Brave the Limb, Save the Tree

Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.

Eighteen months ago, those words seemed to have been written for the management challenge I was facing. My client was a nearly bankrupt egg producer in Ohio. Come with me there.

Imagine that you are the CEO of this company, selling a commodity. Your cost structure is as follows:

• Cost to produce product = 40 cents (per dozen eggs).

• Selling price = 25 cents to 60 cents, varying daily.

• Profits or losses = range of 15-cent loss to 20-cent profit per dozen.

• Eggs sold in a month = more than 10 million dozens.

The net result of these factors is that the unpredictable and uncontrollable market fluctuations will impact your cash flow and profitability by plus or minus $1 million per month, or more.

But there are factors you can control — your efficiency, your sales effort, your costs, etc. If you manage these factors very well, you might find continual improvements worth a tenth of a cent per dozen next month, or $10,000.

You’re in charge. Do you focus your attention on the uncontrollable market that will make or lose you $1 million next month, or on the small details of your operation that, if your organization works really hard, might save you $10,000? Do you spend your days following the market, or do you tackle the tough operational issues, like firing a loyal but ineffective supervisor, or ending a comfortable but overpriced 20-year-old supplier relationship?

Yes, making those changes would help, but they are unpleasant and the short-term dollar benefit seems minuscule compared to the daily price fluctuation. After all, if the egg market would just go up one penny per dozen, it would reap you much more benefit in the next few months than both of the proposed changes.

My client appears to be doing well today, but this is not about them. Your situation is probably not so extreme, but you also have significant variables. Your competition, the economy, government regulations, the labor supply, or the uncontrollable whims of your customers, suppliers or bankers are all potential examples.

The issue is one of controllables vs. uncontrollables and short term vs. long term. If all you are looking at is the next month, or perhaps even the next year, there is no point in firing the ineffective supervisor. Why cause the pain for a minuscule benefit?

It turns out, though, that in the long term, the price swings in the egg market are fairly irrelevant. The average price predictably evens out over several years, settling at a level that allows the most efficient producers to do well, while the poorly managed ones go out of business. The difference between the two will be in the hundreds of decisions, made or not, that find savings of perhaps only a hundredth of a cent per dozen eggs.

Are you merely a gambler or are you taking control of the things you can, and preparing for the things you cannot?

In the abstract it is easy to see the importance of making the continual small improvements, but in the day-to-day distractions of running a business, little is obvious. The large price swings, with their tremendous impact on profits, can be disempowering, regardless of whether the news is good or bad.

If ruthless, unethical competition has just moved in next store, it does no good to spend your days screaming about how bad they are. Good leadership requires the equanimity to accept the things you cannot change, and the clarity to stay focused on matters that you can impact.

You cannot beat them at their own game, but your company can always get better at its own game. How? The answers are probably fairly obvious, if you have the courage to look. More often then not, it is about going out on a limb and making unpopular decisions. And when the branch breaks and you fall to the ground, it’s about climbing the tree again and venturing out on a new limb.

John Harrison Newman specializes in leading turnarounds of troubled mid-sized companies with annual revenues of $20 million-$1 billion. He’s based in Fayetteville and can be reached via e-mail at [email protected].