Thursday, January 16, 2014

How entrepreneurs are misguided due to lack of Output framework

See this case of an entrepreneur, Milind.

Milind is a computer science graduate. He worked in a software industry for about 5 years. He was earning a pretty decent salary and had a job where he was moving in different countries. He was successful but unhappy with the job because he felt that there are too many 'constraints' in the job. 

So he resigned from the job to start his own unit in education. He started teaching maths and science to HSC students. That did not work. After one year, he found another idea: teaching engineering students to undertake difficult projects. This idea worked, but the idea was not sustainable because getting the job done was the primary responsibility of college professors. So colleges did not encourage outsiders to help their students. The idea was sound but did not possess easy marketing channel. Second year finished. His debts had increased over a period of 2 years. 

So he moved to selling workshops to schools after 2 years. He started working with schools on training of scientific concepts through workshops. This worked well. But he met another problem: he needed investment to make the new business model work. Debts had increased now. Milind himself is unsure of the returns of new investment. He does not know what to do. 

What would you advice Milind now?

Seeing through the lens of Enlight output framework


To succeed in life, we have to produce outputs. In an existing organisation, as we saw in the earlier case of Adi, the output system is designed by the organisation. When we work in an organisation, we have to 'fit' in the existing output system and ensure that we produce the desired performance within the 'constraints' of the system. Unable to negotiate these constraints, many individuals are tempted to think, "What if I design my own output system so that i do not face any constraints." Many entrepreneur stories are born with this desire.

As human beings, we dislike the constraints of an output system. Our dislike is understandable, but we are also ignorant of the knowledge of designing an output system. Infact, most of the budding entrepreneurs are not even aware of the concept of 'output system'. They think like Milind. They believe if they do x, y will get produced. And if y can be sold at a price higher than cost, they will earn profit. For them producing output is a very sequential process of tasks and activities.

Unfortunately, in the output system the efforts and its consequences are circular. For instance, if i teach a student better, i get new students because he talks to other students. Then new students help me to teach better. Consequences becomes the new cause in a circular system. But these relations also have time lag. If i teach a student this year in a class, i will get new students next year. Plus system is moving with irreversible time arrow. This means, that time is flowing in one direction. Until I get a new student next year, i have to 'sustain my efforts and investments' during that intervening time, so that i can take advantage of the new students next year. If Milind cannot sustain, he cannot benefit of the time cycle.

And more importantly, every system also has 'constraints'. The constraints of Milind's output systems are infact more 'deeper' and difficult to negotiate than Adi's organisational output system. For instance, Milind will find it more difficult to convince his customer than convincing his Boss. Now, if he sits back, he will appreciate that negotiating the constraints of his organisational output system was much easier than negotiating an entrepreneurial output system !

Output may not get converted to outcome - Big lesson of framework

Look at the Enlight framework diagram again. You will find that output and outcome is produced in two different systems. In an organisation, because salary is fixed, one will at least fetch some money (i.e. gain some outcome) whether one contributes reasonably to the 'output' in that month or not. But, for an entrepreneur, outcome is clearly delinked from output. Even when Milind delivers his training well to his students ( i.e he produces desired output), he may not earn enough 'money' until he finds enough number of students. Outcome is not guaranteed even after producing desired output

Until the entrepreneur aligns customer acquisition flow with delivery flow, he cannot earn money (produce outcome) from the business. This is called alignment of business model. Please check this example to understand why alignment is required to produce income. After three years of entrepreneurship, Milind is now realising that effort is not directly related with outcome. That is why he is unsure about making the new investment. Three years back, he would have invested money without blinking his eye.

Every output system has its own constraints - Another lesson of framework 

I hope you will now appreciate the art of designing output system. I hope you will also appreciate that every output system has its own constraints. You will also appreciate that an 'open system' of an entrepreneur has more constraints than a 'bounded system' in an organisation. Although starting your own unit may give you a feeling of 'constraint-free' work ( work without a boss), you are infact going into a system where constraints are even more powerful and deeper. So when a professional is leaving an organisation to start his own entrepreneurial unit, i coach him to negotiate ' larger number of constraints' !!

Infact the entrepreneur must learn the basic rule of an output system : If the constraints are more in the output system, the probability of earning money from that system increases, because systems with more constraints have less competitors. You will appreciate this only if you understand Second law of Success, which is Enlight framework.

An entrepreneur, in other words, must understand and use the Output framework even better than a corporate professional has.

If you want to become an entrepreneur, are you ready to understand the Output framework of Enlight? 

No comments:

Post a Comment