The weather is like business problems

Hello intersectional thinkers 👋

Greetings from Vancouver where I realized the weather is like business problems.

When it gets noticeably cold consistently (like 3°C / 37°F Vancouver winters), we invest in infrastructure like a fireplace, effective heaters, insulation, double-glazed or even triple-glazed windows to combat the polar chills.

But when the weather is mild (like 17°C / 63°F Sydney winters), though it still feels chilly during the rainier and darker days, an investment beyond a compact portable heater doesn’t seem to make sense.

The result: Vancouverites wear T-shirts at home (at work, the mall… you name it) when it’s snowing outside while Sydneysiders bundle up in wool jumpers and complain about the dark, wet, and 17°C “cold”.

Despite Vancouver being almost 15°C colder and closer to the pole, the winter blues –  a decrease in productivity, health, and happiness due to suboptimal temperatures and reduction of sunlight exposure – negatively affects Sydneysiders without many realizing.

In business, the weather analogy applies in two ways.

One, a solution’s perceived value depends on the perceived magnitude of the problem it solves.

As a service provider, you want to work on big problems. Like Naval says, “It's just as hard to build a large company as it is a small company, so you might as well build a big company.”

Take something we worked on often in management consulting:

Big problem:

• stagnant revenue growth

• high cost structure

• declining profit margins

These are big headaches for clients. Subsequently, they are the bread and butter consulting projects with very clear playbooks. Do a new market entry analysis, org restructuring, value chain optimization. Good money, easy to churn.

Small problem:

• compensation scheme (that discouraged cross-silo collaboration)

• outdated knowledge management system (that slows innovation)

• lack of clear Standard Operation Procedures (that causes communication nightmares)

These are not pressing issues. Companies still make money with these problems in place.  Even if we highlight these issues to clients, most say why pay for something that doesn’t have clear ROI?

Small problems don’t make money.

But the real problem is, that compensation misalignment is what’s stagnating revenue growth. The old knowledge management system is preventing employees outside of R&D from leverage the brilliant ideas for profit-generating activities. And the SOPs are what the company needs to scale quickly.

There are serious second order consequences to these seemingly benign problems. But no KPI tracks beyond first degree impact, which leads me to number two: value hides in small problem solvers.

Just like Sydneysiders are less aware of the impact of winter blues because they thought the winters are milder in Sydney, most of the world can’t be bothered to think in second order when they don’t see the need to.

But if you do some quick second order thinking, you’ll find real gems at a discount.

Since the value of solutions to small problems are perceived to be lower, the pricing power of small solution providers is low too.

That’s the perfect condition for arbitrage.

Some benefit from it by enjoying the consumer surplus. Others flip these discounted businesses by repositioning their offering to solve a bigger problem. Still others acquire them and offer value add to their own customers.

Either way, if shopping for a discount is something you enjoy, try looking for a seemingly small solution this holiday season!

Have a great week!

Vicky