Archive for September, 2011

Why Entrepreneurs Need a Parallel Plan

Tuesday, September 20th, 2011

This week’s guest blog post is provided by Rona Birenbaum CFP, a Professional, fee-based Financial Planner and President of Caring for Clients, a full-service financial planning firm,  www.caringforclients.com. Rona has worked in financial services for over 20 years within the Credit Union, full-service brokerage and independent Financial Planning industries.

Entrepreneurs are eternal optimists.  And that is a blessing because optimism is a necessary ingredient when starting, and building, a business.

When naysayers tell them the risks are too high, the optimistic entrepreneur focuses on the opportunities as well as the risks.

When new competitors emerge, the optimistic entrepreneur evaluates the new threat and makes the necessary adjustments to stay on top.

When an economic downturn threatens profits, the optimistic entrepreneur seeks creative ways to survive until the recovery.

So, why do entrepreneurs need a parallel plan?

A parallel plan is the safety net for the trapeze walker, the lifejacket for the sailor, the secondary rip cord for the skydiver.

No, it’s not insurance.  It’s better than that.

In brief, here are the five components of a parallel plan.

1.  The personal savings program – The savings program builds creditor proof, non-business assets that can support the entrepreneur, and their family, in the event the business underperforms in the short or long term.

2.  The personal and corporate insurance program – Disability insurance will replace lost income if the entrepreneur is ill or injured and cannot work and key person insurance will fund buy-sell provisions of shareholder agreements.

3.  The business succession plan – Make sure that the entrepreneurs have (or are working towards) monetization of their business efforts.

4.  The estate plan – Personal and corporate wills and powers of attorney empower specific parties to manage and disburse personal and corporate assets with minimum taxation and conflict.

5.  The family communication strategy/plan – Regular meetings between the entrepreneur, their spouse and other appropriate family members.  These reviews keep everyone “in the loop” on progress, and outline steps that each individual can take to keep things moving in the right direction.

Only a small percentage of businesses succeed in the long term.  Entrepreneurs know the stats. Their optimism is the voice that says, “My business will be the one that wins”.

A parallel plan will support them, and their family, win or lose.

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Culture Eats Strategy for Breakfast

Thursday, September 15th, 2011

This week’s guest blog post is provided by Kate Erickson.  Kate has over twenty years experience in professional services including organization design consulting, human resources leadership and employment law.  She was the head of HR for Coca-Cola, did the HR start-up for Ontario Power Authority (OPA) , and is currently working with Walmart Canada to effect culture change.

Over the years, the statistics are consistently grim – 70% of change efforts fail and 70% of business strategies are not executed.

Yet we know from John Kotter’s 11-year study of high performing organizations that great corporate culture has a significant impact on a company’s long- term performance, resulting in:

  • 4 times higher revenue
  • 12 times higher stock price and
  • 756 times higher net income

So if culture is so critical to success, why don’t we have it handled?  Here are 5 things that leaders can do now to narrow the cultural divide.

1.  Be honest about what your culture is now.
Arrange for an objective assessment of your culture and be prepared to make the necessary changes.  No matter what your particular Achilles heel is, whether your people lack focus, drive or a commitment to excellence, you can upgrade to a culture of teamwork, accountability and stellar results.

2.  Consciously design your culture
By now, everyone knows the story of Zappos’ meteoric rise.  The company was  chronically losing money until its owner brought on a young entrepreneur, Tony Hsieh, as its CEO.   Within 12 years the business was bought by Amazon for $1.2 billion.  Tony credits this extraordinary success to focusing relentlessly on creating culture as his top priority.  Under Tony’s leadership, nothing went forward unless it supported Zappos’ strong culture of WOWing customers. As a result Shieh’s strategy of year-over-year earnings gains has been successful since 2003 and the Company gives tours so others can learn from its experience.

3.  Treat culture as your North Star
Nordstrom is also well known for its laser beam focus on customer service.  Legend has it that one day a new customer walked into Nordstrom’s shoe department and asked to try on various pairs of shoes in two sizes.  It turns out one of his feet was a full size larger than the other.  When he found the shoes he wanted, he stepped over to the cash and prepared to pay for two pairs of the same shoe, one in each size.  However, the Nordstrom’s salesperson, well trained and empowered to create customer loyalty, made the decision to sell both pairs for the price of one, telling the customer, “It’s not your fault that Nordstrom’s didn’t have a single pair of shoes to fit you.”  At Nordstrom, a culture of accountability for stellar customer service makes it easy for people at all levels of the organization to make the right decisions for the business.

4.  Recognize the importance of social relationships

From the last Ice Age to the current time, humans have survived and prospered because we rely on each other.  Ancient tribes recognized the value of diverse strengths –  hunters, gatherers, toolmakers, medicine men & women – and combined forces for the good of the group as a whole.  Successful organizations today can also structure for powerful collaboration.  A great place to begin is with small groups.  Get them working on projects that have meaning for them and for the business, and add people as it becomes obvious that other strengths and skills are required to achieve more.  In organizations that do this deliberately and well, results jump a factor of 300-500% as employees naturally form well-rounded and collaborative teams.

5.  Measure the Results
Currently, the most widely used people metric is Employee Engagement which measures individual employees’ concerns about their leaders, their compensation, their best friend at work.  Zappos and other top employers whose engagement scores were high, don’t do these surveys anymore because it doesn’t tell them anything they need to know.  As you build a vibrant culture, trying to measure progress through an Engagement survey is like putting a bicycle speedometer on a Ferrari – it quickly becomes irrelevant.  What is important to measure now is the stage of your culture, the quality of work relationships, and the results produced by people working in vibrant collaboration.

These tools and methods are readily available and those who take advantage of them now will have a competitive advantage.

3 Things That Shape A Good Strategy

Wednesday, September 14th, 2011

It’s the time of year when many business owners and their teams are doing their business planning for 2012.

So in my last 2 posts we talked about the 4 hallmarks of bad strategy and the 2 reasons why there is so much bad strategy.1 

Now I want to focus on the underlying structure of a good strategy and Rumelt’s views on the 3 components of that.

1. Understanding the nature of the challenge

I may be making a “blinding statement of the obvious” when I say that it’s not possible to develop a strategy which will be successful, unless you understand the challenge.

But I’m also probably correct in saying that no strategy – even the ones that later proved unsuccessful – has been approved without the key players believing they did understand the challenge.

Typically the situations which create problems or challenges for companies are complex. A good “diagnosis”, to use Rumelt’s term, simplifies the complexity by identifying those aspects of the situation that are the critical ones. This makes failing to face the real problem impossible (see the first post in this series).

I think that really understanding the challenge requires business owners to:
• Refuse to replace thorough analysis with positive (or wishful) thinking.
• Commit time and resources to a completing that thorough analysis.
• Combine the product of trained analytical skills with their intuition.
• Remain objective in the face of other (opposing) ideas.

2. An integrated approach for dealing with the critical issues

Rumelt describes this as a guiding policy for overcoming the critical issues.

I believe that in order to develop this integrated approach, choices have to be made about which goals to pursue. This helps avoid one of the causes of bad strategy.

And immediately a company embarks on this route they take a giant step away from the template style of planning that Rumelt criticizes so much.

The approach we’ve used successfully for some years now requires conscious thought being given to the implications of the strategy for all functions in the company – not only marketing and sales but also operations, finance, HR and systems.

Our approach raises, and answers, questions like how will we finance growth; what skills and experience will we have to develop or hire to take us to the next level?

3. Coordinated actions that translate the integrated approach into results

Rumelt provides an interesting example of coordinated actions. He talks about Nvidia’s strategy for capturing leadership of the 3-D graphics chip industry.

The CEO realized that releasing a new, better chip in much less time than their competitors was the key to success. That became the company’s guiding principle.

The coordinated actions were – forming 3 development teams working on overlapping schedules; investing in infrastructure to prevent delays in fabricating chips and developing drivers; and regaining control of the development of drivers.

It’s easy to see how these 3 actions supported Nvidia’s guiding policy/integrated approach.

The strategy worked brilliantly for 10 years. But, as we know, no strategy, however brilliant, will remain unchallenged forever.

4. Wrapping up

Three apparently simple things underpin a good strategy. But, as I’ve said before, strategy is like all of those other things in life that seem simple but yet are not. Did I tell you about my golf swing……..

1 The posts summarised an article written by Richard Rumelt, published in the McKinsey Quarterly and based on his recent book “Good Strategy/Bad Strategy: The Difference and Why It Matters”

2 Things That Cause Bad Strategy

Wednesday, September 7th, 2011

Its business planning or budgeting time for many business owners and so in last week’s post I talked about the 4 hallmarks of bad strategy.

They’re featured in an article which was adapted by Richard Rumelt from his new book “Good Strategy/Bad Strategy: The Difference and Why It Matters”. The article appeared in the McKinsey Quarterly

I promised that, for those pressed for time I’d continue summarizing the article in this post and talk about why there is so much bad strategy.

1. Unwillingness or inability to choose

Rumelt argues that a good strategy requires focus. And focus means that business owners have to choose amongst business goals.

Do you remember Digital Equipment Corporation (DEC)? They led the mini-computer industry in the 60’s and 70’s but by the end of the 80’s they were losing ground quickly. There were doubts if the company could survive without making far-reaching changes to their strategy.

Three alternatives were considered – business as usual, become a solutions provider or focus on designing better technology. The CEO wanted consensus on the new strategy but the executive team was divided and unable to reach one.

The result was a compromise, “DEC is committed to providing high-quality products and services and being a leader in data processing.” Like most compromises, it contained a little bit of everything and focused on nothing.

DEC continued losing ground and the CEO was replaced in the early 90’s. His successor focused on technology, but by then it was too late. The losses could only be stopped for a while and the company was acquired by Compaq in the late 90’s.

Failure to choose results in weak strategy and weak strategy results in failure.

2. Confusing “positive thinking” and strategy

Motivational speakers – and their books and web sites – have given rise to the notion that charismatic leaders and positive thinking can achieve the impossible. In concept it’s done by developing a vision and inspiring people to follow it, while empowering them to accomplish it.

The concept was reduced to something of a formula and distilled into a template for strategic planning. But not everyone can be a charismatic leader. Nor can success be achieved simply by applying a formula and completing templates.

A vision has to be more than a statement that the company will be the best, or the leading, or the best known.

The mission has to be filled with more than high-sounding, politically correct statements about the purpose of the business.

And a company’s values can’t be noncontroversial platitudes about integrity, respect and excellence.

Rumelt’s point is that, if the vision, mission and values turn out that way then the strategy is going to be nothing more than aspirations, goals or statements of the obvious presented as decisive insights.

Lack of substance makes a very weak foundation on which to build a future.

3. So what does work?

I’ll save Rumelt’s views on the underlying structure of good strategy for my next post.

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