Billionaire Warren Buffet famously once said he had two rules for investing. The first was to make money. The second was to remember the first.
Long-term care operators looking to build great companies have access to similarly pithy advice, courtesy of Michael E. Raynor and Mumtaz Ahmed. In the April issue of Harvard Business Review, they offer three simple rules for creating a great company:
· Rule 1. Better before cheaper — Put another way: Compete on differentiators rather than price.
· Rule 2. Revenue before cost — That is, prioritize increasing revenue over reducing costs.
· Rule 3. There are no other rules — So change anything you must to follow Rules 1 and 2.
What’s a bit disconcerting about this advice is that it runs counter to what’s actually taking place in many nursing homes and other senior living communities today.
Let’s face it: Many operators have been competing on price for years, if not decades, and continue to do so. And we have certainly seen plenty of examples of cost-cutting as a way to remain competitive lately.
So are these guys blowing smoke? Apparently not. Whether you agree or disagree with their conclusion, you must admit that they did their homework.
They started with a simple goal: to determine the core elements successful companies share. That begat an analysis of thousands of firms. From this, they narrowed the list to a few hundred firms that had performed well over time. In every instance, those three rules (really, two rules) had been followed.
Does this mean things like operational excellence, talent development, leadership style, corporate culture and reward systems don’t matter? Not necessarily. But it is worth noting that they could not find consistent patterns of how they did.
Who would have thought that running a great company could be this easy? Or this hard?