WSJ's The Experts

Why Growing Small Businesses Should Zero-Base Everything

Only a few capabilities truly matter to your customers.

By James Allen

First published on Ιανουαρίου 25, 2016
min read


This article originally appeared on WSJ's The Experts. If you need funds to get your business to the next level—to launch a new product, expand to a new region, serve a new customer segment—you might not need to go hat in hand to a venture capitalist or banker. Instead, look inside your business for all the capital being spent on distractions. Owners of micro-companies get this. They are always short of cash, trying to figure out how to free up resources from one activity so they can redeploy to a more important activity. But as companies grow, this idea gets lost. It isn’t that growing companies succumb to bureaucratic waste, but rather to a more insidious temptation: the desire to excel in all programs and all capabilities. In reality, only a few capabilities truly matter to your customers, which means that most capability-building is a waste of time. If a particular capability isn’t the reason that your customers choose you over your competitors, then it is fine—even desirable—to be just “good enough.” If you have the discipline to focus your internal resources on the things that really matter, then you may not need as much external capital as you thought. Changing these behaviors requires that companies “zero-base” everything they do, meaning they regularly examine every process with a fresh eye and ask: “If we could start over, would we want to do it this way?” Some employees find this exercise threatening. But in fact, zero-basing creates opportunity. If the company can figure out how to do something smarter and in a simpler way, it can move people to more difficult and interesting challenges in the highest-potential areas. That keeps everyone stretched. Want more funds for your company? Pave the way for zero-basing and penalize anyone, especially managers, who traps resources. In most companies, rewards typically flow to people who make internal functions larger and more complex, demanding more resources, the people who say yes to seemingly “clever” ideas. Make it your role to reward those who simplify your company and are brave enough to stop activities altogether. James Allen is co-leader of the global strategy practice at Bain & Co.

This article originally appeared on WSJ's The Experts.

If you need funds to get your business to the next level—to launch a new product, expand to a new region, serve a new customer segment—you might not need to go hat in hand to a venture capitalist or banker. Instead, look inside your business for all the capital being spent on distractions.

Owners of micro-companies get this. They are always short of cash, trying to figure out how to free up resources from one activity so they can redeploy to a more important activity.

But as companies grow, this idea gets lost. It isn’t that growing companies succumb to bureaucratic waste, but rather to a more insidious temptation: the desire to excel in all programs and all capabilities.

In reality, only a few capabilities truly matter to your customers, which means that most capability-building is a waste of time. If a particular capability isn’t the reason that your customers choose you over your competitors, then it is fine—even desirable—to be just “good enough.” If you have the discipline to focus your internal resources on the things that really matter, then you may not need as much external capital as you thought.

Changing these behaviors requires that companies “zero-base” everything they do, meaning they regularly examine every process with a fresh eye and ask: “If we could start over, would we want to do it this way?”

Some employees find this exercise threatening. But in fact, zero-basing creates opportunity. If the company can figure out how to do something smarter and in a simpler way, it can move people to more difficult and interesting challenges in the highest-potential areas. That keeps everyone stretched.

Want more funds for your company? Pave the way for zero-basing and penalize anyone, especially managers, who traps resources. In most companies, rewards typically flow to people who make internal functions larger and more complex, demanding more resources, the people who say yes to seemingly “clever” ideas. Make it your role to reward those who simplify your company and are brave enough to stop activities altogether.

James Allen is co-leader of the global strategy practice at Bain & Co.