If you get the customer experience, you have the business.

I am sharing a basic fundamental truth about running businesses but it is so basic that people may take it for granted. Every business exists to fulfil a need or want from the customer. If the business can understand the need or want of the customer really well and also execute their service or sale of products to meet the relevant need or want and even exceed the expectation of the customer, they have got the customer hooked. A satisfied customer means potential repeat sale and even word-of-mouth referrals by the satisfied customer for introducing more customers to the business. On the contrary, if a business provides lousy experience for a customer and keeps doing so long enough, the result is potential permanent loss of customer. This results in permanent loss in repeat sale from the same customer and also potential word-of-mouth referrals for introducing more customers to the business.

I personally have experienced this fundamental truth in business. I was once patronising a particular car servicing company. However, after some years I switched to my now current car servicing company. Ever since the switch, I have so far been satisfied with the service provided by my current car servicing company for the past few years. Why did I make the switch? 

Originally, I was satisfied with my previous car servicing company. It was a car dealer company as well and my first and second used car were bought from this previous car company. When I was buying my first used car, the car company got me a medium size used car from their list of used cars. I was satisfied with my first used car and had it serviced at this same car company over a few years. After a few years, I decided to change to a smaller used car. However, when I was making my purchase decision at the same car company, I was persuaded by the car salesperson to go for a medium size Japanese brand used car because the reason given was that it will carry a high resale value should I sell the car after a few years usage.

The advice given by the salesperson was not wrong and sounded logical. I went ahead with the purchase and got a medium size used Japanese car. I continued to service this second used car with the same car company. I decided to change my second used car again after another few years. This time round, I again wanted to purchase a smaller used car. Unfortunately, the car company happened not to carry a small used car in their list of used cars at that time. The salesperson tried to persuade me to buy one of their medium size Japanese used car using the same argument again that this type of car has a better resale value.

All seemed well. However, little did the salesperson knew that I had already set my mind this time to get a smaller used car and was thinking of holding on to this third used car for a long time and will not be changing car any time soon. I did not get a chance to voice my needs to the salesperson as what I got from the conversation was just the salesperson keep talking and explaining to me the logical sense to get a medium size used car. This could be because he was eager to make a sale since they did not have a smaller used car at that point of time to sell me and was hoping I would change my mind to get a medium size used car instead.

Guess what? I told the salesperson I would go back and reconsider my decision and return to the car company to make my purchase. The result is that I never did get back to the car company again. I eventually visited another car company and made my purchase of a smaller size used car as I intended to. Days later the previous car company called me up to ask for my decision and I was sorry to disappoint them that I had made my purchase with another car company. As for my car servicing with this previous car company, you would have guess it correctly that I did not return to the car company again for my car servicing needs but changed to my now current car servicing company.  

My current car servicing company has served me well. I could feel their sincerity in wanting to do their best to fulfil my car servicing needs with reasonable car servicing response time. There is also a personal touch as they actually remembered me as their client every time my car is due for servicing. Sometimes, when I asked for a discount on their car servicing, they will provide a small discount for me. Even if I am a loyal customer to them deserving a small discount, they have also done their best to keep me as their loyal customer and supporter of their service.

From my experience as a customer, the business that can understand my needs or wants better and can fulfil them better will get my sale. Sometimes, it is not just the price of the products or service that matters, but more so the quality of experience provided to the customer. I am glad to say that I have remained a loyal customer of my current car servicing company even though I received many advertisements on cheaper car servicing by other car servicing companies. Why do I stick with my current car servicing company? This is because they have provided quality customer experience so far and people tend to stay with familiar comfortable experience. Familiar quality customer experience is such a strong positive reinforcement and feedback that keeps the customer returning for more. This is a virtuous cycle that ensures repeat sale from the same customer and may even through word-of-mouth referrals from existing customers to help the business expands its customer base.

As such, the revenue of the business will grow steadily over time. The business will thus expand in size to service more customers. Then, it will be time to look at how the business can find ways to accommodate the increased customer base to maintain or even improve their level of quality customer experience. As long as the business continues to provide better quality customer experience, it will keep growing and have to constantly seek to accommodate the increased customer base and keep up their quality customer experience. 

Do not underestimate the power of quality customer experience as it is a fundamental truth which obviously will make or break a business.  

12 lessons Steve Jobs taught Guy Kawasaki.

Twelve lessons Guy Kawasaki learnt from Apple's Steve Jobs. These lessons I feel are not only applicable to entreprenuers but are also useful for any employee who constantly want to improve at how they think and function at work. Anyone can think and feel like an entreprenuer no matter an employer or employee. Any work that one do is likely to be involved in dealing with providing goods and services to people. Even an employee working in an organisation is providing service to his employer, his fellow colleagues across various departments and also their customers (even back end support staff who think that dealing with customers is not their job is in fact providing indispensable support to their front end colleagues who deal directly with customers).

Twelve inspiring lessons from one of the World's greatest entreprenuer Steve Jobs that can be applied for everyone who wants to improve at how they think and feel in their work, enjoy!

Summary of the 12 lessons:
1. Experts are clueless. 
2. Customers can't tell you what they need. 
3. Biggest challenges beget the best work. 
4. Design Counts. 
5. Big graphics, big fonts. 
6. Jump curves, not better sameness. 
7. If it works or doesn't work, that's all that matters. 
8. Value is different from price. 
9. A Players hire A Players. 
10. Real CEOs can demo. 
11. Real entrepreneurs ship. 
12. Some things need to be believed to be seen.

Pricing strategy.

For everyone, we have definitely encountered times when we need to sell anything, be it selling our products or services for a business, or selling our own personal items. How do we price the products, services or even our very own personal items we sell? I have always held the opinion that it is never good to compete to sell anything based on prices alone. Even if an item is a commodity which does not differentiate itself from another same commodity being sold by a competitor, one can still adopt a creative selling approach to make the item of commodity become unique in the eyes of the buyer. This involves creating added value to the buyer so that he will not be just buying the same item which he can easily buy elsewhere from another competitor. It does not take much thinking to appreciate that the same Coca Cola can drink can be sold at different prices at different venues. A can of coke sold off the shelf of a supermarket in Singapore costs approximately $0.70. The same coke sold off a vending machine costs approximately $1.20 while the price of this same coke sold in a restaurant costs approximately $2.80.

Why is there such a disparity in the prices of the same item, a can of coke? I consider this creative selling which involves creating added value. The same coke sold off vending machines bring convenience to the buyers as they can go to any nearby machine to buy a can of coke at anytime of the day including wee hours when everyone is sleeping when a particular buyer has a sudden craving for this soda. A restaurant offers a comfortable dinning environment to enjoy this can of coke. So, the price of coke is sold higher for the consumer not only to drink coke, but also to drink it at a very comfortable environment. This creation of unique added value makes the selling of coke becomes uniquely different commanding different selling prices. For the vending machine, it targets consumers who want the added value of convenience. For the restaurant, it targets consumers who wants the added value of comfort to enjoy this soda.

Well, do people still pay much higher prices for a can of coke sold off a vending machine or in a restaurant? Your guess is as much as mine. Yes. People do pay for higher prices. The difference is that coke sold in a restaurant only attracts a certain target consumer group, those going for added value of comfort while vending machines attract another group of consumers, those going for convenience. As to coke sold off the supermarket, it does attract peope who are price sensitive and do not need any added value to their purchase of the coke (placing their only buying consideration on price alone and nothing else that can move their hearts to pay more). Thus, by focusing on the creation of value even when selling the same item, higher selling prices can be commanded and the product or service can be sold to a relevant target group of consumers who see the added value they are paying more for.

There are 5 different ways by which most businesses priced their products namely:

1. Making wild guesses.

2. Following industry norm.

3. Clients dictate their prices.

4. Cost plus pricing.

5. Target return pricing.

1. Making wild guesses

This needs no explaining. The seller prices his products and services according to what he thinks buyers are willing to pay. There is no survey and research done. Neither is there any history to base the pricing on. The pricing is based on luck mentality. If the product can sell at this price, it sells. Otherwise, it will not.

2. Following industry norm

This way of pricing looks into what prices the other competitors are selling the same or comparable product or service. Usually, an average selling price in the middle is derived by considering the highest price and lowest price other competitors are selling comparable products or services. This works on the assumption that other competitors in the industry must be doing the right thing since they are able to sell their products and services.

However, assumptions may not always be a good thing. What is applicable for other competitors may not be applicable for oneself as their situation is uniquely different from each other as well as different from oneself. For example, a larger competitor may be able to sell their products or services at lower prices based on their economies of scale without eroding their profit margin. A weaker competitor may find it hard to follow suit with low pricing as this will mean a much lower profit margin or even making a loss resulting in the inability to sustain itself. In the long term, even if the weaker competitor is able to barely survive, there will be very slow growth (if any) as without profits, growth will slow down. Thus, a pricing which works for a competitor may not necessarily work for oneself.

3. Clients dictate their prices.

This way of pricing places priority in the clients to dictate what maximum prices they are willing to accept to buy one's products or services. This is done by running surveys, focus group discussions or causal talks with clients to know what maximum prices they are only willing to accept when buying one's products or services. It is good to always listen to the needs of one's clients. However, if one decides on the selling price solely on the clients' wish, it may mean lower profit margin thus resulting in unsustainability or lethargic growth in a business.

A business exists to serve the needs of its clients. However, also as important is the need to be profitable so as to continue in existence to serve the needs of its clients and even serve it better. If a business is not making profits, how can it grow and improve its products and services to continue serving its clients with better products and services. So, profitability of a business and its great meaning and purpose to serve through providing relevant products and services to clients go hand in hand. Greater value offering comes at higher prices. Higher prices fuel profitability to further improve value offering.

By not allowing clients to solely dictate the selling price, one is also training its clients not to focus on price alone but consider the value in the product and service offering of a business.

4. Cost plus pricing

This way of pricing considers the cost of producing a product or service, and the selling price is derived by adding a desired amount of return based on cost. This way of pricing has some inherent flaws. By using this way of pricing, one is not considering whether the clients can accept the selling price. Clients generally do not care about how much it cost to produce one's products or services and also the amount of desired return one requires when pricing the product or service. What they generally do care is whether they need or want the product or service and whether they want to pay or can afford to pay at a particular selling price.  

In this way of pricing, one may also need to carefully consider the true cost of producing a product or service. Sometimes, it may suddenly require a large increase in cost to acquire a machine or more manpower cost and delivery cost to sell products or services to the clients. Thus, costs do fluctuate significantly sometimes. Also, there may be seasonal demand for one's products or services. Is a business going to sell at a much significant lower price when the cost of producing a product or service has gone down due to slower demand for some periods of the year? Can one really fix a suitable selling price based on cost plus way of pricing?

Furthermore, pricing of a particular product or service may influence sales of other different product lines or service lines in a business. If pricing a product A at a certain price results in more of the product sold and less of another product B being sold, the loss incurred on product B has to be amortized and accounted for as a cost added to product A. Thus, there will be changes to costs of individual product or service lines.  

Also, there may be differential costs in selling the same product through different people or different means. For example, it may cost more to deliver the same product overseas than locally. It may also involve different costs to sell the same product by different salespersons.

Thus, this way of cost plus pricing is a difficult way to determine the selling price of a product or service as one will need to know the actual true cost of producing the product or service.

5. Target return

 

This way of pricing looks at a business and its prices as an investment. A target return on the capital invested in a venture is set. This is one's required return on investment. This way of pricing is more focused on profits, but it can also ignore the realities of the market similar to cost plus pricing, by focusing on unrealistic return on investment.

What is the purpose of pricing?

 

As one can see, no matter which way of pricing one chooses, the purpose of pricing is still to make profits for a business to ensure growth and sustainability. Even if one is taking a loss by lowering prices for example in giving discounts, it must still serve the purpose of taking a loss today in order to make a greater profit tomorrow.

 

Price skimming

 

One way of ensuring high pricing is to adopt a price skimming method. The objective of price skimming is to serve clients who are not price sensitive and are willing to pay higher prices for the exclusive value they can get from one's products or services. This is similar to the analogy of skimming off the top cream of the milk much like skimming off the top level of clients who are willing to pay higher prices for the exclusive value they get. This ensures high profit margins.

 

Sequential skimming

 

Another method related to price skimming is sequential skimming. For this method, clients who are willing to pay higher prices for premium value they get from a product or service is secured first. When demand for the product or service drops, the price of the product is lowered to increase demand for the product serving the next level of buyers. The price is again lowered when demand further drops after sometime thus attracting the next lower level of buyers. This method of sequential skimming is evidently seen in the sale of many electronics such as computers. When a new computer product is newly introduced in the market, it is priced at a premium attracting the first level of buyers who are not price sensitive but are focused on the immediate value they get from their purchase. When demand drops, the selling price is decreased to attract the next level of buyers and so on. 

 

Penetration pricing

 

This method of pricing involve lowering prices below the competitors to quickly attract more clients thus seeking to increase market share. Penetration method works on the assumption that people are always attracted by lower prices. This method may be useful to increase market share quickly, but it can also become damaging to profit margins. Thus, this method is a short-lived method to penetrate one's market to gain market share and should be carefully used. In order to sustain long term growth and profitability, other methods of pricing such as skimming are better. One should not only consider the market share for his products or services, but more importantly the profits. For without profits, a business cannot sustain itself.

 

 

Conclusion

 

Pricing of product or service is an important part of a business. Purpose of pricing is to make profits without which a business can not sustain itself or see long term growth. There will always be people who are not price sensitive and willing to pay premium prices for premium value they can get from their purchase. This requires the business to adopt creative ways of offering premium value in their products or services in order to charge higher prices to attract their top level buyers. Sequential skimming is a method which can help to maximise the prices at each levels one can sell sequentially to different levels of buyers. Profits should be also considered in addition to gaining market share when using price penetration. For what good is there in gaining market share when a business is selling products or services at low prices which does not sustain profitability and results in causing long term irreparable damage and loss to the business.

 

Pricing is an important part of a business. The purpose of pricing is to make profits which results in long term growth and sustainability of a business. 

Differentiate - For it does not pay to be a copycat!

In the business world and our lives, there are so many different things happening around us constantly. Everyone of us is in one way or another trading our time, effort and knowledge for a living. Time, effort and knowledge can be seen as forms of products and services offered to help answer another's needs or problems. Businesses are providing products and services and getting paid by their customers for such provision. Employees are being paid by their employers for their services. There are so many businesses vying for market share for their products and services as well as job-seekers going around looking for potential employers to persuade them to consider employing their services in order to secure a living.

With so much competition between businesses, job-seekers and even employees on their jobs, what makes a winner stands out among the crowd. The magic element is "differentiation". There is no incentive in being a copycat, an exact replica of another. By being a copycat, an individual or business can only at best be as good as the original and nothing better. To be a copycat also means being a follower, one who has no leadership in pushing frontiers to always explore better ways of doing things and improving oneself. The only means to a copycat is to imitate another leader. The copycat may survive for a while by imitation, but since there is no real innovation and tenacity to constantly better oneself, the copycat will sooner or later cease to survive once it cannot catch up with being a copycat of the leader.   

As such, the only means to keep improving oneself or even to survive in this competitive environment of business and life is to "differentiate". In businesses, differentiation means having a unique selling point, how the business can be seen as different from it's competitors. To be different just for the sake of being different does not work. What works in differentiation is to differentiate in ways that better serve the needs of a target niche market.

There is no such thing as a forever market leader. There is also no such thing as a perfect market leader that can always serve their niche market in all perfectness. There are always unanswered avenues for innovation and improvement of products and services to better answer the needs of a niche market. The business that fails to constantly differentiate in ways that better serve their niche market will eventually lose out to another business that is able to differentiate their products and services to better answer the needs of their niche market.  

What are the ways a business can differentiate? There are five strategies of differentiation as follows:-

1. Differentiate by being the leader.

2. Differentiate by being the specialist.

3. Differentiate by pricing.

4. Differentiate by design.

5. Differentiate by polarity positioning.

Differentiate by being the leader

A business can differentiate by being a leader of it's niche market. This means being the first in the market to offer a new solution to an existing problem. This new solution is in the form of a new product/ service that will better solve an existing problem. By being a leader in one's niche market, the new solutions in the form of new products/ services will gain market share rapidly since these new products/ services can indeed better solve an existing problem or answer a need of the niche market better than other products/ services around.

An example of such differentiation by being the leader can be found in the health and wellness industry where chairs are no longer just for sitting, but have gone through innovation to include massage capabilities so one not only sits but sitting becomes relaxation and enjoyment for consumers of such massage chairs.

Another example of differentiation by being the leader is in Apple's invention of it's first Apple iphones to include the keypad within the screen of the phone so it becomes a touchscreen and some computer desktop capabilities are also merged into the small touchscreen. Thus, one can operate the smartphone as both a phone and computer but at so much smaller size and with the natural convenience of touch using fingers on touchscreens.

Differentiate by being the specialist

A business can also differentiate by being the specialist in it's niche market. The niche market always look out for the best specialist which is the best in solving an existing problem compared to other competitors around. Usually, this involves a company focusing on one point in it's product or service offering and working to become the best in the market in that critical selling point. This selling point may not necessarily be a unique one, but it is definitely the best selling point for the specialist.

For example, a transport company can differentiate by being a specialist in providing the fastest transport service around. Another transport company can focus by being a specialist in providing the most reliable transport service around, making sure it maintains a clean track record of no damage ever to any goods transported under it's service.

Differentiate by pricing

Another way a business can differentiate itself is by pricing of it's products or services. A business should try not to compete based on prices alone. Mere competition by price wars does more harm than good to the business profit margins. In order not to compete on prices, businesses must offer unique products and services of premium quality so as to charge higher premium prices on the unique products and services.

The niche market may not readily accept higher prices for premium products and services offered. Thus, a company must communicate clearly and carefully to justify the higher price that it's niche market is paying for an added premium value of the superior products and services that can better solve their existing problems.

Differentiate by design

Differentiating by design involves a company aligning the ways it work to it's brand image. A company can focus on a few major qualities that are congruent to it's brand image and make sure it keeps to delivering on the qualities.

For example, a pizza company wants to project a brand image of always being polite and understanding the needs of it's customers. It can train it's employees to greet it's customers with a certain style and manner that projects politeness. It can also train it's employees on particular ways to handle complaints from customers that still project politeness even in difficult situations. To understand the needs of it's customers, the pizza company can have a customer feedback system to receive feedback ratings and suggestions on ways the company can better it's pizza products and customer services.

Thus, a company that can constantly deliver on the promises and qualities of it's brand image will be able to differentiate itself by design.

Differentiate by polarity positioning

Differentiating by polarity positioning involves doing things differently from one's competitors to achieve the same desired solution to an existing problem for one's niche market.

For example, airline companies provide the same solution to their market which is to carry their customers (their passengers) safely from one destination to another within reasonable travelling time. However, airline companies do not deliver this solution in the same way. Singapore airlines pride itself on providing it's customers with luxurious and premium quality flight experience while budget airlines provide their customers with a low cost and simple but still reasonable air travel experience. 

Thus, businesses can do things very differently from their competitors by different polarity positioning while achieving similar promise of solution to the niche market's problem. 

Conclusion

To increase business profit margins and expand market share, businesses must differentiate themselves from their competitors. It is damaging to businesses serving the same niche market to be competiting on similar terms and prices.

I recall a biology topic of interest that also provides an analogy to survival by differentiation. It is the topic of natural selection. In the harsh living environment, individuals of the same species (e.g. we humans) are found to be not exactly the same with one another. This differences in the individuals allow some individuals of the species to still survive when the harsh environment changes. Such individuals are the fitter ones with desirable characteristics that are able to survive in the changed environment. Should the original members of the same species be exact copies of one another, a sudden change in the environment would have wipe out the entire species. Thus, we see the merit of being different in the correct ways (for the fitter individuals) according to the rules of the changed environment, working out to ensure survival of these members of the species.

Differentiation in the correct manner is not only desirable, but necessary for survival in the harsh environment of life and business. Differentiation is also about a business providing unique and better experiences for it's customers that they cannot find elsewhere from the competitors.

Be similarly crowded out and suffocate or be different from the crowd in better ways.

Differentiate.......do it or die.

I BELIEVE.

I read this book "Millionaire Upgrade" by Richard Parkes Cordock recently which revealed the important attributes that self-made millionaires or successful entreprenuers possess. These attributes are depicted by the book as eight important principles for anyone who aspires towards being successful in life and business.

The eight important principles are listed in an acronym fashion namely, I BELIEVE.

I = I believe in myself.

B = Be passionate and want it.

E = Extend your comfort zone.

L = Lies and luck don't work.

I = Install goals.

E = Enjoy hard work.

V = Very, very persistent.

E = Expect failure.

I = I believe in myself

The first "I" sets the stage for these principles of success to work. In order to be successful, one must believe that he can become successful. This positive self-belief in making things work out is not based on an arrogant faith in oneself being the smartest in knowing everything and how to achieve success in having pride in one's way of doing things which always is seen to be superior than others.

This positive self-belief is instead a consistent belief in oneself that he can persevere through all odds and challenges, and keep on trying one's best without giving up until he succeeds in what he seeks to achieve. This is an entreprenuerial mindset, one that has great endurance and tenacity to strive towards the end-goal without giving up despite disappointments and failures along the way.

Easy said than done. That is why not many people pursue the tough route of entreprenuership which puts the hardest test to one's life in making tough decisions and actions, and accepting the many failures and sometimes small successes before seeing the final great success of one's work. I see entreprenuership as the toughest examination of all the many examinations one takes in his student and even corporate years. To graduate as a successful entreprenuer, he will have to face the failures of many papers in this examination and learn from each failure in order to proceed until the end of the whole series of examination to become a successful entreprenuer both in maturity of knowledge and spirit of enterprise.

B = Be passionate and want it

To be a successful entreprenuer, one has to be 100% passionate in pursuing a great entreprenuerial purpose. A successful entreprenuer is passionate in living out his life in providing a meaningful product or service to value add in other people's life. His great entreprenuerial passion is in always innovating better ways to answer people's problems and make life better for people he is serving (in the provision of products or services). Pursuit of money through going an entreprenuerial route is not a strong motivator. Passion in doing what one enjoys that will bring about benefits to others he serve is an enduring motivator.

I see this similarity of the principle of passion with the ideas from the book "From Good to Great" by Jim Collins. Great organisations have great culture of passion in all its people in serving a great meaningful purpose. They continue to be great as they have passion in living out and serving their great meaningful purpose, the purpose for their existence.  

As such, there is no point in doing something great and ambitious when one has no belief and passion in what one is doing. Find one's passion in life and become great in serving others through this meaningful purpose with an entreprenuerial heart.

E = Extend your comfort zone

Humans are creatures of habits of comfort. We have this tendency to keep repeating the same familiar habits that bring comfort to oneself. A successful entreprenuer needs to constantly extend beyond his comfort zone. It is through experiencing new things each day that one constantly learns. A baby who wants to walk the way adults walk has to extend beyond his comfort zone by actually trying to walk. He will never learn walking if he insists on his comfort zone keeping to familiar habits of doing a baby crawl.

To extend beyond comfort zone means conquering over one's fears and self-doubts. Everyone has fears of trying something new. It is the successful entreprenuer who is able to master courage to confront his fears head on and push boundaries to take on the new challenge and learn from it. Many great entreprenuers like Thomas Edison (in the constant invention of new things such as electric light bulbs), Henry Ford (in making available widely the automobiles to the masses) and the United State's project in puting the first man on the moon are examples of individuals and nations extending beyond their comfort zone not knowing whether what they aim to achieve will be successful or not. You never know until you try your very best.

L = Lies and luck don't work

If one thinks great entreprenuers are lucky chaps who got their way because they are simply born lucky, one will be extremely surprised. A successful entreprenuer does not rely on luck. What an onlooker views as luck is a duration of preparation which consumates with a great opportunity by the willingness and passion of the successful entreprenuer to pursue the opportunity that is presented. Tiger Woods, the world championship golfer did not got his lucky break all of a sudden to become world champion. It is through many years of preparation in golf training and taking part in many competitions that he manages to be known eventually as world champion. Thus, luck is the crossroads of preparation and opportunity.

Lies also has no place in a successful entreprenuer's belief. A successful entreprenuer does not hope for things to happen. He does not lie to himself and gives excuses that things will happen the way he hopes without taking any actions. Instead, he takes purposeful actions to make things happen the way he wants. Sometimes, things will not happen the way he wants after taking actions. However, he will still persevere on and keep trying different ways to reach his goals.

I = Install goals

To become successful, one needs to have goals and works towards them. Some have big goals. Some have small goals. Some have noble goals while others have more trivial goals. No matter what, it is important to constantly remind oneself of the goals one has passion in pursuing.

One can break down his goal into small steps and achieve one step at a time towards fulfiling the final goal. A successful person install goals and has clarity on what goals he wants to achieve in life. He is always taking actions to strain towards his goal in steps. A goal is thus fulfiling a dream with a disciplined deadline.

E = Enjoy hard work

A successful entreprenuer enjoys hard work. His work is not work to him but doing something he is passionate and believes in. As such, he enjoys what he is doing and does not mind going the extra mile to make sacrifices for what he is doing. Many a times, we have heard of great entreprenuers who put in many long hours of sacrifice into building up their business. For an onlooker, we may think such entreprenuers are overworked. However, to these successful entreprenuers, they just simply enjoy their hard work as they are working on their passion in life to serve a great meaningful purpose.

It is important to find one's true passion in life and then enjoy working hard at it until one reaches success in his goals (founded upon his passion). I read up elsewhere that successful people put in at least 10,000 hours of consistent hard work at learning and practising a particular trade in order to become an expert in the trade. This translates to approximately 3 hours every day of consistent learning and practice for 10 years to reach expertise in a trade.  One really needs passion in a trade to enjoy this level of consistent hard work!

V = Very, very persistent

Successful people which includes successful entreprenuers are very, very persistent individuals. Their passion in pursuing their goals is so strong that they will not give up until they reach their goals. They will not take "no' for an answer, but will find means and ways to reach their goals. They are passion driven people who will do what it takes (personal sacrifices of time, effort and confronting their fears, failures and disappointments) to reach their goals.

One great inventor and entreprenuer who displays such great persistence is Thomas Alva Edison who despite failing many times in his many attempts for every new invention, never gives up and continues trying until he successfully invented every new invention. One of the products of his extreme persistence is his greatest invention, the electric light bulb which has lighted up the world since his time. Had he given up easily, the world may not see an electric light bulb today (unless another inventor of great persistence comes along somewhere in ages past to discover an electric light bulb).

E = Expect failure

All successful people including successful entreprenuers have failed many times. Such people know that one cannot win all the time. Failures are part and parcel of the learning journey towards success. It is in failing that one can learn from his mistakes and better oneself. The more failures one make, the more opportunities of learning and growing in wisdom and judgement. A successful learned man has gone through a robust experience of learning from many failures. As such, he constantly learns from mistakes and do not commit his mistakes again while finding better improved ways to do things.

It is the ones who are afraid to fail that never extend beyond their comfort zone to become better at their trade. Failure is a great teacher. Learn to expect failure. But, do not forget to learn well from this great teacher who is "failure" so as to constantly grow to become better after each failure.

A magic ingredient that binds all 8 principles

In conclusion, I will also like to share from this book that there is an essential ingredient for success apart from these eight principles. This magic ingredient that binds all the above eight principles is teamwork. It is not enough for one person alone to embrace all these eight princples to have success. Every successful entreprenuer knows he cannot achieve success on his own. He needs a team to work together with him pursuing the same passion and belief.

In a team, there is synergy and everyone can leverage on one anothers' expertise, time, effort, capital and all other shared resources for a common meaningful purpose they are serving. A successful entreprenuer surrounds himself with successful people who can work together with him with common passion and belief. He can also learn from other people in a team as everyone has their unique strengths, areas of expertise and even weaknesses.

It is not an easy route to success, "Do I BELIEVE?"

Level 5 leadership: A necessity for organisations to go from good to great.

We have examined according to Jim Collins and his research team what the good qualities that good to great organisations possess, as well as the poor qualities that organisations on decline possess.

A large part of the success or failure in any organisation depends on it's leadership. It is necessary according to Jim Collins and his team's research findings that any organisation that aspires towards lasting greatness have level 5 leadership at their helm.

What exactly makes a level 5 leader?

There are 5 levels of leadership, namely:

Level 1: Highly Capable Individual.

Level 2: Contributing Team Member.

Level 3: Competent Manager.

Level 4: Effective Leader.

Level 5: Level 5 Executive.

Level 1: Highly Capable Individual 

A level 1 leader is a highly capable individual who makes effective contributions at work through own personal knowledge, talents and skills. Such individual also possesses good working attitude and habits. However, the amount of contribution is only limited at an individual level.

Level 2: Contributing Team Member

A level 2 leader is an effective contributing team member. Such leaders are able to work effectively with other people in a group setting to achieve group objectives. As such, the level of contribution is higher at a group level.

Level 3: Competent Manager

A level 3 leader is one who is a competent manager. He is able to effectively plan and organise people and resources in the achieving of work objectives. His level of contribution is thus higher as he is not only a contributing team member, he is also the team leader of his team.

Level 4: Effective Leader

A level 4 leader is an effective leader. He not only fulfils the ability to lead his people and use resources to achieve work objectives and tasks. On top of that, he is able to drive and excite his team towards a clear vision. When directing his team towards a strong vision, he is also able to constantly stimulate his team towards giving their best to high performance standards. Such a leader contributes at even higher level in having a clear vision and taking his team towards fulfiling this strong meaningful vision while executing at high performance standards.

Level 5: Level 5 Executive

A level 5 leader is one who possesses a strong professional will in building his team of people and organisation towards lasting greatness. His ambition is not small but is great beyond measure. He aspires for his organsiation to be the best in the world that they can be and to have enduring greatness through time. Such great leaders are humble, for their ambition is never for personal interests or gains but only for his people and organisation to become the best they can be at serving their great meaningful purpose.

A level 5 leader is one who thus brings out the very best in his people and organisation in fulfiling their great purpose that the organisation is serving. He is a builder who builds lasting greatness into his people and his organisation. He builds greatness not for himself, but for his organisation to continue through time to be great and even better at serving their great purpose, the very purpose for the organisation's existence. His contributions to his organisation will carry on through time (even for many generations of leaders after him) even as he is gone.

Conclusion

An individual can proceed through the 5 levels of leadership to become a level 5 leader of greatness. This progress may not necessarily be through each level in sequence. A level 5 leader will possess all the capabilities of the other lower levels of leadership. In addition to these capabilities, he also possesses the special characteristics of greatness evident of a level 5 leader.

From Good to Great.

If "even the mighty can fall", how do organisations ensure they tread carefully each step to go from being good to great and maintain their greatness to last. According to Jim Collins in his team's research findings in the books "Good to Great" and "Built to Last", there are 4 stages to transit from being good to great and to continue in greatness.

Stage 1: Disciplined people.

Stage 2: Disciplined thought.

Stage 3: Disciplined action.

Stage 4: Building greatness to last.

Stage 1: Disciplined people

Great lasting organisations have continual succession of level 5 leadership to carry on guiding their people and organisation towards greatness. Level 5 leaders are not commonly found (looking at how few the number of great organisations that have truly stand the test of time). Level 5 leaders are highly ambitious, but not for themselves. They are ambitious in championing the mission and purpose of their organisation. They will do whatever it takes to live out the mission and purpose of their organisation and ensures others in their organisation do likewise. Such level 5 leaders are humble but possess an exceptionally strong will to ensure their organisation work their best to live out their mission and purpose they are serving. Such level 5 leaders in their humility, look not inwardly to themselves for personal gains, but instead look outwards to build the best out of their people and organisation.

Great lasting organisations ensure they have the right people in their organisation (people who live out their organisational values, mission and purpose). They focus first and foremost on recruiting the right people to their key seats before deciding what these right people should do. The right people in key positions will naturally work together to ensure they take their organisation in the direction of fulfiling their mission and purpose. The wrong people in the organisation who do not live out the values, mission and purpose are promptly taken off the organisation.

Stage 2: Disciplined thought

Great lasting organisations do not avoid any confrontations of their problems and difficulties. They will do whatever they can to deal with and find solutions to their most brutal problems, mistakes and difficulties they face.

Such organisations also stick to the "hedgehog concept". The hedgehog concept embodies three principles:-

1. Continue to do what one can be the best in the world at doing (and keep improving in doing it).

2. Continue to do what one is deeply passionate about.

3. Continue to do what best drives one's economic or resource engine.

Stage 3: Disciplined action 

Great lasting organisations have disciplined people. Such organisations enjoy a culture of freedom as their disciplined people work within a framework of responsibilities. Disciplined people take on responsibilities instead of jobs.

Such organisations function as though they are pushing steadily onto a giant flywheel, making turns upon turns, building up the momentum of the flywheel until they see a breakthrough. They are not hasty in trying to make quick breakthroughs with some grandiose program or actions. They understand the need to carefully build up their organisation towards greatness.

Stage 4: Building greatness to last

Great lasting organisations are built through many generations of level 5 leaders in succession. Level 5 leaders over many generations have built into their organisation mechanisms that stimulate progress. The success of the organisation does not depend solely upon the charisma of any one single leader or great idea. 

Such organisations are able to continue in existence as they remain in living out their core values, mission and purpose which stand the test of time. However, they are also able to make significant progress by constantly adapting to the changing world in their operating strategies and cultural practices. 

Conclusion

Building a great lasting organisation requires discipline, humility and a strong professional will of it's people to live out a set of timeless core values to commit to greatness in fulfilling meaningful purpose(s) in it's service. 

Disciplined people. Disciplined thought. Disciplined action. Building greatness to last.

How even the mighty can fall!

I like the series of books written by Jim Collins, "Built to Last", "From Good to Great" and "How the Mighty Fall". This series of books has it's content based on solid extensive research of examples of companies that succeed and fall. It gives a good insight into how some companies can become great and long lasting well known names, while others go into oblivion. 

In this book, "How the Mighty Fall", I am impressed again by how Jim shared about their team's research findings of how every company, whether small or large enterprises can suffer the fate of becoming obselete and non-existent if they are not careful about continuing to be commited to being great.

The fall of any company, small and great alike according to Jim Collins seems to go through five stages (though some companies may not encounter all of 5 stages before capitulation to death), namely:-

Stage 1: Hubris Born of Success.

Stage 2: Undisciplined Pursuit of More.

Stage 3: Denial of Risk and Peril.

Stage 4: Grasping for Salvation.

Stage 5: Capitulation to Irrelevance or Death.

Stage 1 (Hubris Born of Success)

A search of the word 'Hubris' from Wikipedia comes up with the following meaning, " extreme haughtiness, pride or arrogance. Hubris often indicates a loss of contact with reality and an overestimation of one's own competence or capabilities, especially when the person exhibiting it is in a position of power."

These are various symptoms of stage 1 (Hubris Born of Success) in any organisations. Organisations may not display all of the symptoms, but many of them may be found in this early stage 1 of decline. Symptoms include people in an organisation taking success in their organisation for granted, believing that success in their organisation will continue indefinitely, no matter what they do or not do.

Leaders in an organisation become distracted from constantly strengthening and improving upon the core business that the organisation is already strong in doing. Leaders get distracted by pursuing new adventures, opportunities or being too absorbed in thinking about non-essential threats to their organisation.

The people in the organisation may also tend towards the "what and how" their success came about instead of cherishing "why" they got their success. People lose focus on their core values, mission and purpose of their organisation that got them successful in the first place and instead just base their success on their ability to carry out specific things or tasks in their organisation.

There is also a loss of learning culture in such organisations in stage 1 of decline. Since understanding of success is now based on what things and tasks to carry out, there is no longer any growth in pursuing learning. The organisation can only maintain status quo, and be at most as good as when their learning last stopped. Keep in mind that there is no such thing as 100% complete knowledge. The World contains a vast amount of knowledge beyond measure. The only successful individual or organisation is one that is constantly learning new things and value adding to themselves and others they serve.

Furthermore, such organisation in stage 1 of decline thinks highly of themselves, that they owe their success solely to the superior qualities of their organisation and leadership, instead of adopting humility and acknowledging that their success may have also arised from good circumstances and turn of events.

Stage 2 (Undisciplined Pursuit of More)

Organisations that proceed to stage 2 of decline confuse growth with becoming great. Such organisations in a bid to become great overstretch their people, systems and operations beyond what they can bear. Often, the dramatic actions such organisations carry out do not fit into their core values and do not enhance their core business. 

Such organisations also lose the right people in important positions that ensures the success of the organisation. When pursuing undisciplined growth, organisations may also not be able to fill up enough right people into important positions as they grow and expand.

Such organisations in pursuit of undisciplined growth, may also respond to increasing cost of operations by increasing their prices of products or services to maintain profit margin instead of increasing their discipline at questioning carefully whether their growth is good growth or bad growth.

There is also an increase in bureaucracy in such organisations marked by rules governing actions, instead of maintaining a culture of freedom of expression fueled by strong cherished responsibility of every individual in the organisation, seeing that they do their best to be responsible for their work rather than seeing their work only as a 'job' they have no choice but to complete.

Furthermore, such organisations also face poor succession of leadership. There is no excellent succession plan in mind, no grooming of talented individuals within the organisation who live out the core values and purpose of the organisation for taking over the helm of the organisation.

People in organisations facing stage 2 decline may also look to their own personal interests more than the organisational interests. People pursue personal fame, popularity and power in the organisation more than investing their time in building up their organisation towards greatness for the long term.

Stage 3 (Denial of Risk and Peril) 

In organisations facing the next stage of decline, there is a tendency to ignore the negative warnings (in the form of any negative data) that surface within the organisation. Leaders tend to also highlight every positive results to receive praises and publicity while ignoring or discounting any potential negative warnings in their organisation. 

Leaders also tend to pursue big ambitious goals that are not founded on good analysis and past experiences. When presented with vague data that do not support well the pursuit of an ambitious goal or decision, leaders choose to ignore the potential significant downside while taking an overly optimsitic view of their decision which is not founded on good thought and analysis.

There is also a tendency towards a dictatorial style of leadership for organisations in stage 3 of decline. There is no evidence of much healthy debate or discussions when making decisions. People become mere followers of one or two leaders, and there is no generation of much ideas and opinions to ensure the best ideas and opinions can benefit the organisation.

Leaders in such organisations also push failures and mistakes to being caused by external factors and other people. They do not take any blame for their poor leadership.

When organisations are faced with stage 3 decline, they do not confront their problems and external conditions face on. Instead, people in such organisations are entangled in politics while their organisation keep reorganising in a bid to deal with their problems.

Furthermore, leaders in such organisations also face much detachment from their people in the organisation. They may get caught up with their executive status (good bonuses and nice offices) more than cherishing their commitment and responsibility to build their people and organisation.  

Stage 4 (Grasping for Salvation)

Organisations in stage 4 of decline keep trying out different strategies and programs or acqusitions in a bid to get themselves back on progress. The leaders indulge in ways to motivate their organisation with buzzwords or taglines. However, they do not have a solid recovery long term plan in mind. So, there is inconsistency in that their strategies for salvation keep on changing in a series of highly-sought after silver bullets.

Often, such organisations employ an outside leader (CEO) as a saviour who is charismatic in a bid to help the organisation turn around.

The people in such organisations often display habits of panic and uncertainty instead of discipline and a calm resolve to support their organisation to make a turn around.

Leaders refuse to acknowledge their current underperformance. Instead, they try to sell their people the vision of a bright future admist the difficult times that the organisation is currently facing that may potentially lead to their permanent downfall.

There may be some respite when the series of random silver bullets are carried out in a bid to save the organisation, but these positive changes are not lasting. There is no real build up of recovery momentum in the organisation.

When an organisation has reached this stage of decline, the people in the organisation have lost their cherished core values in the organisation. They no longer remember and understand what is the values, mission and purpose of their organisation, why their organisation exist in the first place.

In a bid to save such organisations by administering random inconsistent strategies and programs, together with organisational restructurings, with each strategy being carried out, the resources (financial and manpower etc.) of the organisation are further drained out. This accelerates the decline of the organisation.

Stage 5 (Capitulation to Irrelevance or Death)

As organisations reach stage 5 of decline, the certainty of death of an organisation is pronounced. Organisations in this stage of decline keep deteriorating as cash continues to tighten and hope disappears.

Such organisations should prepare for their death by doing what is best for their employees and shareholders with whatever limited resources left. This may involve returning whatever left over cash as compensations to their employees and shareholders after settling all debts. Some organisations facing impending death may seek a take over by another suitable company. Hopefully, with the take over, the already fallen organisation may be injected into good hands of the acquirer.

Conclusion

The rise and fall of great enterprises is fascinating. Any organisation should continue to exist and seek to become great in fulfiling their values, mission and purpose. Once an organisation can no longer serve great meaningful mission and purpose (in the provision of their products and/or services to value add to their market they are serving) thus securing their competitive advantage as market leaders, the organisation will proceed with most certainty the path of decline followed by death. This happens when another organisation which is better able to live out their values to serve similar meaningful mission and purpose takes over from the dying organisation.

All creatures (or organisations) small and large can fall when they do not tread each step carefully. It is alright to encounter small slips sometimes when each slip provides a learning lesson. The danger comes when one ignores the slips and never learn to walk properly which eventually leads to a great fall to one's death.

How great leaders inspire action? People buy the "why" more than the "what" and "how".

The title of this post sounds confusing. It is meant to be confusing until you have watched the youtube video at the end of this post. The lessons learnt in this video can be applied to leadership, marketing and life. In leadership, people follow great leaders who know the purpose of "why" he is leading his people, to fulfil a great meaning and vision. The followers understand "why" they want to follow the leader. They are not just only following "what" the leader asks them to do, and the methods ("how") they are going to do certain things. Beyond all that, followers of great leaders know "why" they are following their leaders.

As such, great leaders inspire their followers by making them understand "why" they are following the leaders to fulfil a great meaning and purpose that speaks to their hearts. Once the followers understand "why" they are following a great meaning and purpose do the nitty gritty details of "what" they should do and "how" they should go about fulfiling that great meaning and purpose come about naturally with passion.

How many of us often heard our bosses telling us straight in the face to get certain things done and the methods we should pursue to get things done? How often if any at all do our bosses speak to us about "why" it is so important to do the things we do? Why do we need to work hard on a certain project? Is there a great meaningful purpose behind the project other than to benefit the company with improved sales and profits? Instead of looking only at profits alone, why not question whether doing certain things by a company serve any great meaning and purpose?

A great enduring company looks at a strong meaningful purpose and vision as a foundation to why they exist. They question the reason "why" they exist, to serve a greater meaning and purpose more than just being profits driven alone. A great healthcare company looks to serve their patients in terms of providing premium products and healthcare services to cater to their unique individual needs. This is the importance of questioning the "why" and not just the "what" and "how"(in terms of what medical treatment packages or healthcare products are available for sale and how to make the customers buy the services and products). By answering "why" customers should buy a product or service, a company can better innovate and market it's products and services to answer to the needs of it's consumers instead of convincing the customers to buy into the various features of a product or service that they may not have any needs for.

In marketing terms, the marketer should look to connect with the needs of the buyer. People do not care what you offer until you show you really care. This involves looking beyond the "what" (e.g. What products and services am I offering?). This also involves looking beyond the "how" (e.g. How can I market my products and services to make it attractive to my potential clients?). Instead, it instantly connects if the salesperson speaks to the needs of the potential buyer. For example, an insurance agent first gets to know the client well enough by questioning and listening to understand where are the needs of the client and why the client will need certain products or services before offering him the relevant insurance products and services that can meet his client's needs. The agent is not trying to convince his potential client of the good features of his products and services, but is only offering relevant products or services he believes can help answer the specific needs of his client.

In all the decisions and actions, this insurance agent is questioning "why" his potential client should buy certain products and services from him. He also understands fully and cherishes the meaning and purpose of "why" he is doing his trade. He does not see his trade as just a day job, but the job offers him an opportunity to fulfill a great meaning and purpose to help as many people he will meet. He hopes to help all his clients become financially better and also insured appropriately so that his clients' own and/or related family's future financial needs are covered against any unforeseen circumstances that threatens the basic survival of the client and/or family. He is working hard to meet the needs of his clients simply because he believes what he is doing will benefit as many people as possible instead of seeing it as only meeting his monthly sales targets and commisions. He is not constrained by only the "what" and "how" in his trade, but is inspired by the "why" of doing what he does.

Many great inventors also cherish the question "why" they are working on any great ideas. The Wright brothers set their dream on seeing man take flight opening another new method of travel never before when they invented the very first prototype of the more advanced airplanes we see in modern times. They persevere despite many failures until eventual success. "Why" do they persevere? They believe their dream of one day seeing man take flight into the air will change the course of the world. In the words of Orville Wright, "The desire to fly is an idea handed down to us by our ancestors who, in their grueling travels across trackless lands in prehistoric times, looked enviously on the birds soaring freely through space, at full speed, above all obstacles, on the infinite highway of the air."  

Perhaps it is time to ask ourselves "why" we do certain things in life. It is important to reflect every now and then on "why" (the meaning and purpose) we are working on certain things to inspire our actions - the "what" and "how" things can be done. Asking the question "why" works in leadership, marketing and all we do in life. By asking "why" each time, one can be inspired to persevere in fulfilling  great and meaningful purposes in life for ourselves and people around us. 

  

4 risks that entreprenuers and businesses face.

There are four ongoing risks that entreprenuers and businesses alike will face. I call these four risks the "Big Four". These four risks are also inevitably faced by investors who invest in any companies. For an investor, one will like to consider the nature of the invested company and amount of exposure to each of these risks, and also the ability of invested company to deal with these risks.

Here are the Big Fours:-

1. Funding risk.

2. Market risk.

3. Timing risk.

4. Technology risk.

1. Funding risk

Every company be it start-ups or established ones requires some amount of funding to continue it's operations. It is rarely that a company can continue it's operations just on past retained earnings alone. This is especially true if the company is on an agressive growth phase. It is inevitable that such a company will need to tap on external funds in addition to it's internal funds to grow and expand it's business. For any business, the ability to establish multiple lines of credits, equities and loans become necessary to fund it's operations and growth. It is important that a company is able to seek out multiple funding sources and maintain a health ongoing relationship with it's creditors and equity owners, while at the same time estabilshing credit trustworthiness so that it has multiple funding sources to tap into either to continue it's operations or grow the business.

If a company is unable to seek out enough sustainable long term funding sources, this may jeopardise the ability of the company to continue it's operations, not to mention growth especially if the company cannot sustain it's operations and growth by internal resources (e.g. past retained earnings). In any case, even if a company has established mulitple funding sources, the company should be also careful in maintaining a healthy debt level so that it is still able to service it's debt interest and loan payments on time. Many a times, it is not the inability to establish multiple funding sources, but rather the inability to service debts that leads to the downfall of many companies, start-ups and also large businesses.

2. Market risk

Market risk refers to whether there is a market for the products and services of a company. It is prudent for any company to be able to understand the needs of it's target market well so as to roll out relevant products and services for it's consumers. It is not what the company thinks about how good it's products and services are, but rather how the targeted customers think about how good and relevant the products and services are to them that results in sales and revenues on the products and services. It is not easy for any company to understand the market needs despite doing extensive market research and checking with it's potential market.

In addition, needs and consumer behaviour of a potential target market may also change over time (sometimes even within a short time frame) rendering the products and services of any company irrelevant. Thus, like it or not, all companies constantly face the risk of it's products and services becoming irrelevant or less appealing to it's target market. This is especially true with so many competitors out there vying for a pie of the same market, thus making it even more difficult for any company to not only constantly improve and roll out relevant products and services for it's target market but at the same time having to compete with it's competition on the ability to reach the target market to secure market share.

An example of market risk is found in the many mobile phone producers that need to constantly compete to secure and enlarge their market share by always innovating their mobile phones to be more appealing in looks, functionality and catering to lifestyle needs and wants of consumers.

Other unforeseen factors can also present a market risk to any businesses. For example, a change in demographics such as a low birth rate in a local population over time may mean that businesses selling maternity products or providing child related services will see a shrink in their market size. Another example may be a change in government laws and regulations such as banning of consumption of chewing gums in Singapore which means businesses can no longer sell chewing gum products in Singapore thus removing totally the market for chewing gums in Singapore.

3. Timing risk

Timing risk refers to the risk of the products and services being introduced into the market at the wrong time or too slowly. For competitive products like mobile phones, the better the mobile phones and the faster the phones can be introduced into the market for a mobile phone producer will allow it to capture market share ahead of it's competition. It is thus easy to understand why Apple has introduced it's line of iphone products from iphone 3 to iphone 4 to iphone 5 at close timings. This is done to protect and also enlarge it's market share to prevent other competition with coming out similar phones to compete with Apple. By flooding the market at close timings with it's line of iphone products, this ensures Apple's current consumers will continue to upgrade their iphones to the next better iphones without leaving them a chance to consider other brands when other mobile phone producers have finally caught up with producing similar lifestyle phones to compete with Apple for market share. Thus, for such companies like mobile phone producers, the faster one to make the appeal may really make the appeal. Sometimes, it may not be the best quality products or services that can get the market, but the faster company to make the appeal of it's products and services will get the market.

There is also a need to determine the right timing to introduce products or services to the market. For example, a face mask company ramping up on it's production of face masks during SARS period will see their sales and revenues sky-rocket. Other times, it may not be wise for a company to be producing at such high quantities especially if the products have a limited shelf-life. This will mean wastage and lost of money for the company.

4. Technology risk

This risk is relevant for any companies that require technology in their operations and/or technology is found in their products and services. Any company will require some form of technology in their operations and manufacturing of products. All companies face the risk of their current use of technology becoming inferior or obselete to keep up with the technology of it's competition and also to answer ever changing needs of consumers. Technology risk is especially high in companies that require high amounts and level of technology in their operations, manufacturing process, and also on their products and services that compete on technology.

One example of high technology risk faced by companies is found in the digital media recording industry. We have seen how the very first video tapes are made obselete by the coming of a new and better technology in media recording, the compact disc format. Now, the compact disc format is slowly facing the same fate as the early video tapes as they are replaced by DVD format. There are also other better technology products around in the market such as the Blu-Ray disc format which may become the commonly used technology in future thus leaving the rest of the past media recording formats to permanently bite the dust.

Therefore, companies that deal with high technology in their operations, manufacturing processes and/or in their products and services will constantly face the risk of their technology becoming obselete with time. When their technology becomes obselete, companies have to spend on replacing their obselete technology with more current ones

Conclusion

Risks are always inherent in any businesses. A company has to be constantly aware of the types of risks that it faces and have measures in place to mitigate problems that may arise from the risks.