202305090940 Status: #idea #🧠 Tags: #business # Economic Denominator > "Hire five, work like ten, pay them like eight." #quote ### Another Fucking Business Concept? Yep. Another one. The economic denominator is an idea from Jim Collins’ seminal Good to Great, referenced lazily by every business asshole with an MBA horseclicking his or her way round the world of middle management. It’s part of the bigger idea of a Hedgehog Concept, which is detailed below. Here’s the vibe: A big part of running a business is figuring out how to make money. But it's not just about making money; it's about making money efficiently. Obviously, we track money with a series of different metrics and numbers. And while each is important in its own way, some are more important than others. - Some need to be looked at every day - Some have the power to make other numbers “take care of themselves” - Some are more important to consider when making decisions - Some need to be understood by more people in the business, as they’re the background knowledge needed to have important conversations As such, we’re looking to create a hierarchy of metrics that all lead back to one number: our Economic Denominator. > If you could pick one and only one ratio — profit per X — what would it be? Essentially, we’re looking for the magic formula that tells us how to squeeze the most profit out of our resources. This is where the Economic Denominator comes in. It's a fancy name for a simple idea: finding the one key metric that will have the greatest impact on your business. Once you've identified your Economic Denominator, you can start making smart choices that align with it. Say your key metric is profit per customer. You might decide to focus on improving customer satisfaction, knowing that happy customers are more likely to spend more money with you. Or if your metric is revenue per employee, you might invest in training and tools to help your team be more productive. The key here is not to get bogged down in the details or to try to optimize every little thing. Instead, focus on the big picture – find the one thing that will have the greatest impact on your business and make it your top priority. That's the essence of the Economic Denominator. ### [[Hedgehog Concept]] Collins et al assert that businesses that managed to go from “good to great” all had a 'Hedgehog Concept,' a simple, crystalline concept that guides all of their company's efforts. It's about understanding what you can (and cannot) be the best at, and what drives your economic engine. It features: 1.  What you’re deeply passionate about 2.  What you can be the best in the world at 3.  What drives your economic engine (or Economic Denominator) In this way, the way you make money needs to align with the thing that you both love, and that you’re really fucking good at doing. So, it really takes both love and money. Who knew? --- # References - [[Hedgehog Concept]] - https://www.rhythmsystems.com/blog/bhag-profit/x-examples - https://boolkah.com/profit-per-x-why-implementing-it-early-is-key-to-success/