Business Innovation Group

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The Abundance of Opportunities

Opportunities are all around us every day.  Businesses, large or small, were not created by God in the garden of Eden, and just existed here as they are now, ever since.  Each one of them has a life; a beginning and an end.  Yes, even the big ones.  And they all started by somebody having an idea and thinking about the numbers and working it, to make a go of it.

It is very common for people to try many things.  Many famous people tried many things which did not work out, before they tried something that worked, and they became famous for the things that worked, not thought of as a failure for the things that didn’t work.

One of the best pieces of advice I can give you is to keep scheming; keep thinking; give it a try.  Find someone, or a small group, to work together with.  If it doesn’t work out, you learn and try again, and have new stories to tell.

But don’t be stupid.  Don’t throw your whole life’s savings into something.  Do the numbers.  Be smart; be optimistic, but smart, all along the way.  Keep your options open.  Options are a good thing.  Be flexible; don’t define yourself too tightly into one business or trade.  Try to have multiple streams of income, from very different sources.  You might call this a “robust” set of income sources.  Be conservative with your money.  Spend money on things which will grow in value.  Cars don’t.  Boats don’t.  You get what I mean.  Creating is infinitely more fun that consuming.

Every day is a new opportunity to smile about all you learned yesterday, and to start again looking at the world and seeing what others do not see.  That’s what entrepreneurs do.

Margin and Volume

I know this is basic, but I love entrepreneurs, and this just seems to be something so many people miss.  Let me give two examples.

  1. A gal thinks about how much markup (profit margin) there is in auto parts.  So she opens an auto parts store.  She is dreaming about buying a part for 10$ and selling it for 15$; 50% return of investment!  Can’t get that at a bank!  But she just can’t seem to sell enough parts to scratch up enough money to pay for the building, the utilities, and yes, more parts!  She has good margins, but the volume is too low.
  2. A guy thinks about how many mowing lawns, and he gets more customers than he can possibly get around to, so he is thinking about that money he will get for every lawn.  But after gas money, keeping his lawnmower fixed, and other expenses he realizes that he’s just not making any money; even though he is mowing a lot of lawns.  He has high volume, but the profit margin is too low.

So, please, you entrepreneurs out there, when you are thinking about a business, please estimate all your expenses, and please estimate both your margins and your volumes, and make sure you are going to generate enough actual $$ to make a go of it.

I don’t have space here, but don’t forget about tax laws about losses, and about the possible tax benefits of doing something you really enjoy, as a business.  Those factors could tip the scale for you.

Get out there and “entrepreneur something”!  But do a little math before you get started!

“Business Value”

The fundamental nature of business is the exchange of value.  One kid has a toy truck and the other kid has a water gun, and they trade.  One guy has money and the service station has gas, so he gives them money in exchange for gas.  And it goes on and on.

It is interesting the thing about money.  Before we used it, people would have food, livestock, etc.  It was easy to see how much someone had, because it was all visible stuff!  Now, you can look at a group of people and have no idea how wealthy they really are.

It is also interesting that value is in the eyes of the buyer.  Some people think that if their organization delivers exactly what the customer asks for everything will be great.  Wrong.  Leading companies create value; they create products and services which customers never thought about, but when they see it, they have to spend their money on it!  That is innovation.  Creation.  Creating value.  Creating products and services people want to buy, whether they ever thought of it or not.

Don’t just benchmark other companies.  “World Class” companies are pretty common these days.


What is DFSS – Design for Six Sigma?

After companies had done well with Six Sigma for a few years, they saw that what was holding the back in terms of quality and cost was the design of products.  So DFSS was developed.  It is basically a toolset and methodology for designing new products and services to maximize quality and minimize cost.  It uses quite a bit of software to do things like model the product’s performance characteristics, perform statistical tolerance generation, and other cool stuff.  It was the big second wave of Six Sigma related stuff.

What is a “sigma” and why is there 6 of them?

Great question.  My question is why so many people never ask!  It would drive me crazy until I knew!  Anyway…  A sigma is referring to the statistical concept of a standard deviation.  The standard deviation is usually represented by the Greek letter sigma.  The standard deviation tells us now much variation is in a process.  For example, if you made baseballs, and if you could weigh them accurately enough, you would see that each one weighs a little different.  Hopefully they are all within the specifications set forth by MLB, or whoever.

When products are very consistent with very little variation, they don’t cause much trouble.  If we made baseballs and they had a lot of variation in their weight, it would be a problem, especially for the pitcher and probably the batter too!  So low variation is good.  So small standard deviations are good.

Because of some statistical properties of groups of data (“distributions”), we can count how many standard deviations can fit between the average and the upper specification of lower specification.  The more the better.  If we can only fit 3, we have a 3 sigma process, and are going to make a lot of defects.  As the sigma level gets higher, it means we are getting more consistent, and making very few defects.  When we get to 6 sigma, we only have about 3 to 4 defect out of every million things we make.  That’s a very high quality level.  Often times it also means less scrap and rework at the factory.  So, many times we can make the quality better, and save costs at the same time.  Pretty cool, isn’t it?

So why not go higher than 6?  At times we do, like in airline safety, nuclear reactors, etc.  But for many products, to get much past 6 sigma, you have to start spending more money, so the cool thing about saving money doesn’t work so well.  And most companies find 6 sigma to be a tough enough goal by itself!

Six Sigma has also become a program, a workflow, a toolset, and may have other meanings to various organizations.  In general, it is a methodology to help companies do their stuff Better, Faster, Safer, Lower Cost, and less Environmental Impact.  That’s why so many companies are into it.

What is PEM?

PEM means Psychological and Emotional Methods, referring to methods of creativity / invention / problem solving.  In contrast to TRIZ, PEM uses techniques such as brainstorming, forced analogy, and many other tools.  When people are thinking about wacky methods of being more creative, they usually are thinking about one of the PEM tools.

We (BIG) feel, with all due respect to Altshuller (TRIZ guy), that PEM does in fact have a place in creativity and invention.  We have applied it quite successfully, in conjunction with TRIZ, especially in the early stages of ideation.

PEM tools work well in a team environment where people can have fun.  Kinda sounds like us, doesn’t it!

What is TRIZ?

TRIZ is a Russian acronym:  теория решения изобретательских задач, or transliterated as: teoriya resheniya izobretatelskikh zadatch.  It generally is translated as the Theory of Inventive Problem Solving.  So, at times it has been called TIPS.  But this makes it sound like just a bunch of suggestions, so real TRIZ people don’t like that name.  By the way, it sounds like “trees”.  Not like “tris”.

TRIZ was mostly developed by Genrich Altshuller during the mid-late 1900’s.  The goal of TRIZ is make invention more of a science; more of a process.  In fact, Altshuller developed what is called ARIZ, which is an algorithm for inventive problem solving!

Quite a lot of the core of TRIZ is around solving contradictions.  Altshuller generally considered tools like brainstorming to be too divergent, and a waste of time.  He wanted to get down to the solution fast, and reliably!

Some of the body of knowledge of TRIZ is not used so much.  However, some of it is fundamental solving contradictions.

Altshuller also had an interesting life.  I would recommend one his early books titled, “And Suddenly the Inventor Appeared”.

Check these cool DFSS tools out!

If you haven’t done so already, you really need to check on these cool tools.  The first one is called Parameter Design, and is like Robust Design on steroids!  It helps you take a multi-input / multi-output model and find which of many possible good input setting combinations gives really good output results even when the inputs vary according to their statistical distributions!  No kidding!

And right behind it is Statistical Tolerance Allocation.  Big bucks are wasted in many designs because of poor tolerance design for parts and components.  This tool helps to see how changing the tolerance of inputs can affect the change in the output metrics, such as defects per million, etc.

You probably don’t want to “try this at home” unless you enjoy doing many partial derivatives and maybe Taylor series expansions, and maybe a few eigenvalues here and there (I love this stuff!).  But I would recommend software.  Push a button or two and you’ve completed a few million simulations!  Cool stuff.  I really like QuantumXL from Sigmazone.

I feel like I need a cape and mask…


It’s all so simple…

It is always amazing to me how many problems we can solve with basic Lean tools, such as:

  • Value, Flow, Pull
  • Ideal State
  • Standard (7 or 8) Wastes
  • Theory of Constraints

First understand the purpose of the process, “Value”.  Then envision the magical perfect world, where it happens instantaneously and perfectly, “Ideal State”.  Then envision what is keeping it from flowing that easily, “Flow”, by thinking about standard wastes and the constraint.  Then think about how the value is pulled by the customer of the process, “Pull”.

You’ll have an instant list of projects to work on!

And when you get those done, you can do it again.  It is a never-ending journey.

Breakthrough improvement is just too easy sometimes!

Innocent or Guilty

I hope you realize that’s not how courts work.  Seriously.  In most developed countries, you are given the presumption of innocence.  That is, you are assumed to be not guilty unless the prosecution can prove beyond reasonable doubt that you are guilty.  The burden of proof is on the prosecution.  You never really prove innocence.

Statistical testing works the same way really.  We have a default assumption we call the null hypothesis (“not guilty”) and we collect data to see if we can prove the alternative hypothesis (“guilty”).

For example, if we are doing an experiment, and seeing if a factor is significant, the null hypothesis, or default assumption, is that the factor is not significant.  We assume this, unless the data shows that the factor really is significant.  How to do we determine this?  By the p-value.  The p-value is affected by the experimental noise, the number of samples we collect, and how much of change the factor seems to make on the output.

So what if we want to prove beyond a reasonable doubt that a factor is NOT significant?  This has to do with the statistical notion of “power”.  We will deal with that in a separate blog.  But for now, as you might guess, it has a lot to do with sample size and experimental noise.  And “noise” has to do with variation reduction in your process.

So as the old guy said, “turn that noise down!”