J Curves – 5 Management Rules of J Curves

Date: 29 July 2014
Category: J Curve Management
Tags: J Curve Management

J Curve investments are a strategic decision to spend money today to receive a benefit tomorrow (in the future). We make these investments because we realise that the short-term financial loss is offset by the benefit it brings to your business in the medium to long term. Here at RealTimeCEO we believe in the importance of managing your investments well. To help your business do this we created a framework that we discussed in our last blog, J Curves – 3 Phases.  Part of that framework is our list of 5 Management Rules of J Curves.

As the CEO, your role is to manage the macro j curves, investments that have a major impact on the overall business. As we noted in our blog, The Perfect Skill Mix of a CEO (insert link), the two main components of the CEO’s role are to create value and to mitigate risk.

Here are our 5 tips for managing J curves effectively:

1. Minimise the depth and breadth of the valley.

As we illustrated in J Curves – 3 Phases, the valley is the time between your initial outlay and when the project starts making money. It will inevitably end up being deeper and wider than you imagined at the start of the project. This rule is important for mitigating risk. We want our executives to come to us with innovative ideas. The executives naturally want the CEO to adopt their ideas and will place more emphasis on the upside of a project in order to sell the idea.  As the CEO you need to be able to assess the costs as well as the benefits and do everything in your power to limit the size of the valley. Twice as long and twice as wide as you originally thought – keep that in mind.  

Manage and attempt to limit the depth and breadth of the valley

 2. Don’t become emotionally involved.

One of the toughest things about being a CEO is not becoming emotionally connected to your investments.  CEOs must have passion and enthusiasm but they also need to understand the implications of each of their decisions. If you hear yourself, or one of your executives referring to it as a pet project, be wary; that’s a classic indicator of an emotional connection to the project. And there’s another part of our business that is filled with emotion – our people. Have you ever hired someone who had a fantastic resume and interviewed really well, only to realise they’re not adding value to your business? This employee could in fact be sucking resources out of your business and become a “flat liner”, continuing to draw the same amount of resources or even worse, a “ski slope” type of J curve that starts to suck even more out of your business. Once a large amount of money has been spent on an investment, it can be hard to let go. But if the investment is a ski slope, you need to recognise that fact and get out of it before you waste any more money on it. 

Do not become emotinoally connected to the J Curve

3. Don’t take on too many J curves at once.

While J curves are in phase one, they are sucking resources out of your business. No matter how many brilliant ideas you and your executives have, it makes no difference if the drain on your resources is going to send you broke. When you’re preparing to embark on a new J curve, ask yourself the following questions:

• ·         Is the investment strategically beneficial to your business?
• ·         Is now the right time?

And don’t worry about your executives getting offended if you say no. Just be sure to communicate to them that the time just isn’t right for their idea. 

Do not take on too many macro J Curves at once

4. Have and manage a plan to move from phase one to phase three as quickly as possible.

Have a plan that enables you to move the J curve from phase one, through phase two and finally to phase three. There are different resources required for the three phases of the J curve. The people required for the investment and the catch up phase are the innovators, people who conceive the ideas and are able to promote them. But you need a different set of skills to drag the project from the bottom of the valley to the blue sky. These people are implementers. Ideally these roles should overlap and they can do this successfully if the issues have been effectively documented, communicated and procedures for them have been written. Be careful of innovators who are reluctant to let go of their “baby” or are ready to drop their J curve while it’s still progressing, in favour of the next big thing.  

Have and manage a plan to move from phase 1 to phase 3 as quickly as possible

5. Establish a J Curve register.

Create a list of all the J curves you currently have, with documented updates on their progress. Excel is handy for this but you can do it elsewhere if you prefer. Your J curve register should include the following:

·         What the J curve is

·         When it started

·         The progress on this J curve

·         Money in

·         Money out

·         The net position of the J curve

·         3W action management (insert link)

One of the things we commit to with a J Curve register is to review and update the register regularly, at least once a month. Put it on your agenda for monthly management meetings and discuss each J curve. This will help you identify any issues, such as:

Do we have too many J curves on our register?

Have any of our J curves stalled?

Are any of your J curves turning into ski slopes?

Can we help you with managing J curves in your business? Contact us at RealTimeCEO for some specialist advice.