The Broken Windows Theory Applies to Business

This Economist article on the Broken Windows Theory has been making its rounds on the blogosphere. The theory goes that the small things, left unchecked, lead the way for more serious problems. In criminology, an example is not dealing with graffiti and minor infractions giving way to people committing more serious crimes. In business, an example is not dealing with little headaches or friction that impede doing a better job leading to more complacency. I’m fan of asking the “five whys” and drilling down into the core issue. 

What are some “broken windows” in your business?

Debt is Your Friend

This one is for entrepreneurs and not consumers: debt is your friend. Too often, first time entrepreneurs think the first step to starting a business is raising money from other people or venture capitalists. My recommendation is to get the business off the ground doing whatever it takes — including using your credit cards. I used credit cards for my business eight years ago and even played the game of applying for new cards that had no interest for the first X months and transferring balances between cards in an effort to minimize the interest rate. Having tens of thousands of dollars of credit card debt, like I had, isn’t for the faint of heart, and is not recommended for most people, but it is often times the only way to get access to money.

As for banks, the truth is that most entrepreneurs will never get a loan from a traditional bank unless you have collateral for 80% of the value (e.g. stocks, bonds, real estate, accounts receivables, etc). People think banks are in the market of loaning money but they are really in the market of buying physical goods on your behalf and letting you pay them back for it. They aren’t there to fund your dreams that involve intangible assets.

My advice is to seriously consider debt whenever possible.

Jack Welch on the Four Types of Employees

My younger brother is a first year student at Harvard Business School and was recently discussing a case in class on Jack Welch’s management style. After 35 minutes of discussing the case, the professor surprised the class by having Jack Welch come in personally and answer questions. The key message by Welch was that of the four types of employees and what you should do with them:

  • High performer that buys into the corporate culture — promote and empower them as much as possible
  • Low performer that doesn’t buy into the corporate culture — fire them as quickly as possible
  • Low performer that buys into the corporate culture — give them a second chance in a different position to see if they can be an ‘A’ player
  • High performer that doesn’t buy into the corporate culture — do a public hanging where you fire them and then discuss with other managers their short comings
Of course, the last two types are the ones that provide the most difficulty for companies. I thought it was an interesting perspective from a very decorated business person.