you see them in a report.

The first is that the win takes longer. The deal that used to close on the visit closes on the third follow-up, because the customer who used to sign at lunch now takes it to a committee that didn't exist when the company had 40 customers. The hire who used to say yes on the phone asks for a week, and comes back with two questions about the sales team he'd be joining. Everything is slower, and the slowness has a reason every time.

The second is that the trip needs explaining. Ten years ago nobody asked why the founder was driving to Lubbock; the quarter closed and nobody needed to. Now the CFO asks, and the head of sales asks, and the founder finds himself making a case for something nobody used to question.

The third is that you've started defending it to yourself, in the truck, with the numbers on the passenger seat. You can hear the defense because you're the one making it, and the fact that it needs making is the tell.

Each of the three comes with a reason, and the founder files the reason and forgets the tell.

Calibrating the trip

None of this means the trips get cancelled the first quarter they come up short. There's a leader out of whack in the other direction. He saw the softness and killed the trip in March for a new one, which he'll kill in September. He's always jonesing for his next strategy fix. His company never runs anything long enough to find out whether it works. Quick wins do not validate the right strategy. Sustained wins over time prove a strategy. A trip that has carried a company for 10 years has earned a closer look than one bad quarter can give it, and the leader who drops it at the first wobble is answering one quarter with a decision that takes three to undo.

The trips need resizing. Calibration, not balance. Calibration is what he does when he notices the road trip now costs a point of margin and asks what the trip should look like at 400 customers instead of 40. Maybe it's four trips a year to the 12 accounts that still want him, and none of the parking-lot discounts. Maybe it's none. Either way it depends on knowing which 12, and that's a count, not a memory; the memory has the first 40 in it and the count has the 400. For the founder in the truck it came out as four trips: two to the accounts with renewals in the next 90 days, two to the accounts a competitor's founder had visited, and the parking-lot discount replaced by a pricing memo the head of sales wrote and he signed.

What you own now

Calibration needs one thing before it can start.

Know well the condition of your flocks, and give attention to your herds, for riches do not last forever; and does a crown endure to all generations?

It says to know their condition, now, and it gives one reason: what you own doesn't stay what it was. It's harder than it sounds for a man who already knows his flock, or believes he does, because he counted once and the count was good.

He has 400 customers, and his list of 12 is from memory.

It works...until it doesn't. This sucks, but it doesn't have to be the end.