Choices, choices, choices

In business, as in life, these days one of the biggest challenges that we have is the proliferation of choices available to us. What are the best choices to make in terms of growing your business? Where is the best place in the world to base yourself in terms of sourcing good job opportunities? What are the best blogs to read given your limited time!!! And so on and on and on.  

From both a consumer and business point of view, choice is a very important issue. As Barry Schwartz pointed out in his 2005 book The Paradox of Choice, choice is something that we crave, but when we have it, we do not handle it very well. It turns out that the more choices we have, the less likely we become to actually make a decision. And this has major implications for companies that pile on more options on their websites, add brand extensions to their ranges, increase their number of price points and so on. A simple jam experiment powerfully illustrates the problem Sheena Iyengar . A tasting booth was set up at the entrance to a grocery store that contained either 6 flavours of jam or 24 different flavours. The results were fascinating. When the booth contained the 24 jams, consumers were about 50 per cent more likely to stop and examine the display. However, only three per cent of them bought a jar of jam whereas when there were only 6 varieties on offer this number soared to 30 per cent. It would appear that, on average, we are not well programmed to deal with abundance!

If choice paralyzes us in the shops, can it do the same in the boardroom? A new book entitled Repeatability suggests that it could. As businesses grow, they become more complex and it is this complexity and the resulting inefficiency that is often their silent killer. The authors argue that firms need to engender a cult of simplicity, that is, build a core business model and apply it repeatedly to new opportunities. Witness for example the success of IKEA with its flat pack furniture or Nike with its branding expertise. This perspective rekindles the age old adage of ‘sticking to the knitting’ which can be effective but can also leave firms vulnerable to disruptive innovation. However, one thing it does demonstrate is that strategy is ultimately about making choices, difficult as that is for us humans to do.

A Good Time to Start A Business?

Are recessions a good time to start a business? This is an interesting question that was raised by a recent article in the Economist (economist.com). Many of the world’s best known companies were founded during recessions – General Motors, Disney and MTV. And for many people - no longer in paid employment, a business start-up might be the only obvious option. A few points are worth bearing in mind.

Recessions swell the ranks of potential entrepreneurs so if you are thinking about business ideas, the chances are others are as well. Prepare yourself for a competitive environment and pay attention to how you are going to be different and better. Add to this the fact that consumers have less money to spend and will be more discerning on how they spend it. Again this means that your customer value proposition will have to be compelling. And as we have seen over the past few years, finance and credit becomes very scarce during recessions adding further to the start-up challenge.

On the plus side, getting traction during the hard times augers well for the future of your business. One of the persistent research findings is the different attitudes and management styles of firms formed during recessions or run by people who have experienced recessions. These businesses tend to be more risk averse, they take on less debt and tend to be more conservative. These can be good habits but of course as business cycles change, management attitudes need to be flexible as well.