The Most Important Number That CEOs Rarely Measure, Why ‘Jobs To Be Done’ is Timeless & Regret Minimisation Framework
30 April 2023 Newsletter
“Someone once told me the definition of Hell: The last day you have on earth, the person you became will meet the person you could have become.”
Hope you’re Thriving!
It’s been a productive week, with several meetings and a two-day strategy workshop. My car was in the repair shop, so I rented a Tesla, which was much better to drive than I anticipated.
Let’s get it started!
Jeff Bezos’ Regret Minimisation Framework
This week I came across an interesting article about Jeff Bezos’ framework that he uses to make decisions.
When faced with a hard decision, he simply asks the question, “At the end of my life, will I regret not having done this?” If the answer is no, it’s probably not worth doing. But if the answer is yes, or even “maybe,” then there’s your answer.
This can be used across three core areas of your life.
In business, it’s never the “in the weeds” decisions that make the difference. It’s the moments when you must either make a hard left or take a hard right.
This “Regret Minimization” framework can be a helpful way of taking the emotion out of the equation for a second to see things a bit more distantly. It’s an opportunity to step into the mental space required to make the right long-term decisions. One where things aren’t as “charged.”
How do you know you’re moving in “the right direction?”.
“Is this a speed bump, or a larger growing trend? Is there an abundance of opportunity? Or will this never work the way you want it to?”.
When you seek to minimize your regrets, the answers tend to reveal themselves.
Read the article here: Jeff Bezos uses a simple framework for making big decisions. Here’s how it works
Jobs to be Done
Although this HBR article was written in 2016, I find myself using the term “Jobs to be Done” many times each day now.
And that’s the power of a timeless concept, rather than a “flash in the pan” or “hack”. Some things stand the test of time.
Why? Because this concept outlines “what the customer hopes to accomplish” by using your product or service.
From the article:
“The fundamental problem is, most of the masses of customer data companies create is structured to show correlations: This customer looks like that one, or 68% of customers say they prefer version A to version B. While it’s exciting to find patterns in the numbers, they don’t mean that one thing actually caused another. And though it’s no surprise that correlation isn’t causality, we suspect that most managers have grown comfortable basing decisions on correlations.
We all have many jobs to be done in our lives. Some are little(pass the time while waiting in line); some are big (find a more fulfilling career). Some surface unpredictably (dress for an out-of-town business meeting after the airline lost my suitcase); some regularly (pack a healthful lunch for my daughter to take to school).When we buy a product, we essentially “hire” it to help us do a job. If it does the job well, the next time we’re confronted with the same job, we tend to hire that product again. And if it does a crummy job, we “fire” it and look for an alternative. (We’re using the word “product” here as shorthand for any solution that companies can sell; of course, the full set of “candidates” we consider hiring can often go well beyond just offerings from companies.)”
I’ve used the “Jobs to be Done” concept for many years now, and I’m sure you’ll gain value from this article.
Read the article here: Know Your Customers’ “Jobs to Be Done”
The Most Important Number That CEOs Rarely Measure
In my book Made to Thrive, section 5.4 prescribes that all decisions on new opportunities are evaluated against documented criteria.
This speaks to the importance of investment decisions. In this week’s podcast, Kevin and I discuss the most important number CEOs rarely measure: Return On Invested Capital (ROIC) – more on that below.
In our podcast, we discuss the book The Outsiders by William N. Thorndike. I like this book a lot because it focuses on this KPI as the primary measure of a CEO and their efficacy. It also tracks unconventional CEOs who focused their energies on making the right investment decisions.
Here are four key takeaways:
- The press focuses too much on a company’s growth in revenue and profits
- The correct measure of CEO success should be the increase in a company’s per-share value, especially as compared to peers in the market
- Capital allocation is a CEO’s most important job
- Cash flow determines long-term value
In order to understand the principles within the book, we first must understand the author’s definition of investing, which is the process of deciding how to deploy the firm’s resources to earn the best possible return for shareholders.
This means that CEOs have to do two things:
1. Run the business well enough to generate cash
2. Deploy said profits, aka capital allocation
Warren Buffet states that very few CEOs are prepared to invest in their business.
“The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering, administration, or sometimes, institutional politics. Once they become CEOs, they must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered. To stretch the point, it’s as if the final step for a highly talented musician was not to perform at Carnegie Hall, but instead, to be named Chairman of the Federal Reserve.”
Berkshire Hathaway annual reports, 1987
CEOs have three options to raise capital: internal cash flow, issuing debt, and raising equity.
There are then five choices for investing:
1. Investing in existing operations
2. Acquiring other businesses
3. Issuing dividends
4. Paying down debt
5. Repurchasing stock
When you’re claiming to be a tech leader, but others think you might not be
This Week on The Growth Whisperers Podcast
159 The most important number that CEOs rarely measure
What if the most important number and predictor of long-term success was also a number that you didn’t measure or even manage decisions based on it?
Unfortunately, it’s a situation that is quite common today.
The accumulation of many seemingly small (and large) investment decisions that leaders make leads to the primary measure of a CEO – return on invested capital.
How much capital has been invested in your business, and what’s the return on that? Some of the most successful CEOs of all time have been primarily guided by this measure.
Ensuring that these decisions are well-considered and actually create high-impact results is where leaders should focus.
Listen to The Growth Whisperers
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