Archive for 2013

“It’s The Worst Product But It’s The Cheapest” Isn’t A Viable Strategy

Tuesday, December 31st, 2013

Given the developments in data science, it was inevitable.The worst product but the cheapest - not a viable strategy

After spending 7 or 8 years building databases and algorithms, Thomas Thurston has determined the factors that are common to businesses which succeed – and those which fail.

His models can now be used to predict the outcome of investments by
•  Mid- and large-size companies in business development, and
•  Venture capitalists in startups and early stage companies.

Clayton Christensen who, in my opinion, is one of the best thinkers about business today, has recognized Thurston’s research and predictive models.

So you have to take them seriously.

Thurston says that a company’s strategy is where they find most predictive variables. He doesn’t say whether it’s the strategy itself, the way in which it’s executed, or both, that matters.

He does, however, make a couple of interesting points about strategies which work and those that don’t.

For example, brand new startups, which claim to have the best “widget” on the market, fail about 90% of the time. On average, however, “only” 70% – 80% of businesses fail in their first 10 years.

Thurston claims the best widget startups face worse odds than average because, if they are right and their product/service is the best available, bigger competitors, with deep pockets, put them out of business.

His favourite strategy is to “go to market with the worst product but it’s the cheapest”, citing Walmart, McDonalds and Southwest Airlines as examples.

I take his point but have a problem with calling them all the worst products. If that were the case, for example, Southwest Airlines would have a much worse safety record than other airlines.

He seems to be suggesting low cost automatically means low quality which is not necessarily the case.

Walmart stocks brands that are perceived as offering quality at a lower cost i.e. better value than at other stores. Walmart keeps those costs low by the way it redefined the traditional retail model.

McDonalds, Southwest and Walmart may have grown by taking value-conscious customers away from their larger competitors, leaving them the customers they perceived as “best”.

But I dispute that any consumer adopts the worst product on the market simply because it’s the cheapest. If they did, they’d try it once – and never go back.

That’s my view. What’s yours?

You can see the article, which provoked my little rant, here.

If you enjoyed this post you’ll also enjoy Prices – 6 Reasons to Keep Them Up.

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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5 Timeless Hiring Tips for Business Owners

Tuesday, December 24th, 2013

People are key to the success of a strategy and, therefore, a company.5 timeless hiring tips

That’s not news. It’s the very opposite.

Articles about people management regularly appear in the press and there are blog posts published daily about the impact of culture and leadership on success.

Yet some business owners still deal poorly with the people part of strategy. And it often starts with how they hire.

So, here are 5 of my favourite tips (that also aren’t new) for hiring.

1.  Be Clear About The Role. Make a list of the things the role contributes to the execution of the strategy. That will determine the skills and experience required by applicants and make the responsibilities of the position very clear.

2.  Always be Hiring. Think about everyone you meet as a potential hire, particularly those you think would be great to work with. Keep their names in a database. Build a relationship with them in case you do ever decide to offer them a job – and reduce the risk of making a bad hire. Drop those who don’t measure up.

3.  Don’t Settle For the Best of the Bunch. I mentioned skill and knowledge earlier. But you also want people whose attitude and values fit with your culture. And that combination doesn’t pop up every day. That database of potential hires can help you avoid having to settle for the best of the candidates who happen to be available. So can patience and a willingness (and ability) to wait.

4.  Consider a “Test Drive”. Hiring people you’ve worked with previously is similar to test driving a car before buying it. So is hiring someone on a short-term contract, or taking them on as a sub-contractor, to complete a project. All 3 provide an opportunity to get to know their values and attitude. That’s better than hiring someone who looks good on paper – we know that more people are “massaging” their resumes than ever before.

5.  Onboard, Onboard, Onboard. Many companies consider the hiring complete when their offer is accepted. That is just plain wrong.  An onboarding program ensures a great first impression; it allays the stress a person experiences when dealing with new processes, fresh expectations and people they don’t know; and it reduces the time it takes new employees to become productive.

You can find a more tips here.

If you enjoyed this post you’ll also enjoy Little Things Can Have a Big Impact.

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

5 Traits Effective Business Owners Share

Tuesday, December 17th, 2013

I believe the single biggest thing that separates companies that grow from those that don’t is the owner’s awareness of the need for change and their willingness to do so.Traits shared by effective entrepreneurs

So, I was interested in a recent post about traits that effective entrepreneurs share. Sure enough, it contained a quote saying that if owners commit to learning more about themselves and becoming the best that they can be, they’ll find that challenges are really opportunities.

But what other traits, according to the post, do effective entrepreneurs have?

1.  They’re surrounded by people who share their passion. They need to be because, in our experience, entrepreneurs expect everyone to want to work long hours, get by on a shoestring and to continue to persist in the face of adversity.

We often find that even owners of well-established businesses expect every employee to feel the way they do about the company.

2.  They know themselves. The post makes the point that “When you know your strengths and weaknesses, you’re better prepared to build a team that complements you and can help you reach your goals”.

True, but while some of the owners we work with understand their strengths, they don’t – or won’t – admit their weaknesses. While prevailing wisdom may say that’s a bad thing, I’m not so sure.

Some of the personal characteristics that make great leaders – in politics, the military and in business – can also be considered weaknesses. But you can’t have it both ways. You have to deal with one to benefit from the other.

3.  They are true experts. Most of the successful business owners we deal with had been working in their industry for some time before going it alone. And they made the break to deal with a gap, shortcoming they saw.

So they are subject matter/industry experts. Unfortunately they often think this expertise extends to all other aspects of building a business.

4.  They take action. I totally agree. They are unafraid of risk and willing to make decisions without waiting for perfect information. And that is not the same as being reckless because, in fact, the best entrepreneurs are not.

5.  They fail well. Mainly, I think, because they see failure not as something negative, but simply as a step toward success.

There are so many examples. Like Edison and his 900 odd attempts before getting it right. Or Winston Churchill (not an easy person to be around) who said, “Success is stumbling from failure to failure with no loss of enthusiasm.”

You will find the author’s take on these traits here.

 

If you enjoyed this post you’ll also enjoy Perspective – It Really Matters….

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2 Simple Words – 1 Expensive Mistake

Tuesday, December 10th, 2013

I’ve always believed that words matter. Put it down to my education.When is "innovation" not innovation?

In the northeast of Scotland, in the 1960’s, you were expected to know the precise meaning of the words you used and, therefore, to use them correctly.

Failure was not an option in those days of high academic standards – and corporal punishment.

So, when I see and hear people misuse, overuse or otherwise mutilate words it frustrates me intensely.

I’ve railed in the past about the abuse of the word strategy. People seem to believe that attaching it to a topic automatically elevates the level of that topic’s importance.

There are other similarly abused terms. “Synergy” leaps to mind. “Leverage” is another beauty. A post I noticed yesterday drew my attention to another one – “innovation”.

The post refers to a recent article that highlighted the problem. Here are a few selected tidbits.

•  Hewlett-Packard executives used “innovation” 70 times when they addressed shareholders on a recent conference call.
•  In 2007, 99 companies in the S&P 500 mentioned “innovation” in their third-quarter conference calls. This year the number was 197.
•  The CEO of Kellogg’s referred to their peanut butter Pop Tarts as an “innovation”. (And here I’m thinking product line extension.)
•  Executives from Red Robin Gourmet Burgers Inc. (their burgers look good and their stock price is great) used the words “innovate” or “innovation” 21 times to describe pepper hamburger buns, beer-can cocktails and beer milkshakes. Seriously? How is this not product line extension again?

So what’s the problem?

Well, a product line extension is “different colored diapers. You haven’t changed the functionality, cost or quality. It affects nothing in a significant way.”¹

An innovation, on the other hand, is “something original, new, and important – in whatever field – that breaks in to (or obtains a foothold in) a market or society.”²

A business owner trying to break into a highly competitive market would be wise to know the difference. A product line extension may not offer much, if any, protection from being perceived as “me too”. A product or service, which is truly innovative, will.

Failure to understand the words, and use them correctly, could result in a very expensive mistake.

Time to stop venting and close with an “oldie but goldie”. Say what you mean – and mean what you say.

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¹ “Is a Peanut Butter Pop-Tart an Innovation?”, Wall Street Journal, 3 Dec 2013
² http://en.wikipedia.org/wiki/Innovation

 

If you enjoyed this post you’ll also enjoy Is Innovation Part of Your Growth Strategy?

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3 Leadership Tips From A Great Scotsman

Tuesday, December 3rd, 2013
3 leadership tips from Sir Alex Ferguson, retired manager of Manchester United soccer team

Courtesy of bbc.co.uk

I’ve rekindled my relationship with an old love. I did it mainly because my wife wanted me to.

She thought I was doing the same old things all the time and that some variety would be good for our relationship.

It’s working really well. I’m happier and my wife is taking a more active role in it than I ever imagined she would. That’s providing a whole new level of enjoyment for me………..

Yes, starting to watch the Barclays Premier League soccer matches regularly again was a great idea. And talking to Deborah about the teams and games is really neat.

One of the absorbing aspects of this season is what’s happening at Manchester United.

Sir Alex Ferguson, who was their manager for 26 seasons, retired at the end of last season. David Moyes, an experienced, proven manager, and Ferguson’s chosen successor, joined them soon afterwards.

The club is one of the most successful and valuable franchises in sports – anywhere. During Ferguson’s reign, they won 13 English league titles and 25 other domestic and international trophies, almost double that of the next-most-successful English club.

Since Moyes has taken over, the team has struggled.

It isn’t really a strategy problem.

United’s lack of control in the mid-field and vulnerability to a quick break are more tactical than strategic. They have, more or less, the same players. But they don’t appear to be as creative, sharp or hungry for the win.

It’s more an issue of leadership and/or culture. But strategy, leadership and culture are inextricably connected.

Harvard Business Review recently published an article on “Ferguson’s Formula”, capturing 8 aspects of Sir Alex’s approach to leadership. Here are 3 that I think all business owners can use.

1.  Start With The Foundation That foundation is people development. He built depth by developing young players to replace his current stars. How many owners, executives or managers continuously develop replacements for their key people?

2.  Set High Standards – And Hold Everyone To Them Adversity made Ferguson determined never to give in and so one of his mantras is “If you give in once, you’ll do it twice.” He expected hard work and he led from the front. Yet he had confidence in the people he hired, trusting them to do their jobs and not micro-managing them.

3.  Never Stop Adapting The world of soccer changed dramatically while Ferguson was manager. He believes that you control change by accepting it and he focuses on 2 things. Understanding, even when you’re “at the top” that you can’t afford not to change. And exploring new, unproven ways of improving.

You can see the other 5 here. I’m off; I have a game to watch……

 

If you enjoyed this post you’ll also enjoy 3 Things That Shape A Good Strategy

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4 Common Mistakes In High-Stakes Decisions

Tuesday, November 26th, 2013

I saw a business owner do and say some things in a meeting today that made me think of an article I’d read recently.4 common mistakes business owners make in high-stakes decisions

The company is developing a product which will be the first of its kind. It’s for a market the company has never played in. And the product will fill a need the users don’t know they have.

Challenges don’t get much more complex or high-stakes.

The owner is a smart, well-educated professional.

She’s also a born entrepreneur. All the signs are there. A vision that, if she’s right, will transform an industry. Passion that is breathtaking and inspiring. An understanding of how to use technology that is unique and innovative.

She has a willingness to take risks that would cause lesser mortals to hesitate. But also an apparent refusal to consider that she could be wrong.

Which brings me to the article. It’s a well-researched piece on why high-stakes decisions go wrong. It describes 5 mistakes that account for the vast majority of poor decisions.

And I saw 4 of them being made this morning.

The first mistake is an inability or failure to understand the complexity of the problem.

This owner has been successful in the past and is convinced her vision is transformational. Perhaps as a result, she seems unable, or unwilling, to grasp that she has to overcome 3 separate marketing challenges – new product, new market, unknown need – each of which is risky and complex. And she’s taking on all 3 at once!

The second is failure to consider alternatives. Her marketing company laid out several different alternatives for getting the message to the target market.

They recommended using social media because the results of a campaign can be measured quickly and accurately. The owner insisted on traditional media because of her conviction it would be most effective.

The third mistake is failure to consider opportunity costs. The marketing communications costs could be covered, the owner said, from an existing revenue stream.

But because that revenue has been flowing into the company for some time, the funds are probably being used to cover existing expenses.

Diverting them to the new opportunity may appear to be a “freebie”. But the company could face additional costs if it has to increase its line of credit to pay existing expenses.

The fourth is underestimating the challenges involved in execution. At least the owner is thinking it will take 6 or more months to launch the new product.

But that’s not going to be enough. And I’m not alone in my estimate. Another experienced supplier told the owner the same thing. She did, however, appear to pay attention to that warning.

Is this project doomed? No it’s not.

The owner has her ego under control, she’s not irrational and is willing to listen. Her enthusiasm is what’s carrying her along for now.

And that’s understandable because she has a great idea!

I’ve changed a few details, by the way, to respect those involved.

You can read the full article here.

 

If you enjoyed this post you’ll also enjoy A Vision – Is It Worth Investing The Time?

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Playing It Safe – The Enemy Of Business Growth

Tuesday, November 19th, 2013

It’s pretty much universally agreed that taking too much risk is a bad thing.Playing it safe and avoiding risk could impede your company's growth

That doesn’t, however, seem to prevent business owners and their management teams continuing to do it.

When large, publicly-listed companies – e.g. Lehman – do it, the results make headlines. When smaller, privately-owned, companies do it, the results are the same but they’re buried in the business bankruptcy figures.

So you would think that being cautious where risk is concerned must be a good thing.

And it is – but only to a point.

Extremes of anything are bad. And taking too little risk – or avoiding risk completely – is no exception.

Another way to describe taking too little risk is “playing it safe”.

The danger with playing it safe when things are going well is that for a long time – it could be years or even decades – it gives the appearance of being sensible.

The results are good, better still they’re consistently good. It’s human nature to begin to enjoy – and expect – the lifestyle that good results brings. Why would anyone risk losing that?

But taking too little, or no, risk is a slow, steady killer. Ever present but never visible, it’s another example of the boiling frog syndrome. A danger that’s so easy to ignore.

Then, when revenues and the bottom line begin their inevitable decline, owners and management teams often do the wrong things.

They reach for quick fixes to restore the status quo. Let’s train the sales guys. Let’s get a marketing campaign going. But that doesn’t work.

What does work is understanding that the status quo has gone. What does work is challenging what the business does and for whom.

Arguably, leaders are paid to do that on an ongoing basis. Even – in fact particularly – when things are going well.

The company now has to take risks. And, depending on what its financial landscape looks like, it may have to take big risks. It is undoubtedly in for a lengthy period of adjustment during which the results will not be consistently good.

So how do business owners, division heads and their management teams avoid this?

It sounds simple enough. Continuously challenge the temptation to play it safe.

Even when things are going well, ask tough and thoughtful questions. “What will happen if we lose 1 or 2 major customers tomorrow?” or “What if the competition finds a way to reduce costs by 30%?” Just because the likelihood of something happening is low, don’t overlook the impact if it does.

Then encourage everyone else to ask tough and thoughtful questions about how and why they do things.

Make thinking critically and taking risks the norm. It’s better for companies to take well-considered, relatively small risks, which go wrong than to become, and remain, complacent.

Read about how one CEO went about it here.

 

If you enjoyed this post you’ll also enjoy Strategy, Productive Paranoia and Boiling Frogs.

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6 Things That Get In The Way Of Results

Tuesday, November 12th, 2013

Recognize any of these?6 things preventing the business owner from achieving their desired results

1.  The business owner, or division head, and his/her team are fully occupied dealing with day-to-day problems. So, even if there is a plan for growth, no one makes sure it’s followed.

2.  A meeting is held every year and a really good plan is developed. But just doing that takes forever and exhausts everyone. So there’s no time or energy left to figure out how to turn the plan into results.

3.  Money and people are allocated to projects which, it is believed, will deliver short-term benefits. But those benefits, if they occur, may not support long-term growth.

4.  Personalities get in the way. The stronger ones make most noise. Their opinions dominate the company’s direction and their areas get the most resources.

5.  “It’s just a job.” The employees don’t know how, or if, the business will grow. So they’re not committed, long term, to the company. And probably wouldn’t help – even if they knew how.

6.  It’s important our area (e.g. finance) looks good. So there’s no reason to share information with, or help, other areas (e.g. sales).  Anyway, if the company doesn’t achieve its results we don’t want to be blamed.

Apparently, recent studies have revealed these 6 things are still preventing companies delivering the results their owners want. I say “still” because they’re not exactly new.

One reason that they still exist is that they’re invisible. Or, if not quite invisible, they are at least hard to see – if they’re occurring in your company.

It’s unlikely that all 6 are present, although some are related to, or caused by, others. For example #1 could result in the short-term focus in #3 or the disengagement, caused by poor communication, in #5. And #’s 4 and 6 are both the result of a poor culture.

We see them often. This, despite the fact that countless blogs, articles and books have been written and webinars, podcasts and seminars delivered about them.

Why?

Because they really are hard to see, even invisible, if you live with them every day. The good news, however, is that they, like a broken bone, can be fixed.

Sometimes it takes an outsider’s pair of eyes to spot them. And a willingness on the part of the insiders – the owner/division head – to believe what the outsider is saying and to do something about it.

But, until that happens any, or all, of those 6 things could come between you and the results you want.

You can find a more academic description of the barriers here.

 

If you enjoyed this post you’ll also enjoy More Heat Less Chill.

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6 Tips For A Better Planning Meeting

Tuesday, November 5th, 2013

We’re well into the fourth quarter, and many business owners are either arranging, or already holding, their annual planning meetings.For better planning meetings, implement these 6 tips

The web is buzzing with blog posts and articles offering timely advice.

One post has a list of questions that simply must be asked. Another talks about ways to make strategic planning relevant. And a third offers tips for better strategic planning.

Who has time to read them all?

So let me summarize what I think are some useful, practical points.

1.  Ask your team 2 questions:

o  First ask why your customers choose to do business with you. Listen to the answers. Are they all the same? If not, what does that suggest?

o  Then ask how you differ from your top 3 competitors. Follow up by asking if you are recognized for it. If yes, how? If no, why not?

2.  Initiate creative discontent. Even when things are going well – particularly when things are going well – you should create discomfort with the status quo. Ask questions that shake up the existing order. For example, what will we do if we lose 3 key employees tomorrow?

3.  Challenge orthodoxies – the things we’ve always believed to be true. If Howard Schultz hadn’t challenged the conventional wisdom that consumers wouldn’t pay more than $2 for a cup of coffee, Starbucks wouldn’t exist.

4.  Use controlled tests to validate assumptions. Most assumptions are based on things we’ve read or heard. At best they’re an informed guess. So, rather than bet the farm on that, appoint someone to run a limited scale field test to check the assumption out in the real world.

5.  Ban fuzzy language. Here are some examples of “planning speak”. Phrases like “Leverage our World Class Operating Capabilities” or “Reshape Our Pricing Strategy to Effectively Drive Demand” are completely meaningless.  As are words like “leverage”, “synergy” and “robust”. Ban them all.

6.  Ask other provocative questions. The point of a planning session is to get different points of view out in the open so that they can be vigorously discussed. So ask, for example, “What are the top 2 or 3 things that must go right for this strategy to work?” and “If we pursue this strategy, what are we deciding not to do?”

A final thought. If you intend to really challenge your team you have to listen carefully to what is being said and respond quickly. You can’t do that while worrying about the next step in the process; whether or not you’re running on time; and if all of the participants are engaged and participating.

Use a trained facilitator to do that for you. It’s what we do.

You can find the full posts from which I extracted these points here, here and here.

 

If you enjoyed this post you’ll also enjoy It’s THAT Time of Year Again…….

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Advisory Boards – 4 Tips For Success

Tuesday, October 29th, 2013

As the business owner, who can you turn to for advice?4 tips to help set up Advisory Boards successfully

It can’t be someone who works for you. Your spouse or other family members may not be willing, or able, to help.

It could be a peer – but they may have challenges of their own. And who wants to hire a consultant?

So, what’s left?

There is one resource I haven’t mentioned. It’s commonly linked with start-ups, but I find it can be very useful when companies plateau.

It’s an Advisory Board.

Unlike Boards of Directors, Advisory Boards aren’t for life. You can keep them running for as long as you want – or need.

Here are some tips for setting one up.

1.  Membership. Based on our experience helping set up Advisory Boards, I’d suggest recruiting no more than 5 or 6 members.

Find people who complement your skills and experience. Invite someone who has already grown her or his business to the size you’re aiming for. Consider also asking your accountant; someone (e.g. from an industry association) who knows your markets; a supplier of non-competitive products to your customers; and even your banker.

Make a list, identify the person the others will want to work with and approach him or her first.

2.  Compensation. You may be surprised to find that most people are flattered to be asked to join an Advisory Board.

That doesn’t mean you should expect them to do it for free. But you don’t have to offer excessive compensation either.

Remember they will incur costs to get to meetings and they will be giving up another activity to be there. Recognize that by offering them a couple of hundred dollars and a decent breakfast, lunch or dinner at each meeting.

3.  Set goals and expectations. Meet once a quarter, for no more than 2 or 3 hours. Explain that you may also want to talk to them individually between meetings if an issue arises specific to their expertise.

Publish the agenda and circulate any reading materials the week before the meeting. Appoint someone who is good at keeping meetings on track and on time to run them. Once a year, ask the members what they think of the meetings and make changes based on that input.

Make it clear that you want them to provide valuable advice but that you’ll make the final decisions. They hold no legal or financial responsibility for those decisions.

4.  Build (or strengthen) your relationships with board members. If you’ve chosen well, your members can connect you to people in their networks (including potential customers).

But they can also introduce to, for example, new software or technologies and make you aware of grants or programs that provide funding.

You can read more about Advisory Boards here and here. Ignore the references to start-ups; it’s good advice for everyone!

 

If you enjoyed this post you’ll also enjoy I’m Not Alone…….

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