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    You can learn a lot about how people approach their careers by looking at how they approach their hobbies. Running is such an important part of my life that I have created a separate blog for it, Predawn Runner. Whether you are recreational or competitive, I welcome you to join me there in discussing how we fit running into an already-full life.

Building a Better Business Sense

By Greg | Published: February 16, 2010

In his excellent blog, All Things Workplace, Steve Roesler recently discussed Talent for the Long Run, posting this chart describing the core talents required to build a successful leadership team for the future. While many of the values are self-evident, the one that stands out as unique is “business orientation”, or as I like to call it, “business sense”.  Steve points out that he has run across many outstanding functional specialists (such as researchers, programmers, etc.) who end up providing disappointing results because they lack a “business mentality”.  I’m sure we have all run across the innovative genius or process guru who is difficult to work with because, while they are brilliant, they can’t recognize that their ideas are unviable or impractical when explored in the context of the business case.

Steve Roesler’s Graphic on Key Talents and Values for Future Business Leaders

This leads me to wonder, is business sense purely a natural talent, or can it be developed?  Even if you believe the former, I prefer to think that any skill can be built through practice and discipline (for example, you can be a competitive marathoner even if you are not a naturally gifted runner). With that in mind, here are a few suggestions on how you can improve your business sense.

Get comfortable with finance. And I don’t just mean being able to read an income statement.  Build an understanding of how your activities will impact the income statement, balance sheet, and, especially, the cash flow statement.  Get comfortable with project finance as well – how to calculate a return on investment (ROI) and the concept of the time value of money.  You can do this through formal education, self-learning online, or by hanging out with your finance team and asking questions.

Seek to understand the world around you. Global political, economic, and business news sets the environment in which you make strategic decisions; focusing on your local or entertainment news just doesn’t really help.  Sources like The Economist, The Wall Street Journal, Harvard Business Review, and McKinsey Quarterly provide you with the latest trends and thinking in the business world, and help you gain a sense for how global events impact the conditions for business decisions, such as demographic shifts, currency fluctuations, resource restraints, and regulatory trends.

Learn basic pricing theory. There is no more important variable in determining a business’s success or failure than its ability to appropriately price its products.  Getting pricing right involves understanding the concept of customer utility (in other words, the value you are providing to the customer) and how it translates into how they perceive your product.  Obviously you then need to learn how this applies to your business.  Look for future posts on this topic, but one book that I recommend for anyone involved in pricing is The Price Advantage.

Get a sense of what things cost. Obviously the other element in the margin equation is cost, and it is helpful to be able to create ballpark estimates.  You can do this by understanding the cost of common items like electronic circuits (think of what a cell phone sells for), common materials (the price of steel, plastics, etc.), basic capital equipment items (machine tools, cars, etc.) and, maybe most importantly, the cost of labor.  You can then build analogies for the elements of which you need to assess the cost. Having this capability will allow you to quickly think through the rough cost of a new product or project, helping you gain a sense of the potential profitability or ROI of an idea.

Those are the skills that occur to me when thinking of someone who possesses a good “business sense”.  Obviously, some understanding of organizational dynamics and psychology may be helpful too.  What other ideas do you have on how one can improve their business orientation?

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  • http://leadership.articleberry.com/building-future-leaders Building Future Leaders

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  • http://www.facebook.com/kevinharp Kevin Harper

    I’ve come to think that the clearest path towards achieving this goal is to create as straight of a path between the decision being discussed and the what everyone will be able to eat for dinner that night. For instance:

    “Ok, Walter. We could spend 2/3 of your development time to optimize the data model for transactions and reporting in the beta release, but then you will have to eat dinner from the Panera dumpster for the next 6 months.”

    Might sound uncivilized and unnecessary, but it is actually the only method I have ever found that actually works. There are certainly people that ‘have it’ innately, but if they don’t, nothing better than putting it into clear understandable terms. The real problem is the people that passively (or actively) choose the dumpster diving option.

    And I suppose there issue can be looked at individually (like above) and also organizationally. Organizationally, first you have to make sure you have few if any dumpster divers. Another way to build the institutional knowledge is to not be afraid of talking about the money. A more advanced version of the example above:

    “Ok, Walter. We will be selling the beta release of the product for 6 month. We sell it for $1,000 a license, and we are looking to sell 500 licenses before the next release. Optimized reporting is likely to play a role in 5% of the sales cycles and be decisive in 1%. Making the UI and transactional performance 2x better will increase the potentially customer base by 2x. What do you think you should focus your time and energy on?”

  • Greg

    Kevin,
    Thanks for your comments. I agree that the analogy approach is a good one for starters, and to get your point across. And all the better if you can get the colleague to advance their thinking to the point where they are assessing tradeoffs within the company; using financial analysis to prioritize activities or to just evaluate if an idea is anywhere near a profitable one is a key element of “business sense.”

    One argument I might make is that every company may need a few employees who are the “dumpster divers”, per your analogy – ie, if they are really that passionate about an idea, they are willing to make the sacrifices to get there. This assumes, of course, that it doesn’t drag the whole company down. A lot of good start-ups probably certainly came from those who were willing to live from the dumpster for a while in order to pursue their passion.

  • jimmatorin

    Greg:

    Your second point really resonated for me. I am really amazed how poorly informed people are because they are not taking timeout from their daily routine or either are relying too much on online content to get their information. Case in point. I could not stimulate one conversation after the recent Supreme Court ruling and its potential impact on our future business landscape.

  • Greg

    Jim,
    Thanks for your comment. It does sometimes take sacrifice to be able to expand your horizons and not just read but think about such news of importance. For example, I couldn’t tell you half the names that are expected to be on the Cleveland Indians roster for the start of the baseball season, nor name any movies that are expected to come out soon, but can certainly engage in a debate on the potential impact of China re-valuing the yuan. I’d argue that being able to do so makes me a more effective manager (unless I ran a Major League franchise). I won’t share my opinion on the Supreme Court ruling (trying not to get political) other than to comment that, in general, such events produce more noise than actual impact.

  • http://gregstrosaker.com Greg Strosaker

    Jim,
    Thanks for your comment. It does sometimes take sacrifice to be able to expand your horizons and not just read but think about such news of importance. For example, I couldn't tell you half the names that are expected to be on the Cleveland Indians roster for the start of the baseball season, nor name any movies that are expected to come out soon, but can certainly engage in a debate on the potential impact of China re-valuing the yuan. I'd argue that being able to do so makes me a more effective manager (unless I ran a Major League franchise). I won't share my opinion on the Supreme Court ruling (trying not to get political) other than to comment that, in general, such events produce more noise than actual impact.

  • jimmatorin

    Greg:

    Let me propose the following: The is the bell shape curve of Global Events. Some events do impact the future of our planet, most events statiscally fall in the middle and the rest fall in the area of insignificant. An effective manager/leader has the ability to filter through all the noise out there to find those events that will impact his or her business in the near or distant future. Let's use Toyota as an example. Major impact to the automobile industry and all those industries that support the automobile industry. It will impact the Global financial markets since investment money will come back into our country to support our own automobile industry as they scamper to fill the void Toyota has created thanks to their mistakes/mismanagement. To me as a leader in the food industry, it has minimal to no impact unless I am working on a product that would benefit inplant feeding where cars are made, thus I move on from this sound bite, like I do from the fact Tiger Woods is going public Friday. Irrelevant.

    Jim

  • http://gregstrosaker.com Greg Strosaker

    Jim,
    That's a fair enough analogy. I would argue that the curve is more skewed
    (there are a greater number of events that are less meaningful than we
    think, and a few that are way more meaningful). Your Toyota example may
    well fall on the “way more meaningful” end of the distribution because of
    the far-reaching impact of the automotive industry on local economies. But
    on the other hand, I'd argue the Supreme Court decision on election law
    would fall in the great mass of news events that have less impact than what
    reading initial press accounts would have you believe. This is obviously
    where critical thinking comes into play; the point is not to react to every
    news story out there but rather to discriminate good analysis from opinion,
    and seek multiple interpretations of events before reaching your own
    conclusions.

    Greg

  • jimmatorin

    Greg:

    Let me propose the following: The is the bell shape curve of Global Events. Some events do impact the future of our planet, most events statiscally fall in the middle and the rest fall in the area of insignificant. An effective manager/leader has the ability to filter through all the noise out there to find those events that will impact his or her business in the near or distant future. Let's use Toyota as an example. Major impact to the automobile industry and all those industries that support the automobile industry. It will impact the Global financial markets since investment money will come back into our country to support our own automobile industry as they scamper to fill the void Toyota has created thanks to their mistakes/mismanagement. To me as a leader in the food industry, it has minimal to no impact unless I am working on a product that would benefit inplant feeding where cars are made, thus I move on from this sound bite, like I do from the fact Tiger Woods is going public Friday. Irrelevant.

    Jim

  • http://gregstrosaker.com Greg Strosaker

    Jim,
    That's a fair enough analogy. I would argue that the curve is more skewed
    (there are a greater number of events that are less meaningful than we
    think, and a few that are way more meaningful). Your Toyota example may
    well fall on the “way more meaningful” end of the distribution because of
    the far-reaching impact of the automotive industry on local economies. But
    on the other hand, I'd argue the Supreme Court decision on election law
    would fall in the great mass of news events that have less impact than what
    reading initial press accounts would have you believe. This is obviously
    where critical thinking comes into play; the point is not to react to every
    news story out there but rather to discriminate good analysis from opinion,
    and seek multiple interpretations of events before reaching your own
    conclusions.

    Greg

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