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"Thinking Like An Economist Can Help Your Small Business" by Tim Ketchum

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If you mention Economics to the average person, memories of high school or maybe even a college course come to their mind. To the average person, Economics means big words, fancy graphs, and old books that can put even the most caffeinated individual to sleep. However, as the leader in a small business, thinking like an Economist could help your business become more efficientexperience growth, and become more competitive (even in the business environment we are in now).

 

How does one think like an Economist? You don’t need a Ph.D. or even a dusty textbook. There is something all the major past Economists have in common. It doesn’t matter if they’re Classical, Keynesian, Monetarist, or Austrian Economists. They all wanted “efficiency” in business and the economy as a whole, and they believed in “the importance of data”. If you look at your business with these two principles in mind, you may see things differently.

 

Where are the inefficiencies in your business? What could you be more efficient at? Asking yourself those two questions is thinking like an Economist. Inefficiencies come in many shapes and forms, but they all cost something. That cost could be monetary, or it could be something personal like added stress and dissatisfaction. Waste is a major inefficiency and can prevent a business from growing. Waste can be things like unusable product or bad poor time management. With waste, however, there is often an opportunity to learn or create. A great example of this is John D. Rockefeller and Standard Oil. 

 

Rockefeller founded Standard Oil in the late 1800s and turned it into one of the largest most successful businesses the world has ever seen. Rockefeller himself thought like an Economist and was determined to run his business with peak efficiency. This allowed him to have lower overhead and a cheaper product than his competitors. Rockefeller's oil refineries and its competition had many bi-products from the oil refining process. Many competitors just threw their bi-products away, but Rockefeller saw the waste as an opportunity. From the waste, he created products to sell like petroleum jelly, or as we know it today, Vaseline. Rockefeller and Vaseline are just a small example of what you can create and learn from waste. Making your business more efficient and reducing inefficiencies will help your organization become more competitive and cost-effective.

 

Knowing the importance of data and making decisions based on data is another key to thinking like an economist. Decisions may be harder than ever to make for your business or employer due to Covid-19 and its effects. There has also never been a better time to take a tactical pause and look at your business. When either government or corporate Economists are trying to figure out what's going on and make recommendations, they go to the data. Data takes the emotion out and provides a clear unbiased picture to base decisions on. 

 

One of the biggest key sources of data is your employees and customers. Asking simple questions like "how are we doing?" and “what can we do better?” can provide you with a treasure trove of inexpensive data. Not only can that data help you in your decision-making process, but it also shows that you value your customer's and employees' opinions and ideas. Now for the important part. Take the data you have collected and ask yourself what it means. When looking at your data and formulating options, remember that no one knows your business as you do. You are the expert. Sometimes the data goes against the common narrative and opinion. Don’t let this discourage you from using it. 

 

Next time you're faced with an issue or big decision, try thinking like an Economist. Use your data and strive to be more efficient. Again, thinking with these two principles in mind could help your business become more efficient, experience long term growth, and become more competitive.


Tim Ketchum is an on-call Economics and Research Specialist with Lordstone Business Advisors, Inc.  Tim introduces small business owners and managers to economic principles, research and how both can improve small businesses through planning, diversification and growth. For more information or access to free resources for readers of Upper Peninsula Business Today, please visit www.lordstoneadvisors.com

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Values = High Efficiency & Maximum Profit

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Summer is the time for road replacement and heavy equipment plays a key role. This got me thinking about the power of the Caterpillar Excavator 349F.  With 417HP, CAT states this model is "High Efficiency for Maximum Profit".  Compare this to the shovel in my backyard and you can see the amount of work that can get done with 417HP versus 1HP.


Like the CAT 349F, core values can result in high efficiency and greater profit for your business. How? 

  • Have you ever felt frustrated because your employees didn't place value on what you value?  
  • Have you ever felt discouraged because staff didn't seem to care about what you cared about?   

If so, you may have felt like you were digging alone with 1HP.  This can happen when others don't understand WHAT you value and WHY.

Contrast the above scenario with a leader who has shared their core values with staff.  Furthermore, the leader reinforces these core values at every opportunity.  They teach and coach the team around making values based decisions.  They talk about core values during daily huddles and weekly staff meetings.  They speak about their values during monthly business reviews and quarterly strategic sessions.  This type of leader is building a culture of "high efficiency with maximum profit".  They are producing 417HP from shared alignment around WHAT matters and WHY.

So make the decision today to train, teach and reinforce your values.  This will pay dividends in organizational health and financial performance.
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