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 BLOG >> January 2019

Building Redundancy [Entrepreneurship
Posted on January 29, 2019 @ 08:30:00 AM by Paul Meagher

Last friday I purchased a lawn tractor. I already have a lawn tractor so why did I buy another one? Here are some of the reasons:

  1. If one of them fails, I have a backup.
  2. On certain tasks, I can double my productivity (e.g., time to mow in the lawn/garden/vineyard/orchard).
  3. The lawn tractor is not identical to the first so offers additional versatility in performing certain tasks. The second lawn tractor has a smaller deck width (42 inches versus 52 inches) so might be better at maneuvering around lawn/garden obstacles.
  4. Last but not least, I got a good deal on it.

The point of mentioning this is to highlight the fact that there are many reasons to build redundancy into your business. That redundancy can come at a cost, not only the acquisition cost, but also the costs of maintenance and storage. Building redundancy should not be done lightly but it should definitely be a consideration when formulating a business plan that lasts beyond 1 year. Once you start experiencing breakdowns, or how long certain tasks take with one machine, or the limitations of the particular machine you purchased, the need for redundancy becomes more obvious.

Redundancy doesn't stop at just acquiring 2 machines. I buy the cheapest Stihl string trimmers I can buy because I don't want to carry around a heavy machine and these work fine for the intended purpose. When they are worked hard they run out of gas, they run out of trimmer line, and the head will wear out. If you want to keep working when these things happen it is nice to have 2 string trimmers. If you have other workers helping you, then you may have to double up on the machines for them as well, although you can also rationalize the redundacy in terms of allowing for 3 string trimmer operators with 1 backup for all the workers.

When you are engaged in a task that determines how much income you will generate, your main limitation may be that you do not have enough revenue generating machines. For example, if you have lots of berries and you want to make jam for sale, you might run into the limitation that your jam making machine can only produce J units per hour. If you had 2 jam makers, you could potentially make 2 x J units per hour. One mistake a person might make is to assume that if you keep buying jam makers your profits will keep going up accordingly. In my experience a person can only operate so many small scale jam makers at one time (2 is the current limit if you are also canning) so the longer term solution may not be to buy x more of the same units but rather to buy an industrial jam maker with a larger capacity or figure out a DIY solution.

The purpose of this blog is to highlight the importance of building redundancy into your business planning. In this age where we are supposed to be consuming less, promoting the acquisition of more is often not good advice. I am not suggesting that we double up on everything we use in our businesses, but to be judicious and decide which parts of your business would benefit from redundancy and how much. Also, in this age where we are supposed to be as operationally lean as possible it is worth pointing out that there are costs to being too operationally lean if you are ignoring the need for some necessary redundancy.

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Business Momentum [Growth
Posted on January 18, 2019 @ 10:37:00 AM by Paul Meagher

Over the last few days as the temperatures have gotten colder, I noticed that the river has become more iced over. There is a particular pattern to how ice forms on the surface of a free flowing river. Ice moves in from the sides and begins on sections of the river with gentler slopes. There is probably a positive feedback cycle as ice begets more ice. It appears that sections of the river that have the most momentum are the last to freeze.

In physics, we use the equation P = M x V to define what momentum is. Momentum P varies as a function the Mass M of the volume and the Velocity V of the volume.

When studying stream behavior it is important to study it under frigid conditions because cold has a major influence on the mass M and velocity V of water in a steam channel. For details, see the classic Determination of stream flow during the frozen season (PDF) by Burrows & Horton.

The concept of momentum gets applied to business in many ways. For the metaphor to make sense in these contexts it should behave in a manner similar to the defining equation.

To increase the momentum P in a business requires increasing the Mass, the Velocity or Both at the same time.

Businesses such as Facebook have alot of momentum. In the early days the increased momentum came more from the rate of new users joining the platform, the Velocity component V. As Facebook has matured, the momentum is coming more from the shear size of the platform, the Mass component M.

How does a business achieve momentum?

Sigmanow offers several suggestions for how to achieve momentum. I like the simple example of adding one new sales person a month to your business. Ideally, this strategy would have the effect of increasing the velocity and mass of sales on a month by month basis. It might be one of the most potent strategies for achieving high levels of momentum quickly. Of course, if you can't deliver on the orders then in the big picture the momentum of the business is alot less than order volume would suggest.

There are lots of other strategies for increasing business momentum that you can find by googling "business momentum". I'm not convinced in many instances that the suggestions would actually lead to an increase in business momentum - they seems like motivational prescriptions with no strong connection to improving business momentum.

Momentum features very prominently in day trading strategies and there are lots of metrics for measuring momentum. If you are looking for momentum metrics studying momentum indicators used in day trading might be useful. The fundamental equation for momentum for day traders looks like this:

M = V - Vx

Where V is the latest price, and Vx is the closing price x number of days ago.

Geoffrey James applies the concept of momentum to personal life and argues that it has helped him achieve business momentum as well.

In conclusion, the concept of momentum has many interesting and useful applications in nature, business and life.

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Lean Bookkeeping [Lean Startup
Posted on January 11, 2019 @ 09:02:00 AM by Paul Meagher

My main resolution this year is to become more organized. With this goal in mind, I started to sort my farm receipts for the last 4 months (Sept to Dec 2018). So far, the setup below is what works for me:

Shown here are 4 open legal folders on the couch, one folder for each of the last 4 months of 2018.

I also cut strips of paper, folded them in half, and labelled one side with a label for the type of receipt that goes there:

  • Farm Fuel
  • Truck Fuel
  • Machine Maintenance
  • Small Tools
  • CCA purchases (purchase over $500)
  • Wine Supplies
  • Planting Supplies
  • Building Supplies
  • Fencing Supplies
  • Accommodation Supplies
  • Office Supplies
  • License & Registration Fees

I don't have to create the same number of category strips for each folder, just the ones that are necessitated by the types of receipts I encounter for that month.

I initially thought I would use the 3 slot trays to sort my receipts into the proper month. After sorting receipts by month I would then sort them into the proper category. You can see a three slot tray on the coffee table and on the sofa that I was using for this purpose. It turned out there are some inefficiencies with this approach. As I was placing receipts into the proper monthly slots, I found myself not wanting to mix them together. Instead, I wanted to put frequently occurring gas receipts together in a pile separate from other receipts so I wouldn't have to sort through them again. I also noticed that small tool purchases were popular and that it would be efficient to separate them out as well. I then started examining receipts in more detail and decided that I only want to do this sorting decision once. So I stopped presorting receipts into the monthly slots and am placing them directly into the appropriate monthly folder with receipts of the same type wrapped in a strip of paper with a category label on it. There are also a few miscellaneous folders for special transactions like a land purchase, vehicle and house insurance, and utility statements.

This example illustrates a fundamental principle of Lean Bookkeeping - that you should handle receipts as few times as possible.

Receipts are like a split piece of wood. If you have a wood stove you are probably aware of all the handling that you have to do on a piece of wood before you insert it into your wood stove. Lean Woodburning involves reducing the amount of wood handling as much as you can. For example, last summer I got split fire wood for the farm from a local supplier so my wood handling began with carrying it from the back of the suppliers half ton truck into my wood shed where I piled it into rows. This is an improvement over previous years when split wood was dumped outside the front door of the shed. I had to throw or wheelbarrow wood from the pile into the shed and from there handled it again to pile it. I also didn't have the lawn damage and mess that dumping wood causes.

In previous years, I took wood to the house by carrying arm loads of wood from the wood shed to the kitchen and placing them into a wood storage box beside the stove. This year I got lazy and loaded the wood onto a Costco dolly and leave the wood laden dolly in an inclined position beside the wood stove. I'm saving myself the work of unloading the wood, the weight of carrying it, and only need to make one trip to have a good wood supply in the house. The dolly beside the stove is not winning any awards for beauty but it works for me when I'm at the farm in colder weather.

Any receipts we generate are like a piece of split wood and alot of my disorganization around receipts comes from handling them too many times. I still have to transcribe receipt amounts into a digital format so there is more handling to come and more ways to lean my bookkeeping process. It would be nice if I was sufficiently organized that I digitized my receipts right away, but it is what it is and you have to start somewhere.

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