THE BLOG
04/29/2014 07:17 am ET Updated Jun 29, 2014

How to Add Value by Doing Nothing

When I was a consultant, I had two guys working for me who had contrasting strengths and weaknesses. George (disguised name) was totally brilliant, a Brit with a brain the size of the planet, the ability to grasp connections that eluded everyone else - a giant of insight. He was also honest and decent, a surprisingly good listener, and clients liked him. But most people in the firm avoided him and hated working for him. The reason was that he was hard to keep up with and totally intolerant of mistakes and performance that were less than stellar. He was a hard taskmaster - not unfair, not bullying, but relentless in criticism.

Rick, an American, was a different kettle of fish. Of course he was bright, but he had a very good second-class brain. He never said anything surprising, counterintuitive, or original. But he had amazing interpersonal skills. Clients absolutely loved him, and everyone in the firm was happy working for him. He was considerate, relaxed, funny, and never asked anyone to do something that he himself was not willing to do.

Rick made more money for the firm than George. His clients gave us more work, and the staff were motivated to work long hours without complaining.

When it came time for performance reviews and deciding how much money each should get, I found it really hard. I knew in my bones that George had far greater potential and was a potentially huge asset in our business, but I also knew that, if I judged by results, Rick deserved more.

Then it suddenly struck me.

George added far more value than Rick.

But George also subtracted a lot of value.

Rick subtracted none.

On balance, Rick added more net value than George.

Once I thought about it that way, it was clear what to do. George had to be re-educated - by brute force if necessary - to deal with people like Rick did. George had to stop subtracting value. Rick could never think like George. But George could - in extremis, if his career depended on - be made to treat people like Rick did.

And so it went. Painfully, for both George and myself, he was converted to the Rick school of people management. After a real struggle for both of us, George was so converted - and then his value to the firm and career soared beyond any expectation.

It can be more important to stop subtracting value than boost adding it

My point is not about people management. George's problem could have been anything that was correctable. My point is that it helps to think about how we - all of us, each and every one, and especially you or me - subtract value.

The answer is usually humbling, unwelcome - and the route to success and happiness.

Okay, let's get personal. Think about your home life, your relationship with your spouse or significant other.

I'm sure you are doing a lot of things right. I'm not going to suggest you do more of them. What I am going to suggest is that you work out what you are doing wrong.

You probably won't know. So ask your partner.

It usually turns out, the value you subtract is both enormous and easily corrected.

It may be anything. Not turning up on time, when you have promised. Keeping him or her waiting. A needling criticism that means nothing to you but everything to them. Not taking an interest in what makes their day. Being rude - at least that is your partner's interpretation - to one of their friends. Anything.

Usually, the value you subtract seems trivial to you. It is anything but.
If you can just stop subtracting that value, your relationship and happiness will blossom.

The best way to start making money is to stop losing money

Businesses can't exist without positive profits and cash flow. Everyone's interested in them. Everyone wants to increase them. And that's usually hard.

But stop to think. Profits are one thing, but losses are another.

It is often easier to eliminate losses than to increase profits.

Because most firms that survive are profitable, this seems a stupid statement. "We are making a profit, so what are you on about?"

Well, you might be making a profit, but that is a net of profits and losses. Beneath the surface, every customer, every product, every activity, and every employee, is making a profit or a loss for you.

As my mentor Bill Bain used to say, the best way to start making money is to stop losing money.

When some associates and I took over Filofax, the personal organizer company, it was losing money and bleeding cash so much its days appeared numbered. As the new owners and management, so did ours.

But when we looked at the profitability and cash by product, we saw a remarkable x-ray.

As shown in the chart below, just 4 percent of products accounted for 92 percent of sales, 142 percent of profits, and 190% of cash. In other words, 96 percent of products were making enormous losses and sucking up the cash that the 4 percent were providing.

CHART viewable at: https://www.dropbox.com/s/xm3u5pow5an31tl/blog%2068.png

Once we knew this, we breathed easier. We cut out the great majority of products, selling off the excess stock at rock-bottom prices that nevertheless gave us cash to survive. We stopped making any more of those products, which also saved cash. We cut the costs of the vital few products, and improved their quality and appearance. We also cut their prices in line with the cost cuts. We eliminated the overhead that had been necessary for all the products that never sold.

Within three years, the volume sales of those products had quadrupled, we were back to healthy profits, and the stock price had gone from 13 to 160. Remarkable? Not really. We just stopped subtracting value. We didn't feel like heroes. We felt like idiots for not realizing earlier what was wrong. But at least we were alive.

Conclusion

I don't need to spell it out. Go figure what value you and your firm are subtracting. You will be amazed. Then save energy. Stop doing what is holding you back.