Save Money, Without Thinking About It

There is an unwritten rule in business that once a company goes public, the original founders must be ousted. The myth: entrepreneurs are great for getting a company started, but not so great when Wall Street is looking over their shoulder. Part of this thinking is that founders of companies are mavericks, passionate doers with a vision, nontraditional in their approach to management and outspoken – the kind of rabble rousing that makes investors uneasy. (What is rabble rousing anyway?)

Passionate in their approach, some are seen as little more than televangelists who work their corporate gospel for all it’s worth, but when confronted with real management challenges, their methodologies are revealed to be a house of cards.

To put it mildly, this is a gross generalization and highly inaccurate.

Case in point, Steve Jobs was an entrepreneur with a vision – created the greatest user-friendly computer in the world and took a byte (pun intended) out of IBM’s market dominance. Passionate and visionary, Jobs had in his corner Steve Wozniak to handle the structure of Apple. Before these guys, working on a computer required extensive knowledge of code just to do a simple task. Many a computer science major looked down at those who couldn’t understand the basics of a computer. Then Apple came along and changed all that posturing by inventing a user-friendly computer that required no code, no programming knowledge, just plug and play. With their visually intuitive interface, Apple redefined what working on a computer meant. They changed the computer business forever by creating computers for the rest of us.

So, it wasn’t a mystery why Mac became the computer of choice for graphic designers – with it’s focus on the graphical user interface and out of the box ease of operation, an Apple could be used by anyone. Before the Macintosh, all typesetting at ad agencies and design firms had to be sent out to a type house to be set into those neat rows you see in magazines and newspapers. You never knew what the type would look like until it came back. One wrong calculation could ruin a piece. Calculating typefaces was a science only doled out to designers with a propensity for math. With applications like Pagemaker and WYSIWYG (what you see is what you get) interfacing, Apple ruined independent typesetting companies overnight. Now all typesetting could be done in house from your desktop and changes could be made instantaneously. Apple was the David that slew Goliath and Apple buyers began to take on a cult-like obsession.

But all was not well at Apple. Jobs’ direction for the company seemed at odds with CEO John Sculley. A power struggle ensued and the board of directors sided with Sculley – Jobs was forced out, and the press had a field day. To an outsider it made no sense. To a seasoned businessperson, it wasn’t soon enough. The founder whose ideology was what brought the company to its current stage of profitability and notoriety was seen as a hindrance to the next phase of success. The myth of the entrepreneur, unable to take the company forward, prevailed.

At first, the executive team took Apple down a road where it had never been before, and profits were the proof that all was working. Time would tell, however, that a new CEO, several years of lack luster sales, and a low stock price are enough to make even the most seasoned board of directors realize they may have made a mistake. The Macintosh started to look like an IBM clone. Just another computer.

For obvious reasons, Jobs was asked back in 97 and the Apple brand began to make a comeback. The entrepreneurial spirit returned and Apple stopped making products that looked like grey boxes and started putting the ergonomic designs back into their industrial design. Lessons learned from Jobs’ NEXT computer system were integrated into the new PowerMac lines, and the iMac brought the Apple brand back to profitability. This was an entrepreneur with executive¬†and¬†strategic execution.

Jobs brought the passion back to Apple. The myth of the entrepreneur had been broken. And let’s not forget Jobs’ investment in Pixar before it was acquired by Disney. So much for the myth of the entrepreneur not understanding real business.

Conversely, executives who arose through the ranks of Wharton, Yale or Harvard learned the ropes of hard work and numbers crunching, eventually landing a key leadership position after quite a bit of seasoning, are just as valid. Many a business needs this style of management to operate and with over 50 million businesses in the United States, I’d say the majority of them operate under this management structure.

Just look at the number of law, accounting and engineering firms that must have serious systems in place to operate. This isn’t just a happy accident, it’s tried and true business 101. Many times executives are brought in to clean up the huge mess created by a founder who didn’t know any better.

One of my favorite case studies of exemplary reorganizing is Harley Davidson. AMF drove the Harley name into the ground back in the 70s by firing employees and streamlining production to such a degree that Harley Davidson became the laughing stock of the motorcycle industry. In an effort to push for greater and greater profits, AMF forgot to make a superior product. It didn’t take long for Japanese imports of better quality to flood the American market.

In 1981, AMF sold Harley to a group of investors led by Vaughn Beals and Willie G. Davidson (yes, grandson of co-founder William A. Davidson) for $80 million. In order to get back their market share and keep Japanese imports at bay, Harley Davidson worked closely with The US International Trade Commission, requesting they impose a 45% tariff on imported bikes over 700cc’s. This was a temporary measure specifically designed to protect Harley and raise the price of Japanese imports. It was the helping hand that kept the competition at bay. Miki Agrawal

Next step was for quality to increase while keeping costs low. In Japan after WWII, W. Edwards Deming created a productivity model using a simple method of only ordering inventory when needed. Before his methods, companies usually kept large amounts of product in warehouses. It was costly to store, heat and/or cool and costly to insure. And if inventory prices fell, you were stuck with overpriced goods. Assembly could be at such a loss that a company could go out of business.

Deming was the father of Just In Time manufacturing and for good reason – he single handedly helped Japan rebuild after WWII. JIT focused on ordering inventory only when needed but, more importantly, gave workers on the assembly plant floor control over product quality, even the authority to shut down the line if a part or finished product didn’t meet their standards. Quality over quantity.

Harley’s executive management deliberately returned to what made their company famous – the macho “retro” appeal of the machines, building motorcycles that deliberately adopted the look and feel of their earlier cycles with customer-requested customizations. Components like brakes, front forks, shocks, carburetors, electrical parts and wheels were outsourced from foreign manufacturers and quality increased, technical improvements were made, and buyers slowly returned.

With JIT methodologies and a return to quality, Harley Davidson’s reputation began to grow into the premium brand it is today. They even went so far as to get The US International Trade Commission to lift the previously levied tariffs. Because people were still buying Japanese imported cycles at a premium, once the tariffs were lifted, the price stayed the same, and allowed Harley to charge an even higher premium.


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