BUSINESS CONSULTING

“The great problems of the world require a great love to achieve their solution.”

-Nietzsche

Advice When the Fire Alarm Goes Off

Many people wait until the fire alarm goes off before seeking professional advice. Then, they can’t hear the advice amidst all the noise and panic. While this is a mistake, it’s still better than never seeking advice at all and counting on a miracle to save you.

Is your business bank account regularly overdrawn? Do you have difficulty meeting payroll? Are you behind in paying taxes and business debts? Are you working yourself to death and wondering why you’re not succeeding? Are you dealing with a major business problem? If any of these situations apply to your business the fire alarm has gone off for you. Your business has a major problem. You must act.

I could paraphrase Clausewitz by noting that business is a continuation of war by economic means. See:

 
http://www.clausewitz.org/

Those of us in business find ourselves besieged by outside forces, competition, an unfriendly and frequently anti-business government, taxes, litigation, risk, rising costs, burdensome regulations, difficulty raising prices, employee issues and a billion other problems and threats great and small. The real miracle is that any business anywhere can succeed in such a hostile environment. In 2010 Forbes business magazine ranked Maine as the very worst state in which to do business. These are harsh truths which must be faced honestly.

What to do?

Few people seek professional advice when all is well. It is failure and the threat of even greater failure which drive business owners to seek help, to identify the causes of failure, and to create a credible plan to achieve success. People also seek help for exceptionally difficult problems, and when they are buying, selling or starting a business.

And every business owner should ask what would happen to their profits and performance if they could improve operating efficiency by 10%? Better thinking is never irrelevant. It never goes out of style. And the absence of better thinking may be the most expensive invisible cost hurting your business. Inefficiency may take a larger bite out of your profits than the IRS.

As an MBA I was specifically trained in these issues. These business problems and challenges are my reason for existing. Solving them is what I do. But it’s redundant for me to explain what I can do. A portfolio of some of my prior consulting work is attached to this part of my website (see below) and speaks for itself. Judge for yourself what my true capabilities are.

And remember that if your business has a major problem you probably have one and only one chance to fix it. No mercy is shown in war and even less mercy is shown in business.

I offer a free initial consultation where you tell me your problems and we talk about ways to radically improve your circumstances. Call now, before it’s too late.

Game Theory: One Example of the Power of Better Thinking

John von Neumann 1903-1957 Creator of the modern electronic computer. His insights and contributions to the Manhattan Project, which built the first atomic bomb, accelerated the work by at least one year and avoided the need for a costly US invasion of Japan in WWII. He created Game Theory as a mathematical tool to explain economic interactions.

If my website is inspired by a single idea it is this: The power of better thinking to transform failure into success, to rescue business and people from catastrophe, and to illuminate the darkness which surrounds us all.

One of the greatest scientific and mathematical breakthroughs of the 20th century remains largely unknown and unappreciated even now. This breakthrough was achieved by one of the greatest minds of that century, John von Neumann, who also helped create the first electronic computer, and who worked on the Manhattan Project which built the first atomic bomb.

In their extraordinary book, Theory of Games and Economic Behavior, von Neumann and his colleague Morgenstern for the first time in history systematically applied rigorous mathematical logic to games and economic interactions. They shed a brilliant light on a field of human activity previously left to guesswork, seat-of-the-pants intuition, and mere opinion and prejudice.


My goal here is limited: to briefly illustrate the power of this kind of thinking. When human life is at stake, when millions or billions of dollars are at risk, the governments and largest corporations of the world routinely turn to Game Theory to answer profoundly difficult problems. You too can and should benefit from these techniques.

As an MBA I was specifically trained in this discipline and I respect its power. Over the past thirty years Game Theory has been used by more and more small and medium sized business. Increasingly, it is becoming accessible to more and more people. In the not too distant future almost all business problems will become problems in applied mathematics. And in the hyper-competitive world we live in now I can tell you for a fact it is folly not to use these insights.

The Basic Concept of Game Theory

One day someone you trust and respect warns you that you could lose a million dollars tomorrow. This person also tells you the chance you will lose the money is one in a million. How much would a rational person be willing to pay to protect himself from this loss?

Chances are you’ve already guessed the answer. A rational person would pay exactly one dollar to be protected from such a loss. Most people solve this problem intuitively, in the back of their heads.
 
Game Theory is all about something called probability-weighted payoffs. This means the chance of losing money is weighted by the probability of losing it. So losing a million dollars multiplied by one / a million = $1.

This is the universal foundation of game theory and applies to both losing money and making money. It’s not good enough to merely consider what you could win or lose in any game. You must go further. You must consider the probability that you will win or lose a certain amount of money. You must think many steps ahead and in doing so outthink your competitors.

Now let’s apply this basic concept.

A Simplified Example

One day you find yourself at the entrance to a dark and mysterious forest. You meet a wise old man who tells you two paths are before you. On the left hand path there is a trail which leads to a clearing in the forest. In the middle of that clearing is a suitcase filled with $100,000 in cash.

The wise old man goes on to tell you that there is also a right-hand path. If you go down this path it will eventually come to a fork where you must decide to go either left or right. One of these paths (you never know which) will lead to a clearing in the forest containing a suitcase filled with $1,000,000 in cash. The other path will lead to a clearing that is completely empty. You will lose if you arrive at this empty clearing.

"The Road Not Taken"

One of the rules of this game is that you cannot change your mind. Once you have picked a path you are stuck with the consequences for that day. You are not allowed to retrace your steps and choose a different path.

Imagine you play this game every day for the rest of your life. Every day you wake up and find yourself facing the dark and mysterious forest. Every day you meet the wise old man who repeats to you the rules of this game. Every day you must make a choice which will have a major impact on your success or failure. Every day business owners have to make exactly these kinds of decisions.

What is the winning strategy? Which path should you go down and why?

The answer is that you should always go down the right hand path. The average payoff from going down the right hand path is computed as follows:

PROOF:

 
What Does This Mean for You?


If you have your own business then you too are playing a game. You play to win. You fear losing. Your fellow players include competitors, customers, government, and outsiders who can have an impact on your business.

Do you know the rules of your game? Is it a zero-sum game where your winnings exactly equal someone else’s loss or vice versa? Or could it be a win-win game? Are your employees competitors or partners?

The best way to win any game is to have the best strategy. A strategy is a special kind of thinking which looks beyond day-to-day operations, which considers the future beyond just one or two steps ahead. A strategy is the compass pointing to north even when you are surrounded by fog, darkness, or uncertainty. It guides you to where you need to go.

A strategy tells you what to do at every major moment because it’s impossible to constantly be worrying about the next move in your game. Every major corporation in America has a business strategy which they follow in order to win. What’s your strategy? How many moves ahead are you thinking? Do you have a good compass?

Further Resources and Readings on Game Theory

Here are additional resources which provide further information on a subject which is vital to the success and profitability of every business:

• http://www.forbes.com/2006/12/10/business-game-theory-tech-cx_th_games06_1212harford.html
  This is an excellent business article in Forbes written for the non-specialist lay reader. I highly recommend it.

• http://www.gametheory.net/dictionary/BusinessStrategy.html
  This is a quick blurb on Game Theory with links to further information.

• http://www.quickmba.com/econ/micro/gametheory/
  Here is a more detailed discussion from a purely business perspective.

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