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What We Measure Matters

What We Measure Matters

| December 04, 2020

Why Might Unemployment Be Important?

Unemployment comes to mind partially because the other measurement discussed below is more obscure. Most of us probably have some idea of what unemployment is. Maybe we have even been unemployed at some point ... maybe even now? ☹

Unemployment can be important for multiple reasons. If you are employed but you are thinking about taking on some more risk - going into business for yourself - becoming an independent contractor - going to work for a smaller business that could be great but might have more risk of unemployment -- etc. You might actually weight your important decision based on an unemployment measurement.

Measurement could be important. In the above example, what do you want to measure? If you like where you live - if it has good potential employment prospects for you - if your spouse has a good job s/he wants to keep ... All these reasons might nudge you toward not wanting to move. So the unemployment measurement in your geographical area might be more important to you than in another part of the country.

Some of us - probably many of us - work in somewhat or perhaps very specialized fields in which we might have education, credentials, training and experience. If so, we unlikely can not get another job at relatively similar compensation in a different field where the work we can do for a potential employer might be less valuable to that new source of employment. In such a case, the unemployment measurement in our work field might be much more important to us than the general unemployment measurement. Or the unemployment measurement geographically.

"Moat" Investing: "Build a Better Mousetrap?" (Usefully defined)

Way back in the day, "Build a Better Mousetrap" (I'm thinking at least a somewhat outdated phrase) was the key to business success. I would now add this basic caveat. It is only truly a "better" mousetrap if your competition can't copy it and then sell it to more people and / or for less money. i.e. a "Moat." So someone going into a business that is either "new" (truly a "better" mousetrap) or new to them still needs a way to keep the competition out.

Ironically, if you do "too good" a job on that, you might bring the anti-trust folks knocking on your door. Which gets us perhaps into politics which is not the intent of this post, but, it's a potential consideration. But only if you get big enough.

The new important measurement - how FEW employees can you function with?

But first a little about the arithmetic. If you are a sole proprietor AND have no other employees, you have 1 person in your "business." In theory, I guess you can have less than 1. If you have 2 businesses, then each business has, e.g. 1/2. (Or some other fraction.) But let's keep things simple and say you have 1 employee. So your profits per employee is the same number as your profits. If you have 2 employees, then your profits per employee is 1/2 of your total profits. Etc.

What about the growth (or shrinkage) of your profits per employee from one year to the next. Now we're getting more complicated - but maybe more interesting.

What's the difference between "Moat" and "leverage?" Maybe not much

Here's a way Auren Hoffman talks about this topic. I apologize a bit for the jargon:

"In the future, those who achieve the greatest results with the least number of employees will be admired above all others; the key statistic to look at is the go-forward net revenues per employee because it best encompasses the company’s leverage. What matters is each employee’s productivity and how the business itself can scale."

And Auren Hoffman says this:

"revenue per employee is an important metric to understand over time. companies with flat revenue/employees over years (which is the case in many tech companies) often mean that the company is not run very well and does not have a ton of leverage."

Source: Summation by Auren Hoffman

For the purpose of this post and these quotes, I'll define "leverage" as the ability as a company to do what you want to do. Most successful / growing companies will want to improve the strength of their "Moat." What they are actually able to do is "leverage."

Who Wins: Walmart or Amazon? I don't know. Stay tuned. Clash of Titans.

My quick judgment is that "Mrs. Walmart (Mrs. Walton - and Mr.) didn't raise dummies. Or hire them. In retail (my former field so I have some experience. e.g. Buyer for Target. e.g. Ran a family retail biz.) Someone at Walmart noticed Amazon. Kinda hard not to. Sooner or later someone at Walmart ran some numbers. "Metrics." Has "profit per store" peaked for Walmart? How about growth of profit per store? I don't know. I also don't know what sort of information regulators require them to release publicly. But you can be pretty darn sure someone at Walmart knows. So Walmart decide to get into the delivery business in competition with Amazon.

I could ask, "Does that mean Amazon will get into the "bricks & mortar" physical stores?" Well, they are. But the 2020 version. Very few employees. Walk into one of their newer (trial basis?) stores. You are not necessarily greeted by a human. You can only pay electronically. Take your cart. Put in it what you want. Walk out. You are charged electronically. 

What's their profit per employee? I don't know and they aren't necessarily saying, but, in theory, pretty good!

Why Might Unemployment Be Important?
Part Deux - And what's the "right" way to measure it?

If you're looking for work and either out of work or very unhappy, it's hard not to take a job with a seemingly solid employer with decent compensation - especially if you don't have to sell your house and move your family. But wait. Do you want to face the same situation again in 2-3 years? What is important for you to measure? I don't know. But the question is not trivial.

What if your advising a loved one. New graduate. Child or grandchild. Out of work or career changing child or grandchild?

A while back I went to a conference. A few years before COVID. The speaker, a grandparent himself, said something like, you might be happy in retirement but you can only truly be as happy as your least happy child or grandchild.

Measure what's important!

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