Originally published in the April 2011 edition of The Stimson Group’s AV Matters newsletter.
by Tom Stimson
I get nostalgic for the automobiles of my youth. They were simple enough for me to work on, and forgiving when I didn't know what I was doing. The cars I owned needed tinkering all the time and I enjoyed doing it. I proudly drove a 1968 Triumph for two years that required opening the hood 50 percent of the time just to get it started. I don't think I have opened the hood on my six year old Hyundai more than ten times. There's nothing in there I understand. The majority of company founders I encounter today are from this era as well. The really smart ones have hired folks trained in running modern businesses. However, most are trying to use hand tools to fix computerized engines. At the same time, these companies must create fresh models chocked full of innovation just to keep the customers interested. It's not working.
Some of you will remember that Hyundai sent over a batch of really cheap cars in the 1980's. The Korean manufacturing giant (they build just about anything you can imagine) decided that Japan had too much of the automobile market and set about to use inexpensive Korean labor and factories to compete. They got the price right, but the cars were junk. What they overlooked was that the initial success of Japanese cars was their price. Japan's market share came from the increasing reliability and quality of their vehicles. (OK, it didn't hurt that the American auto manufacturers were building inferior products.) What Japan got right, and Hyundai eventually learned was that every step of every process mattered. Hyundai's CEO challenged the auto division to exceed the Japanese model - and succeeded.
Hyundai didn't retool their factories; they tore them down and re-invented how cars are made.
Today's small businesses need retooling too. While I do enjoy tinkering with a 1960's style business — the old models won't win any races. If managed efficiently, they break even and remain flat on revenue while winning uninteresting projects. The good employees will eventually move on, and the owners won't have anything of value to sell when they want to retire. Some businesses follow the first Hyundai automobile strategy and try to compete with the innovators — without actually innovating. They grow without understanding what makes businesses successful and profits disappear. Only a small handful re-engineer from the ground up and create truly innovative and efficient companies: companies that can grow and remain profitable.
At the risk of over-using my metaphor, imagine updating a 1968 Triumph to compete with a modern production sports car. No amount of tinkering or re-engineering will change the fact that the chassis wasn't designed for the speeds and agility of today's engines and suspension systems. Our small business operations are like the mechanical systems of a classic car. The styling is our sales and marketing effort. There will always be buyers for classic cars, but — when the job is mission-critical — customers will always go for the latest precision-built, cutting-edge design.