October 16, 2017

Hillstrom's Optimizer: Our Optimization Teachers Were Right!! (Or Were They?)

Here is our base case.

Then we optimized year one results - and the results were pretty darn good!! You can see year one below ... but just as important, I optimized all the way through year five. What did we learn?

We learn that optimization is good (mostly)!!!
  • Over five years, we generate $62.4 million in cumulative profit. That's a lot better than the $51.6 million generated in our base case. A lot better!
  • Top-line sales, however, are stuck.
  • And as top-line sales begin to decline in years 4/5, optimized profit also begins to decline in years 4/5.
In other words, the process of optimizing a company results in improved profit ... and eventually leads to a business that is stuck.

If we repeatedly optimize a business for current year results, we'll get good results ... but we'll also be left with a business that is stuck.

Then what?

You already know the answer.

Then we have to sub-optimize the business to get the business to grow once again.

The optimizers were partially right. We have to do two very opposite things.
  • We have to optimize a reasonable amount.
  • And we have to sub-optimize if we ever want to achieve our potential.

Memorial Day Weekend

There's the obvious reason why we "celebrate" Memorial Day. And then there's the secondary outcome ... an unofficial ...