(Submitted by Justin)
In the ongoing slide show project, here are a few more office black boards.
The ideas illustrated here are general and specifically tied to the Mohawk Valley Forgeworks business and its Uncanny Gallery retail imprint.
All of these slides should follow a reliable format if I keep my head straight. I begin with definitions of terms and concepts, then tie the two together to give examples.
I begin by defining asset classes. Keep in mind that these categories are not fixed. An unused tool is a functionally dead asset and remains so until it is put into productive use, whereupon it becomes a working or redundant asset, depending on redundancies. Some assets are permanently dead, meaning that they need to be repaired or otherwise worked on before they can be put to use.
In this case, we are discussing how to raise capital and use that capital to grow the business. Our means of raising capital are primarily selling assets, in other words, before we can grow, we have to shrink.
In a situation such as this, it is of utmost importance to define the operational strategy and related tactics clearly in ones mind so that the right assets, meaning those which are least likely to negatively impact operational integrity, get sold and those that are needed are retained.
In extreme cases, it may be necessary to redefine the conceptual business model. Are you an IT shop, a design outfit? A provider of commodities and commodity services? Do you make stuff? How do you make it?
We do a lot of everything, but different labels could be inserted for different businesses. Fifty years ago, financial services was not yet a block at GE or GM, today, financial services are at the core of what both businesses do.
The 'folds' of potential operations represents selective redundancies and shortages. If the business does a lot of metal fabrication, it may be beneficial to have a robust stable of vices, grinding and polishing tools, but only one welder or forge even though without a functioning forge or welder, polishing tools are rendered useless. Build selective redundancy, critical components for vital machines, specific and custom made tools for various tasks - like how an auto mechanic shop has every wrench and socket imaginable.
Here, I propose heuristics for figuring out what can be sold while minimizing the potential negative impact on business operations. Functionally dead assets are the first to go, they aren't being used now, so their absence is unlikely to uncover a loss of their functional utility.
If a business has very little folding of potential operations, then it has likely acquired a lot of redundancy that is unneeded. Some businesses end up so flush with capital that they have to invent reasons to spend it, the major oil companies have been in this situation for years on end. Unlike the financial services, which primarily dispense the overage to employees through bonuses and shareholders through dividends, many oil companies have build asset sheets that may be read as an inventory of everything.
There are no hard and fast rules here, having a lot of folds affords flexibility in tactical operations and thinking, but a lean business has difficulty changing strategic directions. One countermeasure is to precisely define strategy such that a wholesale change is unlikely to occur.
This is a larger picture of the small picture in the first slide. This is the conceptual model of the business. 'Touring the Valley' is an internal phrase that is equivalent to R&D. Market Up refers to activities that may bring new business or opportunity. P&E refers to physical asset coverage. Production are those activities that are directly related to revenue. A commissioned painting is thusly production, at least, whereas an experimental painting with no prospective buyer may be considered Touring the Value or Market Up.
The obvious question is what does the space outside of these Venn circles represent, we call that 'wandering the valley,' referring to undirected and unfocused activities from the business perspective. Grocery shopping can be considered wandering the value. From a business perspective, these are activities that are least likely to be relevant to the business interest. However, you often find the best stuff where you least expect it, like placing an unexpected t-shirt order in the checkout line or riffing off an unlikely to be sold landscape painting for the sheer pleasure of it.
I do some of my most valued thinking when I'm just wandering.