This week’s Boston Globe article by Jeffrey Sachs “Beyond the Bottom Line” makes an attempt for the reader to understand better the complexity of our Federal Budget. Policy debates, he states “are designed to obscure rather than reveal the truth.” I am truly fascinated with his view and outline for change, an out of the box view, yet so essential if we want to make real change in how we run our businesses and governments. I know, it is easier said than done as change is ever so difficult. It does take a different mindset to leadership that is both nonlinear thinking and a bit outside the norm.
This reminded me of an effort from 12 years ago, that I am still very passionate about today. My friend and neighbor Ravi, a retired CEO of a large alternative energy company, and I discussed the services of our local transportation system of small buses called ‘Lexpress’. The inefficiencies around fiscal ineptness and ridership let us to investigate further as we began a conversation with the local town officials on a volunteer basis.
We gathered all the business intelligence available to us on current costs and revenues. We found 3 problems facing the sustainability of these services:
- 1. Services offered from 7am – 6pm nonstop only had two time slots a day where demand was extremely high, that of beginning and ending of the school day. Students in fact were often left behind because the buses were full, making parents quite upset.
- Low to NO demand the rest of the day, as buses were running around town empty. Our diligence discovered that only about 2% of elderly in town used ‘Lexpress’ in addition to an occasional rider. Very different of what town officials estimated.
- Annual loss of $350K to the town, including state grants.
Regularly the funding of this service would come up for discussion and eventually get funded again. Ravi and I looked at alternative models in how the town could serve its customers better and with a lesser fiscal burden. We talked with a local taxi service to offer a point-to-point service for a flat, slightly subsidized fee from the same state grant, and one that elderly actually would use. We proposed to double the am and pm runs for student and then recommended ‘Lexpress’ for other services outside of town. Our financial model predicted a reduction of loss by 85% or $300K to a $50,000 per year loss based on existing usage, not including the huge potential uptick in ridership to bring it to break-even or even a slight profit.
You see where I am going, long story short, they literally laughed at us and told us not to come back. Today and 12 years later the buses are still running EMPTY with accumulated loss of $5Million, not nothing for a small town. Adjacent towns implemented similar on-demand services that we recommended which have been very popular.
Now, moving over to your private business! You could not possibly run with a loss over a long period of time, eventually it catches up with you. What are some of your processes and customer needs that have been neglected simply by doing it the same old way? Should you take the time to evaluate your processes and whether every step is a value add step? Have you been working with your customers the same old way or could you improve in how you serve them better, benefitting both sides? We indeed get stuck in the way we do things and change is often viewed as a threat and unattainable.
However, automation and robotics are here to stay. The Wall Street Journal today has a great article on Target and the long term investment they are making in hiring a Massachusetts company Symbotic, LLC in setting up a new distribution center. Autonomous robots that travel unattached within the storage space. According to the article, “distribution-center labor costs will be reduced by 80% operating in warehouses that are 25-40% smaller”. With other words, 100 robots will replace 20 humans who currently walk 20 miles and lift 50,000 pounds during one shift. This is the new future.
Could and would you want to look for such savings in your business? In our experience working with midmarket businesses, we found that a good first step is to move the business from an annual budget process to a Rolling Forecast. This alone can save you up to 50% of budget preparation time. This is a first step in changing the culture and the mindset and a Rolling Forecast can be the culprit of looking for ongoing solutions in running your business faster, better and cheaper.
Let me encourage you to step outside the box. Call us to start the conversation in how we may partner with you to take you through a transition. You may be amazed what you and your employees come up with and the real changes you can begin making. You know darn well, if you don’t, the competition will. The complexity that Jeffrey Sachs is talking about may be “outside the political mainstream” but not for you, the private midmarket business who must be looking into the future for sustainable growth. Simple linear solutions will no longer be good enough.