Wednesday, December 19, 2007

AiC Contest: Free Economist Subscription

Loyal readers:

As you know, I'm a big fan of The Economist. Each December, I renew my subscription. It causes me a bit of pain, because it is so expensive, but it's definitely worth it.

This year, as I looked at the renewal form, I noticed that one of my options was to give a free gift subscription to a friend.

Alas, most of my friends have subscriptions already, but it occurred to me that some of you might not.

Therefore, I'm announcing the first annual Adventures in Capitalism free Economist contest. The reader who executes the most effective program to boost AiC readership (and then posts the results as a comment to this post) gets a free subscription to The Economist.

I'll be the sole judge of the entries, though I will pay attention to comments by other readers. I'll be curious to see what develops!

Tuesday, December 18, 2007

Make Sure You Consider Magnitude *and* Percentage

Loyal reader Foobarista had a great comment on my recent post on capital efficiency:

"Pay attention to the right spending. In a company I worked at, the CEO paid close attention to things like printer cartridge expenses and other office supplies while running up huge bills on unnecessary lawyer consultations and expensive "business consultants"."

When you're analyzing things like revenues and costs, make sure that you consider both the magnitude and the percentage.

It might be that your printer cartridge expenses are 50% higher than you expected. After all, a swimming pool of HP ink would have a street value of $5.9 billion. However, if that 50% variance represents $100 per year of additional spending, you might be better served to pay attention to a 5% variance in the $1,000,000 per year you spend on McKinsey engagements.

On the other hand, you can't simply ignore the percentages--these are critical leading indicators that tell you a lot about the nature of your business. If your business has a profit margin of 10 basis points, then you need to run through $1 billion per year just to generate profits of $1 million. This works fine if you're talking about the Vanguard S&P 500 index fund, but not so good if you're trying to scale up a chain of specialty retailers that sells accessories for pet ferrets.

Quotes of the Day: Life and Leadership

"We make a living based on what we get, and we make a life based on what we give." --Winston Churchill

"You manage things. You lead people."
--Stephen Covey