What will happen when we choose a wrong Creature
- Dithanon Khrutmuang
- Dec 11, 2024
- 14 min read
Updated: Sep 3
Have you ever had an idol in your heart? I'd like to digress from the business world for a moment. Suppose you are a soccer player and want to mimic Cristiano Ronaldo's playing style during his peak form in 2018, when he was at the top of his game. You try everything to imitate him, like playing as a forward or a winger. You also attempt to copy his running style and speed, as well as using a strong physique to play headers. But in reality, your body is not suited at all to mimic Cristiano Ronaldo.
Suppose you're a player who isn't tall, your body isn't strong, and there's no way you can run as fast as Cristiano Ronaldo. However, you have expertise and talent in dribbling, passing, and shooting with precision. If what you have is nothing like the person you want to emulate, how can you imitate them?
You should emulate Lionel Messi, who uses his agility as a strength, benefiting from his smaller stature, and his football playing style that relies more on technique than physicality to gain an advantage in football matches.
Get back to your business. I don't know what business you are in, who your customers are, the size of your business, the profit, and how much you have invested. But just like trying to imitate your favorite footballer, you should understand that you can never be like Steve Jobs unless you are in the technology sector and have a significant budget for innovation.
What you should do as a business owner or leader is to focus on what is most important and necessary for your organization by choosing a business model that suits your business.
This business model acts as an indicator of your business's health, to ensure you don't get lost chasing after other successful business models that you see, but which your business can never come close to matching, at least not today. Remember, you can't be Cristiano Ronaldo unless you are Cristiano Ronaldo.
Even I started my first business by opening a small resort in Khao Kho, a mountainous area in the northern part of Thailand. In the tourist area of Khao Kho, there were already large resorts as competitors. If I had started my business by imitating those large resorts, I would not have been able to afford the massive investment. I chose to run a business that needed to be profitable for the survival of the business, investing in things that gave my small resort a competitive edge that the large resorts couldn't match in my game. Just like the large resorts are Cristiano Ronaldo, but I invited Cristiano Ronaldo to play basketball, a game my small resort is much better at playing.
The competitive advantage or disadvantage in business depends on what game you choose to play. If you go into a game that you're not good at, I bet you're losing before you even start.
Table of Content
Step 1: Choose the right mythical creature for your business.
Set business goals and realistically assess your business status. In the previous chapter, I discussed mythical creatures like dinosaurs, unicorns, and camels. These creatures represent businesses that have correctly chosen to play the game in their own way according to their status and the right timing.
Unicorns represent companies that integrate technology, data, and AI into their business to make precise business decisions, or what is called Predictive Business. Unicorns can take greater business risks, accelerate growth due to having a vast investment budget, but this comes with risks.
Camels represent companies focused on using data technology and AI to create Predictive Business, not unlike unicorns. However, due to limited investment budgets, investment decisions need to be sharper, and every investment must significantly impact one aspect, profitability, in the 3 main business pillars.
Dinosaurs, even though dinosaurs represent traditional or Old School Business with high investment budgets full of risks and neglect the use of data technology and AI, I firmly believe that progressive business owners wouldn't want to be stuck in outdated business practices. Just imagine doing business 20 years ago, around 2004. Not even considering AI, the internet wasn't as fast as today. Forget about technology; just having data recorded in an Excel file on a computer was considered excellent. However, today, at this moment, if business owners still choose to ride dinosaurs because they believe it worked in the past, they might not have a place in the future business world. Every business in every industry that wants to gain a competitive edge needs to make decisions based on data and have AI as an assistant to move your business forward.
You will see that choosing the right magical creature according to status and the right time is a priority for any owner or business leader.
Next, we will find the answer through the magical creature model by comparing it with the indicators of the three main business pillars, which will help you not to lose your way in choosing the wrong magical creature.
3 Business Pillars
Profitability (P)
Customer Satisfaction (C)
Business Growth (G)
In the previous chapter, you will have seen how each type of magical creature affects different business capabilities. We will delve into each of the 3 main business aspects (3 business pillars) and what they mean.
P - Profitability
It means more than just the ability to make a profit; it also includes Cash Flow. The reason my book combines Profitability + Cash Flow into one is that these two aspects are the ability to keep your company afloat. Without aspect 1, small companies will fail first, and larger companies or those with more investment may fail slower, but sooner or later, every company will fall if it lacks the ability to make a profit P (Profitability) and Cash Flow. Note that from here on, I will use the term Profitability to mean Profitability including Cash Flow, to keep it short and easy to understand. Even though the meaning of Profit is not the same as Cash Flow, the two are inseparable.
In financial accounting, there are several figures related to the ability to make a profit. Financial analysts should use every indicator to measure the health of a business. But these three main key indicators I often use to measure profitability, P (Profitability), are:
Return on Investment (ROI) measures the ability to generate profit relative to the investment budget, or it measures how good the profit rate is. This figure indicates whether your business can survive in the long term. The formula is (Profit/Cost of Investment)*100%.
Quick Ratio is used to check Cash Flow. It measures whether your business can survive in the short term. The formula is (current assets - inventory)/current liabilities. In simple terms, it checks whether you have enough cash on hand to pay your employees' salaries for several more months.
Gross Profit or Operating Margin measures how efficient your business is within the industry you are in. The formulas are Gross Profit Margin = gross profit/revenue, Operating Margin = operating profit (EBIT)/revenue. A high number in this indicator means you can manage costs well or sell products at a much higher price than the cost.
The method for calculating the Profitability (P) score, which ranges from 1 to 100 points, is based on an assessment of your actual financial statistics. A score of 100 represents perfection in achieving the goals your business can realistically attain, while a score of 1 indicates that your business has failed. We will take at least three main financial accounting indicators, measured in ratios or percentages, and assign each a weight according to its importance. Then we combine them to total 100%.
The reason I ask you to combine these indicators and assign different weights is because there are many financial accounting figures. If you calculate some figures to be very good, but they are of little significance to your business, you should weight them less than other more important indicators. Once you have a clear Profitability (P) score, you won't lose track of this crucial number, just as if you had money deposited in several bank accounts. It's easier to know the total amount of money you have if it's all in one place.
Dithanon's Business Insight
I allocate the weights of the scores as follows: ROI 45%, Quick Ratio 35%, Gross Profit Margin 10%, and Operating Margin 10%, with a total score of 100%. The first step is to set your performance targets. For example, my business aims for an ROI of 24%. If my business achieves this, it will score a full 100 points in this category. However, if the ROI is less than the target, the score will be less than 100 points. I use a deduction method. Then, calculate the scores for each performance indicator based on the above weight percentages. This will result in the P (Profitability) score, which is one of the three business pillars.
It's not necessary for your business to use the same metrics as mine, but you should explore which metrics are most sensitive to your business or company in Financial Accounting. For example, if your business is a large company with a significant investment budget, you don't need to worry about the Quick Ratio. You should focus more on the Return on Investment (ROI) or Operating Margin. Conversely, a smaller company would be more sensitive to the Quick Ratio than other metrics.
For Example, small businesses have a high ROI and a moderate Gross Profit but a very low Quick Ratio. This indicates that the business has a worthwhile long-term investment but may have over-invested to the point of a cash flow crisis. These two aspects must be evaluated together, balancing long-term profitability and short-term survival. Therefore, in terms of the ability to generate profit in the three business pillars, this business should be scored less than 20 out of a full 100 points if the company prioritizes survival over the results of long-term investments. On the other hand, large companies can find ways to raise additional investment or other financial methods to increase the Quick Ratio at any time. Therefore, they could be scored more than 50 points because they are satisfied with the high ROI.
The approach to developing the P (Profitability) score, rather than large companies focusing on developing the Quick Ratio first, can be adjusted by enhancing Cash Flow through the aforementioned methods. Companies might instead prioritize improving their Gross Profit or Operating Margin from a moderate level to a higher one. This is to enhance their business efficiency and outperform competitors in the same industry over the long term. In fact, there's another tactic that large companies, such as unicorns or behemoths, can employ to immediately undermine their competitors. This involves lowering their own P (Profitability) score, for example, by reducing prices, offering strong promotions, and increasing advertising spending. This impacts the reduction of ROI, Quick Ratio, and Gross Profit to boost the second aspect, C (Customer Satisfaction), and the third aspect, G (Business Growth), of the 3 business pillars.
There are many more financial accounting figures, such as Asset Turnover, EBIT Margin, etc., that relate to your company's survival, but this book does not delve deeply into financial accounting. You can learn more about what these numbers truly mean by reading "Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean" by Karen Berman and Joe Knight.
C - Customer Satisfaction
Customers are the ones who keep the business going because they support your business by paying for your services, which in turn generates revenue and profit. Customer satisfaction is therefore related to Aspect 1 : P (Profitability) in terms of revenue and profit.
However, high customer satisfaction does not always mean high profitability, as I mentioned in the previous chapter with the example of running a business like a unicorn, focusing on creating products or services that change consumer behavior, such as Uber or Grab, which have transformed the way we satisfy our hunger. Instead of physically going to a restaurant when we're hungry, we can now order food through an app. Uber or Grab chose to prioritize customer satisfaction first before focusing on profitability. This approach is correct for Uber or Grab, which have significant investment budgets and are correct at a time when they want to attract both customers and restaurants to their platform. However, this is a serious mistake for businesses that want to imitate if they lack a significant investment budget.
But regardless, maintaining old customers in your business and attracting new ones remains crucial. I have a tip for you to gather information from both inside and outside your business. For example, the results obtained from collecting survey data or conducting focus groups, combined with processing through social media and your business website, can provide a clear analysis of whether customers still love your products or services. All these questions require answers.
How can you ensure that your products or services are still in demand, especially among the target customers in your business?
Do you want customers to stay with your brand for a long time? You just need to know why customers are distancing themselves and find ways to prevent customer churn. Predictive Business can provide you with answers to this issue.
Dithanon's Business Insight
I use Customer Retention and Customer Satisfaction compared to Price as two key indicators in assessing Customer Satisfaction.
Especially, Customer Satisfaction compared to Price, I give a weight of about 70% to this aspect because measuring whether customers are happy with the price aligns with their expectations of the product or service that the business delivers to them. Indeed, if we set a low price compared to what we offer to customers, most customers tend to be happy, but it comes at the cost of reducing the score for Profitability in aspect one. Conversely, setting a price higher than the value we deliver to customers might result in higher profits, but customers may find it too expensive and end up spreading the word that our product or service is good, but pricey.
Therefore, it is crucial for owners or business leaders to decide which strategy to adopt that will have the best overall impact and the least negative consequences. I recommend that you quickly find your own business's Predictive Business.
Hint : Predictive Business comes from data science and business analytics.
G - Business Growth
This perspective measures how much the business expands its products or services to additional customer segments. We will create metrics to measure whether your business should grow in a quality manner, not just by investing in PR or marketing. You need to know that every penny you invest will truly contribute to the growth of your business. This will align with Pillar 1, Profitability. You must ensure that expanding your business, such as opening new branches or selling franchises, will affect Profitability, in the future. Even if this investment negatively impacts the ROI, Quick Ratio, and Gross Profit or Operating Income Margin, if it can increase sales opportunities, enhance credibility, improve service quality (which also positively affects C - Customer Satisfaction, Pillar 2), and prevent competitors from taking market share, Pillar 3, Business Growth, is equally important. However, as I mentioned before you develop Pillar 3, Business Growth, don't forget to also consider Pillar 1, Profitability, alongside it.
Dithanon's Business Insight
My business uses Market Share Expansion, compared to the industry we are in, with a weighting of 30%, Scalability in expanding our customer base also at 30%, and particularly in its infrastructure and human resources, which I consider a critical factor, weighted at 40%, making a total of 100%. My business adjusts these weights up or down depending on economic conditions. For instance, during the Covid-19 outbreak, I reduced the weight for infrastructure and human resources to 20% because it was a time when my business had to tighten its belt and reduce the budget for hiring to survive, while I increased the weight for Market Share Expansion to 50%. Despite the adverse conditions, my business should still be able to compete with others in the same industry.
What happens when we imitate the Behemoth companies you idolize?
You'll see that Cristiano Ronaldo represents a behemoth. Imagine, worse yet, you're not born as Lionel Messi, but you end up playing the same football game that you're not good at. What happens when you mimic a behemoth to increase your business growth exponentially, aiming for a tenfold increase within a few years? For instance, if you want to emulate Nvidia in 2024, which has created the Blackwell GPU for AI, GeForce Graphics Cards for computers, games, and much more, and is now venturing into creating its own AI to compete with ChatGPT, I predict that just by stepping in to imitate and directly compete with Nvidia, your business will definitely not stand a chance unless you have a larger investment budget than Nvidia.
Because if you insist on growing quickly and enhancing your growth capabilities like Nvidia, but your funding sources are not ready or do not align with your profitability, instead of gracefully riding a unicorn, you will end up riding a hyena, an animal that is not special and scavenges indiscriminately, even feeding on the remains left by lions. This hyena represents the struggle of running a business with a lack of the first aspect, profitability (P), leading to a deficiency in the ability to develop the other two remaining business aspects: customer satisfaction (C) and growth capability (G).
What you should do more is to see Nvidia as a strong, admirable company or a maical creature. At the same time, consider your own business. If you really want to engage in AI, you should choose strategies to gain a competitive edge as described in the book "Smart Rivals: How Innovative Companies Play Games That Tech Giants Can't Win" by Feng Zhu and Bonnie Yining Cao.
Method 1 : Grow your own ecosystem. Try to find out what your business can offer that Nvidia cannot. This could be providing specialized advice based on your target customer group. Then, invest in areas that will help you grow, acquire your own customers, make a profit, and be in a situation where you are not competing with Nvidia.
Method 2 : Manage Frenemies. Collaborate with Nvidia to grow your business alongside Nvidia, such as partnering with Nvidia to create new products or services.
Method 3 : Amplify your strengths. If you want to compete with Nvidia, choose to leverage your business's strengths against Nvidia. Avoid pitting your business's weaknesses against Nvidia.
For example, your business might produce AI goods or services with a gross profit margin that you're satisfied with, and offer them to a niche market at a more affordable price. Even if your AI products can't compete with Nvidia in terms of performance, you should leverage your business's strengths to identify your specific customer base, without having to invest in anything extra that would diminish your strengths.
Dithanon's Business Insight
Not every company can achieve a high gross profit margin. Take, for example, one of my own businesses, Belly Thailand, which sells resort tents. To produce tents with a high gross profit margin, it's necessary to manufacture a large quantity from a supplier, which is a production factory, in order to get a lower cost price. Yes, that's beneficial for increasing profit per unit, but it's definitely not good if you produce tents beyond customer demand. If you are a small to medium-sized company like me, choosing to produce just enough to meet demand and delivering directly to your target customers using data analysis is a way to mitigate risk for both my business and yours. This makes my business safer and more likely to survive in the long run than just focusing on increasing the gross profit margin alone.
Therefore, choosing investments based on the status of your business is as crucial as selecting a mythical creature. If you choose correctly, it's like buttoning the first button correctly, which positively affects long-term business development. However, if you choose the wrong mythical creature, the way you proceed in business will also be wrong, like wanting to choose a Unicorn for rapid growth but ending up choosing a Hyena instead.
In the next section, we will look at why a Camel is more suitable for small to medium-sized businesses than a Unicorn.
What you should apply to your business at the end of this chapter
Identify at least three financial accounting metrics that align most closely with your business.
Do you have a favorite company or founder, including a CEO, in mind? If so, do you think you can emulate them? Why?
Try to rate the ability to make a profit (Profitability), customer satisfaction (Customer Satisfaction), and the ability to grow (Business Growth).
Does your business ever operate in a Hyena mode, choosing to invest in growth aggressively but not in line with profitability?
This article was written by myself, Dithanon Khrutmuang, founder of Power Ladder, not AI. Although in reality, AI could describe its own capabilities.
OR Schedule a consultation with us to find the right way to use Data and AI for your business, both in terms of enhancing efficiency, mitigating risk, and reducing long-term costs for your business starting today.
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