The ABCDE Method, Industrial Product Management, and Accounts Receivable

The ABCDE Method, A Time-Tested Technique for Prioritizing Your Life [2 m]

Ever felt like you're drowning in a sea of tasks, unable to discern what truly matters? After my last email, I continued reading Brian Tracy's work. Following the Mindstorming method, let's look at the ABCDE Method for prioritizing tasks.

So, what's the deal with these five letters? Let's break it down.

• A Tasks: These are your 'must-dos,' the non-negotiables. It falls under this category if you've got a project deadline or a critical meeting.

• B Tasks: Important but not urgent. These are the tasks you should do but won't cause a crisis if left undone for a day or two.

• C Tasks: Nice to do but not essential. Think of these as the 'cherry on top' tasks.

• D Tasks: Delegate. If someone else can do it, hand it over.

• E Tasks: Eliminate. If it doesn't serve you or your goals, it's time to cut it loose.

You might be thinking, "Great, another to-do list." But hold on; this is not just another list; it's a roadmap for your life. The genius lies in its simplicity. By categorizing your tasks, you're not just organizing; you're making conscious choices about where to invest your time and energy.

Why is this so groundbreaking? Because it forces you to confront the uncomfortable truth: not all tasks are equal. You must dig deep and ask yourself, "What truly matters?" The A tasks are your gold mines, the stepping stones to your dreams. And the E tasks? They're the distractions pulling you away from your path.

The ABCDE Method is not just about getting things done; it's about getting the right things done. It's about breaking free from the shackles of endless to-dos and focusing on what will genuinely move the needle in your life.

And here's the kicker: Brian Tracy emphasizes discipline. Start with your A1 task and continue until it's done. This is where your willpower kicks in. It's about not just identifying your priorities but also acting on them.

So, are you ready to redefine your priorities and take control of your life? Grab a pen and paper, and start with the ABCDE Method. Trust me, once you start, you'll wonder how you managed without it.

Resource Prioritization in Product Development [5 min]

TL;DR

• You must prioritize your product development; you have limited resources and cannot do everything simultaneously.

• You must analyze sales and EBITDA per product and correlate the findings with your corporate strategy.

• Based on the above analysis, you should prioritize the product development pipeline for R&D

Industrial product development is tricky – everyone is fighting for resources. Mistakes in R&D and product management can land your business in massive distress. Here is how.

I once worked with this company (let’s call it XYZ) with an extensive industrial product portfolio. The business model was relatively standard (I call it a SEMIS business – Strategy, Engineering, Manufacturing, Installation, and Service):

1. Strategy would continuously analyze the market and competitors and develop proposals for new product introductions or how to upgrade existing products.

2. Engineering would develop products based on requirements from the strategy team.

3. Manufacturing would produce these new or upgraded products.

4. Then, everything would be sold to different markets. Installation and Commissioning were included in the sales price.

5. If the client were interested, a Service contract would also be signed.

It all sounds straightforward. Or maybe not. You see, this company had a lot of products in its portfolio but only so many R&D engineers. As the exec team wanted to prove to the board that they would tackle all market needs, all projects were a high priority. You know…when everything is urgent, nothing is urgent.

Let’s assume Company XYZ had the following product portfolio:

We have a total need for 27 R&D engineers for eight products if these products were to be upgraded simultaneously. Well, you see, the company only had about 15 engineers (for the sake of this example). Guess what happened when the R&D team tried to explain that it was impossible to do everything simultaneously? That’s right, execs basically said, “We don’t take no for an answer. It must be done.” As such, a “yes man” culture was developed where R&D had to agree to the projects and deadlines against their will.

Now, it doesn’t take a rocket scientist to figure out that each project had massive delays. The R&D teams were spread super thin across too many projects. That also meant little focus for each of the tasks assigned, which in turn led to more delays. Moreover, engineering had very little time to test the product upgrades. This caused massive issues on the field: some units could not be adequately commissioned because they had bugs. There were severe reliability issues again because of little testing. It’s the usual s**t show when leadership does not listen.

What was the impact on the company? They missed critical product launch dates, and competitors were one step ahead. And when they did launch the products, hell broke loose. Field engineering was flooded with quality issues. As a result, clients were very upset. Some have given up long-term contracts. All of this means A LOT of financial distress.

This seems like a rookie mistake for an executive, but believe me, it’s happening more than you could imagine.

What could they have done better?

Oh man, many things. First, you need to start figuring out the basics for each product:

• Sales and EBITDA for each Product

  • Here, you want to determine the absolute sales and EBITDA value for each product.

  • This is important for the next step, where you must evaluate each product’s share in your sales and EBITDA.

• % of Company Sales and EBITDA for each product

  • Does this product represent 2% or 30% of our total sales? Seeing the % of the total sales allows for a quick quantification of the product’s impact on the overall company.

  • The EBITDA % out of total EBITDA will show how much the product impacts the company's profitability; the product may have low sales figures but high margins.

  • Several questions can arise from this simple analysis: Do we have manufacturing efficiency with this product? Perhaps it sells well, but we must improve its design for easier manufacturing to increase profit? Is there fierce competition, or has the product become commoditized? (e.g., the software installed on it by 3^rd parties is more important than the hardware itself?) – Perhaps you also need to develop the software to capture more value

• Core product?

  • You may have Core and Complementary products in your portfolio. A Complementary product is a product you sell to offer your client a complete solution, but you may or may not make money from it. For example, you manufacture bicycles. A complementary product may be the bell on the bike.

Let’s take a close look at the products sold by Company XYZ.

Now that we have looked at how profitable each product is and how much money each brings in, we can prioritize resource allocation, as shown in the table above. Products highlighted in green will have a Tier 1 priority for R&D because they represent a large share of the total EBITDA of the company - over 55%. Products highlighted in yellow have a Tier 2 priority partly because of lower sales volume and lower %EBITDA.

Of course, this is an overly simplified example. But you can extrapolate the principle and apply it to your company.

Other questions you need to consider:

1. Does your most profitable core product have a future? Do you think it can be disrupted? Kodak probably had the best photo camera in the world, which was booming, but it didn’t have much life left. Perhaps it’s not worthwhile investing in it if it can be disrupted.

   Another pertinent example is the CD / DVD. Perhaps Maxwell had great DVDs, but investing in developing good SD cards would have been a better choice (that’s if they didn’t do it, I don’t know). Or the European automotive industry facing stringent emissions legislation – do diesel engines have any future in this climate (pun intended LOL)? Should they pivot to electric solutions? That depends on whether they focus on non-European markets or not – electrification is not a global phenomenon, and they can keep investing in diesel engines for non-European markets.

2. What is your corporate strategy? If the company decided that Product 2, with a current % market share of 1%, could increase its market share by introducing a new controller, then that should be a priority.

3. If your core products with a significant share of total sales are not profitable, you need to do something about it. They have a significant impact on your company.

4. For example, Product 3 and Product 5 represent almost 55% of EBITDA. Even if market disruptions threaten them, you must keep them alive until you have viable substitutes.

5. As a rule, you must always follow the money – where it comes from and where it goes. Don’t be process-obsessed. Often, companies lose sight of what is vital for the business just for the sake of internal processes.

Accounts Receivable and Payable [2 min]

Have you ever scratched your head over accounting terms like "Accounts Receivable" and "Accounts Payable"? I'll break it down into digestible chunks for you.  

First off, let's talk about Accounts Receivable. Imagine you're a business owner, and you've just sold $5,000 worth of goods to Joe. Joe promises to pay you within 30 days. This $5,000 is your Accounts Receivable—an asset. Why? Because that money is coming to you but hasn't arrived yet. It's like cash, just not as liquid.  

Now, flip the coin. This $5,000 is Accounts Payable—a liability on Joe's books. He owes you that money. So, in essence, your receivable is Joe's payable. Mind-blowing, right? LOL.

But wait, there's more. What if Joe can't pay you within 30 days? Enter the world of Notes Receivable and Notes Payable. These are formalized agreements that usually involve interest payments. So, instead of waiting for Joe to pay you, you have him sign a promissory note. This note specifies that Joe will pay you $5,000 plus, say, 10% annual interest three months from now.  

Why is this groundbreaking? Because it adds another layer of security to your business dealings. You're not just waiting for Joe to pay you; you're earning interest on the money he owes you. It's like you're the bank, and Joe is your borrower.  

Speaking of banks, Joe could go to a local bank and sign a note to get the $5,000 he needs to pay you. In that scenario, the bank would have a Notes Receivable with Joe, and Joe would have a Notes Payable with the bank.  

What's the takeaway here? Receivables are assets; payables are liabilities. But when you add the word "Note" in front of them, you're talking about a more formalized agreement that usually involves interest. It's not just about owing or being owed; it's about smartly managing the money in limbo.  

So, let's get practical. Next time you deal with a client who can't pay you immediately, consider drafting a promissory note. It's not just about getting your money; it's about making your money work for you. And that, my friends, is the essence of smart business. 

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The Industrialist