Archive for October, 2010

It’s THAT Time of Year Again

Tuesday, October 26th, 2010

The last quarter of the year can be very frustrating. In addition to the “normal” workload, there’s all the seasonal stuff to be done – what should our Holiday card say, what will we give people this year etc.? (O.K. so I am a Grinch.)

Second, the results for 2010 begin to take shape. Hopefully you’ll have a great year, possibly even so good that you’re not keeping up with demand. A less attractive, but still acceptable, alternative is that you’ll make your targets (if only just). The outcome that no one wants is that you’ll fall short of some or all of your goals.

Then, of course, strategic or business planning has started/is starting/should have started for next year. And what is happening in 2010 will affect the “mood” and possibly the approach, to that exercise.

By the way does anyone really enjoy strategic planning? And does it achieve anything in this age of constant change and heightened uncertainty? I saw 2 blog postings over the weekend that argued we can no longer do strategic planning as we’ve always done it.

The first, Time to Retire Strategic Planning and Adopt Innovation Strategy by Kamal Hassan, said that that strategic planning has become too formulaic and we’ve come to rely too much on what has worked in the past. But isn’t that argument rooted in the application of the process rather than the process itself?

Kamal went on to say that we currently study the past to plan the future but that history is no longer the best teacher. However, as someone (I think it was Winston Churchill) said, “If we don’t learn from history then we are doomed to repeat it”.

This posting closed with the comment that inventing the future is better than predicting it. To invent the future we have, amongst other things, to replace historical data with subjective data (customer surveys, competitor strategy, trends, gaps, etc.). But haven’t been doing these things for some time now? I know the companies we work with do.

While saying that attempting to define the business over a 3 or 5 year horizon is probably foolhardy at best, the second post Strategic Planning and Innovation by Jeffrey Phillips, did acknowledge that it is very important to define strategic milestones or goals and determine how the firm arrives at those goals.

Jeffrey thinks that these are more “tactical” activities than pure strategic planning. At the risk of splitting hairs, I’d say they’re more about execution of the strategy.

In closing Jeffrey says that he doubts we’ll ever see the end of “strategic planning” but that what we will see over time is the realization that innovation and trend management is the actionable part of the strategic planning process. And I tend to agree with that.

I was talking to a colleague today who articulated the point I want to make really well. The strategic planning process will always be with us but it must develop, as most things do, with time. However we must adapt the process rather than declare it hopelessly broken and throw every part of it away.

Forecasting several different scenarios, building assumptions on thorough, comprehensive research (formal and informal) and thinking through contingency plans are just some of the things we can – and must – do in this age of fast, unrelenting change. Looking at, and adjusting, our goals more frequently is also, I believe, simply good sense.

So, I think strategic planning is as relevant in this age of constant change and heightened uncertainty as it has always been. And I think it can accomplish as much, or as little, as we allow the links between strategy development and execution to achieve.

But as for enjoying it, well……….

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4 Things You Can Do To Make Your Bank Love You

Tuesday, October 19th, 2010

Have the interest rates and annual review fees charged by your Bank gone up? Are you being asked to submit reports monthly? Have you had trouble getting a loan or LOC extended – even with personal guarantees?

A number of business owners we meet are not happy. Some can’t get access to new financing. Others are saying things like “I’ve been a good customer at my bank for 15 years.  I’ve had 2 bad years and they are treating me like a new customer.”

So, when I was talking to a Commercial Account Manager at one of the banks recently, I asked him about the situation. He talked about what the past 18 months has meant to their business – higher loan loss provisions, increased costs of monitoring accounts etc. Then he told me about the risk factors they assess when they’re doing a scheduled review of an existing customer or pursuing someone they would like to do business with.

The financial ones are what you would expect – trends in revenues, gross margins, and inventory and accounts receivable days. They also want to be sure that the dividends the owners are paying themselves reflect the company’s operating performance.

But it was the 7 non-financial risk factors that caught my attention. Here they are. (The “editorial” comments in italics are mine):

  • The length of time the company has been in business. If you’ve been in business several years good if not, there’s nothing you can do about it so focus on the others.
  • How well the business performed in previous “adverse conditions”. If you were around and performed better than your competitors make really sure the Bank knows about it. If you weren’t and/or didn’t, focus on the others.
  • How well the company responded to the Bank if it had financial “challenges” in the past. Would you deliberately annoy the biggest supplier of inputs (human or material) to your product or service? Then why do that to your Bank? It may well be uncomfortable but it won’t hurt as much as shooting yourself in the foot.
  • If there are currently any liability issues? If there are, go for full disclosure and be pro-active – tell them about the plan you have in place to deal with them.
  • Whether there’s a succession plan and key man life insurance in place. Any company which has grown beyond “start-up” mode should at least be thinking about an exit strategy and/or succession plan. And every company should have key man/woman insurance.
  • If there’s breadth in the management team – with a clear separation of duties. If you’ve had a business for 4 or 5 years, still tightly control everything yourself; have no key person insurance; only did “all right” or “OK” in the last downturn; and had to be asked repeatedly for information, you should expect to be asked for personal guarantees – and you may be lucky to find a Bank that wants to deal with you!
  • Report in a timely fashion. There’s really no reason not to be reporting regularly. You get the information to provide feedback on how well you’re implementing your strategy anyway (don’t you?) So why not share it?

There’s not a great deal you can do today to impact the first 3 factors. And if there are liability issues they probably result from something that happened in the past. But you can have an immediate, ongoing impact on your ratings in the last 3 items.

Why? Because a variety of forecasters and commentators have predicted that the financing situation will be the same in 2011 as it was this year.

And if that’s the case then there are 4 things you can do to make your Bank love you;

  • Operate profitably and efficiently during these “adverse” conditions. This will give you a double win. You’ll ace all of the financial risk factors. And you’ll build a track record for the future in the second non-financial factor.
  • Regularly provide all of the information your Bank requires – before they ask for it.
  • Either begin or continue to spread responsibility for the company’s success over several key people, making each one responsible for a separate area e.g. selling, accounting and operations.
  • Buy or update your key man insurance and develop or update your exit/succession plan. (We can recommend professionals to help you with both.)

You’ll improve your chances of having enough funding to get out of the recession first/stronger.

Strategy Made Practical

Monday, October 11th, 2010

Back in June a friend of mine Jeremy Miller at Sticky Branding commented in his blog that “When you get into strategy and planning you can easily get caught up in the MBA speak.” While I might have phrased it differently (probably because I have an MBA) he has a good point.

All of the business owners we talk to have a strategy. Some may not refer to it using the word “strategy”. But they can all answer 3 questions:
1. Why did you start the company?
2. What do you want to get out of it in 3 years?
3. How are you going to get there?

The answer to the first tells us what their vision and mission statements are. Their response to the second question reveals their goals and the answer to the third is their strategy.

Some colleagues argue that we’re over-simplifying. But we always get a response to those questions, while we’ve proved we may not if we say “Tell me your vision for the company”. If the answers we get are not complete we simply ask follow on or clarifying questions.

By asking the questions in a way that they can be easily answered we avoid making anyone feel uncomfortable if they’re not familiar with “technical” terms. And the responses are generally phrased in practical, pragmatic language.

Returning to a sports analogy for a moment, developing and executing strategy is like playing your favorite sport. We all have some level of skill at it but there are times when we need, or want, to improve those skills.

That’s when we get some help from a professional, e.g. a personal trainer. We usually get the best results when their input is in language we understand and is practical.

Imagine a personal trainer saying something like “The rectus abdominals and obliques can be strengthened using a vehicle with wheels which is moved by pushing pedals with the feet while the internal and external obliques can be flattened and the waist can be reduced.”

When they could just as easily have said “Cycling can strengthen your stomach muscles and trim your waist.”

We believe that to get the best results – steady growth and increasing company value – strategy has to be made practical. That’s one of the reasons we started the business.

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