Small changes can start chain reaction

Small changes can start chain reaction

Published in The Tennessean September 8, 2014

           

By Ed Rappuhn – SCORE Nashville

“If I could just fix (insert idea here) everything would be great.”

Many clients come to me with a single idea that will fix their business and there will be no more problems. Occasionally they are right, but often they overlook the consequences of that one change.

A few months ago, I did a series of articles about Business Modeling. The Business Model includes your:

Value proposition (product/service)

Customer segments and relationships

Channels by which you reach your customers

Key resources, activities and partnerships

Cost structure 

Revenue streams.

The business model is illustrated on a single sheet of paper, whiteboard, or wall. You can see your whole business on one flat surface showing all its interrelationships. Whenever you make a change, you need to look at the possible consequences.

In Chaos Theory there is a hypothetical situation known as the “butterfly effect” where a butterfly flapping its wings can create a small disturbance that over time causes cumulative changes and a hurricane forms halfway around the world. You cannot ignore the big picture when changing one part of your business model.

For example, you say, “If only I could package my product differently, everything would be better.” Assuming this change increases your sales, what else could happen?

Your resources would likely change in terms of the package and possibly the number of employees needed to handle the increased production. It would probably change your packaging and marketing activities. It might affect your partnerships, including the vendors used for the new packages. All of this would affect your cost structure and could result in smaller margins. It’s possible your increased revenue will be offset by higher costs with a bottom line that doesn’t change or even worse, decreases.

Or say your customer relationships have been built on fast delivery and always having product in stock. What if the increased sales cause capacity problems that negatively impact these relationships and your reputation?

The point is that a single change that has a positive result in one area could cause negative outcomes as well. Some of you are old enough to remember when Coca Cola changed its formula to attract new customers. The change caused significant discontent among existing customers, ruining relationships that had taken years to build. It didn’t take long for Coke to bring back Classic Coke and eventually drop the New Coke line entirely. The new formula might have attracted new customers and new revenue streams, but ignoring long-term customers was a huge mistake.

Whenever you consider a change within your business model, always look at your whole model. Will you have great results or will it create a chain reaction of unintended consequences? If you are having trouble seeing the forest for the trees, solicit the eyes of someone with an unbiased perspective.   

Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org.