§ Inside data is not captured to measure customer subjective value.

§ Measurement of internal cost displaces subjective value.

§ Large losses in ROA come from small losses in prices, costs, or investments.

§ Companies do what they have always done and that will be reflected in their data.

They are suppositions that do not pinpoint whether lower ROA is caused by pricing losses. But we start by eliminating things that are not a cause. We use a large array of formulas to compare the firm’s data to outside data.

***

DecLink has its origins is the rough-and-tumble of commodity markets with big low-margin farms. The idea was that there had to be a better way to price. It was here that we applied our skills in the pc modeling and math software–with strong results.

Finding DecLink was something of a happy accident. We were building a model to measure risk and rewards in price, volume, and credit supply volatility because almost all the hundreds of crises and opportunities on which we have advised were long-term in origin. Timing was extremely critical in reading opportunities. And timing was a powerful tool in resolving firm-threatening crises. Our objective was to be able to get a read of economic conditions for improved performance, reduced risk, and persuading doubters of our client’s capacity. In that process, lo and behold, we found a way to read commodity markets.

The application to companies in un-traded markets was immediately obvious to us. We did not see any necessary limitations because of the difference between traded and un-traded. In traded markets prices could be “read” by what worked for the producer’s target ROA. The difference between traded and un-traded is accepting an offered price versus offering an accepted price. The psychological load on a company’s decision makers is about the same.

***

I have a deep distrust of convention. It is fair to say business convention is okay to follow most of the time. But when it is not okay, it is really not okay. The results prove disastrous. But convention is so appealing because the proof is implied since others are doing the same thing.

An entrepreneur brings solutions that are somehow novel. Pricing is one way the application of convention causes common [lower] profits in spite of the uncommon solutions for the customer.

There are only two people who understand the entrepreneur’s idea: the entrepreneur himself/herself; the customer whose problem the entrepreneur solves. I say that because it points to two problems I almost always find with a firm’s data:

§ Under-utilized data including a failure to collect on the subjective aspects critical to implementing the entrepreneur’s idea.

§ Even though the entrepreneur’s idea was conceived before there was a company, and even though there are many who might be, but are not yet, customer, there is little space given to collection of date from outside the company.

It leaves the company and the entrepreneur vulnerable to convention.

***

Conclusion:

Often enough the true entrepreneur does not need convincing, and therefore might not need DecLink. But the entrepreneur forgets that convincing his colleagues requires more than his or her conviction, charisma, enthusiasm, or passing rages. It requires the kind of proof conventional types need before they can act. DecLink provides that proof.

DecLink is a service of Praexis. The techniques used are widely available. The methodology we use is proprietary. In application, DecLink produces astounding improvements in profitability. However, in practice results for some companies are limited. This is because of a general distrust of economics, models, and mathematics. Some companies cannot get past it. In a few cases, results ended when companies believed they could copy the techniques and so save costs on the assumption that economic conditions and conditions within a company remain constant.

Commentaries point resistance to: people’s dislike of thinking; the expert’s presumption / resistance to calibration; a view that the subjective can’t be measured; distrust of accountability; ‘I already knew that’; data availability; character; threat to competence; implied criticism.

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