for everybody interested in Strategy
knowing about Game Theory is mandatory.
Game Theory is a mathematical approach to decision making and can help you make a lot better decisions.
Too often we think "oh it doesn't matter" or "well i don't have any influence on the outcome"
when it is simply not true. Most of the times we don't see the truth because it is covered in small distracting problems.
what math does is stripping a problem down to the essentials and helps seeing the obvious decision to make.
For starters i would recommend the TV show Numb3rs. It is one of those crime solving shows, but with the twist that a math professor is the driving force behind the team and provides the necessary evidence to solve the mysteries.
There are multiple books out there on the topic which can really help opening eyes to how often we give away advantages by not thinking through the problem on a more analytical/mathmatical level.
Wednesday, July 22, 2009
Monday, July 13, 2009
80:20
Especially Entrepreneurs start running into time constraints when trying to service all customers ion the market, but the same is true for mid size and companies and even humongous corporations.
The idea is that the more clients you can obtain the more money you will make.
Well if you think that i have to tell you that you are wrong in most cases. the truth is that the economic 80:20 rule holds true to almost all situations. It indicates that 20% of your clients will give you 80% of your profit.
The question than is why are you wasting 80% of your time with the remaining 20%???
For example assuming you are are sales person for IBM and you currently have 10 clients. The 80:20 rule indicates that your have 2 good customers that bring in the wide majority of your profits while the remaining 8 clients are essentially wasting your time.
what is the conclusion? Well I warn you it is a little bit scary but try to get rid of the 8 time wasting clients (sell them to co-workers or even competition) while focusing 80% of your time to find 1 or maybe 2 more clients like the 2 that previously made you 80% of your profit. It should not be too difficult to come up with one new client and guess what one new "good" client will make you twice as much profit as the 8 you had before while only needing an 1/8 of the time.
Try and follow that rule for a couple of month and watch your profit margin increase and your wasted time diminish.
For more information on this topic i would recommend the book: The 4 hour work week by Timothy Ferriss
The idea is that the more clients you can obtain the more money you will make.
Well if you think that i have to tell you that you are wrong in most cases. the truth is that the economic 80:20 rule holds true to almost all situations. It indicates that 20% of your clients will give you 80% of your profit.
The question than is why are you wasting 80% of your time with the remaining 20%???
For example assuming you are are sales person for IBM and you currently have 10 clients. The 80:20 rule indicates that your have 2 good customers that bring in the wide majority of your profits while the remaining 8 clients are essentially wasting your time.
what is the conclusion? Well I warn you it is a little bit scary but try to get rid of the 8 time wasting clients (sell them to co-workers or even competition) while focusing 80% of your time to find 1 or maybe 2 more clients like the 2 that previously made you 80% of your profit. It should not be too difficult to come up with one new client and guess what one new "good" client will make you twice as much profit as the 8 you had before while only needing an 1/8 of the time.
Try and follow that rule for a couple of month and watch your profit margin increase and your wasted time diminish.
For more information on this topic i would recommend the book: The 4 hour work week by Timothy Ferriss
Tuesday, July 7, 2009
Competition
Let me tell you a little bit about competition...
there is good and bad competition in perspective of the industry as a whole.
Good competition helps the industry grow and prosper,
while bad competition destroys the industry's margin and makes it unattractive.
What is considered bad competition? Well pretty much everything that is aiming
at gaining market share in the short run through price cuts that can be easily matched
by other companies in the industry. Often times company owners believe they can gain market share by giving a 5% discount for 30 days but guess what most of the time the competitor can do the same thing since the cost structure for both businesses are very similar.
Now do you believe that the challenged company will simply extend a 5% discount or will they counter your offer with a 7% discount????
This behavior will lead to spiral of destruction where competitors will try and gain market share through price cutting... who wins? the customer.. they get a great deal on the cost of the
industry margin.
For companies this means a loose-loose situation. Once they hit the price floor they will both remain with the same market share they had before the fight started.
So next time you consider cutting prices make sure you do not hurt the industry and yourself!
Rather try and find advantages that competitors can not so easily copy!
there is good and bad competition in perspective of the industry as a whole.
Good competition helps the industry grow and prosper,
while bad competition destroys the industry's margin and makes it unattractive.
What is considered bad competition? Well pretty much everything that is aiming
at gaining market share in the short run through price cuts that can be easily matched
by other companies in the industry. Often times company owners believe they can gain market share by giving a 5% discount for 30 days but guess what most of the time the competitor can do the same thing since the cost structure for both businesses are very similar.
Now do you believe that the challenged company will simply extend a 5% discount or will they counter your offer with a 7% discount????
This behavior will lead to spiral of destruction where competitors will try and gain market share through price cutting... who wins? the customer.. they get a great deal on the cost of the
industry margin.
For companies this means a loose-loose situation. Once they hit the price floor they will both remain with the same market share they had before the fight started.
So next time you consider cutting prices make sure you do not hurt the industry and yourself!
Rather try and find advantages that competitors can not so easily copy!
Friday, June 26, 2009
Microsoft & the next generation
Many exciting things going on around Microsoft....
After a long Apple TV-advertising campaign (MAC vs PC) things seem to be changing.
Taking a look Microsoft's stock performance we see that it hit rock bottom early march like many other companies.
But what is happening now? Well after the yahoo deal fell through Microsoft introduced "bing" with a huge marketing campaign and lots of expensive TV-advertising. Bing is a direct competitor of google and other search engines. It tries to differentiate itself by claiming it will help you find what you are actually looking for rather than finding everything relating to the searched word.
Also windows started talking about its next operating system "Windows 7".
This can become a very interesting year for Microsoft. Apple will release its newest operating system in the fall and the quesiton becomes will Apple continue to increase market share or will Microsoft be able to change the trend.
Currently the Microsoft stock is traded $5 below its 1 year high, but that may change very soon....
After a long Apple TV-advertising campaign (MAC vs PC) things seem to be changing.
Taking a look Microsoft's stock performance we see that it hit rock bottom early march like many other companies.
But what is happening now? Well after the yahoo deal fell through Microsoft introduced "bing" with a huge marketing campaign and lots of expensive TV-advertising. Bing is a direct competitor of google and other search engines. It tries to differentiate itself by claiming it will help you find what you are actually looking for rather than finding everything relating to the searched word.
Also windows started talking about its next operating system "Windows 7".
This can become a very interesting year for Microsoft. Apple will release its newest operating system in the fall and the quesiton becomes will Apple continue to increase market share or will Microsoft be able to change the trend.
Currently the Microsoft stock is traded $5 below its 1 year high, but that may change very soon....
Wednesday, June 24, 2009
New direction
I know, i know it's been a while, but i had a couple things going on and did not see any pressing developments i would have to inform you about...
well things changed and i am broadening my focus a little bit.
Now that the stock market rebound over 30% from its low there are many exciting things going on.
Today i wanna talk a little bit about the Dollar and its strength. Last summer it took $1.56 to buy 1 Euro. By December the dollar recouped and you would only have to pay $1.23.
Well over the last couple of month the dollar had a lot of movement. the general trend was a weakening of the dollar the low so far was $1.42/euro. At that point a Russian politician made a public announcement that he can not imagine that the dollar is loosing its status as worlds leading currency. At that point the dollar gained 5 cents on the euro.
I strongly recommend to keep an eye on these developments as the daily variations are often over 1% in either direction.
well things changed and i am broadening my focus a little bit.
Now that the stock market rebound over 30% from its low there are many exciting things going on.
Today i wanna talk a little bit about the Dollar and its strength. Last summer it took $1.56 to buy 1 Euro. By December the dollar recouped and you would only have to pay $1.23.
Well over the last couple of month the dollar had a lot of movement. the general trend was a weakening of the dollar the low so far was $1.42/euro. At that point a Russian politician made a public announcement that he can not imagine that the dollar is loosing its status as worlds leading currency. At that point the dollar gained 5 cents on the euro.
I strongly recommend to keep an eye on these developments as the daily variations are often over 1% in either direction.
Wednesday, April 22, 2009
Stabalizing Economy
So reading the Wall street Journal today i saw some very interesting facts:
First off Timothy Geithner (Treasury Secretary) said that : “Only 17 of the 182 economies followed by the IMF are expected to grow faster this year than they did last year. Some 71 — including 30 of the world’s 34 advanced economies — are expected to shrink. The collapse of world trade is will likely be the worst since the end of World War II.”
giving a pretty good idea of where the global economy is at the moment and what the results of global recession are.
Also on: http://online.wsj.com/public/page/news-economy.html
we see the projected GDP, CPI and unemployment rates for the rest of 2009.
It seems that the greatest amount of fear has past by since GDP is expected to be slightly positive in the 3rd Q of 2009 already and a a whooping 1.9% up in the 4th quarter.
Yes there are still many negative signs in the market place but it seems that the economy is expected to have made the turn around for the year is over. The fact that unemployment is continuing to grow is that it is a laggard to the economy.
Don't be fooled by continuing news of increasing unemployment... the economy is growing again
First off Timothy Geithner (Treasury Secretary) said that : “Only 17 of the 182 economies followed by the IMF are expected to grow faster this year than they did last year. Some 71 — including 30 of the world’s 34 advanced economies — are expected to shrink. The collapse of world trade is will likely be the worst since the end of World War II.”
giving a pretty good idea of where the global economy is at the moment and what the results of global recession are.
Also on: http://online.wsj.com/public/page/news-economy.html
we see the projected GDP, CPI and unemployment rates for the rest of 2009.
It seems that the greatest amount of fear has past by since GDP is expected to be slightly positive in the 3rd Q of 2009 already and a a whooping 1.9% up in the 4th quarter.
Yes there are still many negative signs in the market place but it seems that the economy is expected to have made the turn around for the year is over. The fact that unemployment is continuing to grow is that it is a laggard to the economy.
Don't be fooled by continuing news of increasing unemployment... the economy is growing again
Thursday, April 16, 2009
Random things...
Yes it has been a while since my last post, but i was quite busy traveling and did not have any critical topics to talk about....
To give a little summary of what happened over the past week:
Wall Street Journal had an article talking about a decrease in oil demand, indicating that this summer oil prices might not spike like many fear
Oil prices are also often seen as an indicator for inflation implying that inflation has not yet kicked in.
Consumer Price Index shows the same trend. the index actually decreased also implying that inflation has not yet shown itself despite the incredible government spending.
Also Yesterday taxes where due (yehaa) and all over the country a total of approximately 2000 tea parties were hold protesting the anticipated increase in taxes.
My last point for today is that the national house price decreased by 20% in the last 6 month.
What a BUYERS market... for those who can afford it!
To give a little summary of what happened over the past week:
Wall Street Journal had an article talking about a decrease in oil demand, indicating that this summer oil prices might not spike like many fear
Oil prices are also often seen as an indicator for inflation implying that inflation has not yet kicked in.
Consumer Price Index shows the same trend. the index actually decreased also implying that inflation has not yet shown itself despite the incredible government spending.
Also Yesterday taxes where due (yehaa) and all over the country a total of approximately 2000 tea parties were hold protesting the anticipated increase in taxes.
My last point for today is that the national house price decreased by 20% in the last 6 month.
What a BUYERS market... for those who can afford it!
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