Archive for June, 2013

A Lesson in Strategy Execution from a Successful Business Owner

Tuesday, June 25th, 2013

When I, or other consultants, talk about situations faced by business owners, I’m sure people think, “Yeah, how A lesson in strategy executionwould he know?”

Or they see it as a self-serving pitch. “He has a solution, now he’s inventing a problem to fit it”.

So it’s always great to see an actual business owner talk about their experiences with a problem I’ve identified. It’s even better when they have a well-established reputation – like Jason Fried of 37signals.

A few weeks ago, I talked about the single biggest thing that determined whether or not a company would grow. My opinion, after 16 years working with business owners, is that it’s the owners’ understanding that they have to change and their willingness to do so.

Fried describes Basecamp, their most popular product, as being “critical to our success”. For years, he felt he was the only one who could manage it.

Now he’s handed over day-to-day control of Basecamp to an employee.

Why? Fried gives 2 reasons.

1.  A different kind of leader

First, he’s realized that 37signals’ “continued growth depends on me becoming a different kind of leader – one who is able to see when other people can do a job better than I can”.

How difficult a change is that for an entrepreneur to make? Fried describes letting go as “one of the hardest decisions a business owner ever makes”. I would agree.

So how much risk is involved in letting go? I’ve said many times that there’s a difference between delegating and abdicating.

Fried seems to get that. He’s chosen to take a big leap, but he’s delegating to a long-term employee who has demonstrated initiative, good judgment, reliability and high standards of quality.

And, while the long-term employee will make the final call, Fried will remain in the loop and involved.

2.  Avoiding complacency

The second reason is that Fried realized that he has to make “dozens of decisions, some big, some small about 37signals” every day. And Basecamp is successful, “at the top of its game”.

That combination of being involved in many things and having a major, long running success can lead business owners to take their eye off the ball.

Their time is fully occupied and so it’s easy to become distracted, complacent even, and let the product coast along.

And that’s a recipe for long-term problems.

Fried realized that someone has to be thinking about the company’s premier product 24 hours a day. And, because of his workload, he can no longer do it.

There’s no doubt in my mind that with Fried at the helm, 37signals will continue to grow.

And I’m glad – because we use Basecamp to help clients stay on track when executing their strategies and plans. Turning their wishes and desires into results.

You can read Fried’s article here.

 

If you enjoyed this post you’ll also enjoy 10 Strategy Tips From…….

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3 Reasons Growth Slows In Good Companies

Tuesday, June 18th, 2013

It caught my attention immediately.Periodic slow-downs in growth are inevitable, even in solid companies

A blog post about why successful companies stop growing. A topic I was tempted, only last week, to call an obsession.

While the examples Ron Ashkenas uses are all large corporations, it really doesn’t matter.

The points he makes apply equally well to business owners and family businesses.

Ashkenas argues that periodic slow-downs in growth are inevitable – even for solid companies. That doesn’t mean that business owners and their management teams can’t do anything to slow the decline or to reverse it quickly.

First, however, they have to understand the 3 forces that Ashkenas says always slow down high-flying companies. Here they are.

1.  The Law of Large Numbers

When revenues are $5 million, targeting annual growth of 20% means adding $1 million to the top line. When they’re $50 million, chasing 20% growth means adding $10 million in sales in 12 months.

It takes significantly more resources to support $10 million in new sales than it does to add $1 million. And some of them, e.g. people with the skills and experience required, can’t always be found quickly and easily.

Then there’s the size and growth rate of the market. If it’s $100 million and growing quickly, adding $1 million in sales means taking, at most, 1% more market share. However, adding $10 million in a mature or declining market means getting 10% more market share – and that probably means taking it away from competitors.

2.  Market Maturity

When a market turns hot, competitors multiply like mosquitos. That limits the potential for price increases, which are a relatively easy way to increase revenues.

Some companies build stronger brand loyalty than others, slowing the ability of the weaker competitors to grow. Some products become commoditized, price becomes king and margins become thin, affecting bottom line growth.

Eventually markets become saturated and the bigger, stronger players either gobble up the weaker ones or force them out.

3.  Psychological Self-Protection

Ashkenas describes this as pressure to maintain the base business and unwillingness to risk it with innovative new products.

In the companies we’ve worked with, it often appears in a different form (and perhaps deserves a different name). As these companies grow, the management team spends more and more time focusing on meeting the increasing demand while maintaining quality. This is often caused by weak processes, lack of discipline and lack of accountability.

In both cases, however, management is the cause of the declining growth.

No company grows forever without hitting some bumps along the way. The challenge for the business owner is to recognize what’s really going on and to deal with it.

Sometimes it takes an external, third party to be able to do that.

You can read Ron Ashkenas’ full post here.

 

If you enjoyed this post you’ll also enjoy Why Would Anyone Hire A Management Consultant? and Why Would Anyone Hire A Management Consultant? – Part 2.

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Can You Scale Up Your Company? – 4 Key Questions

Tuesday, June 11th, 2013

I’d stop short of calling it an obsession – but it’s certainly a fascination, a preoccupation, even a passion.Can you scale up your company?

I just have to understand why some companies grow to a certain size then stall, or plateau, while others continue to grow.

When I figure it out, I’ll retire, but not before.

Fortunately, I’m not alone. Better minds than mine are also captivated by this topic.

I came across one the other day in a blog post that seems to support a theory I’ve developed. Daniel Isenberg has written a book about what he calls “scale-up entrepreneurs”, business owners who “start up a big venture that just happens to be small at first”.

To promote the book, he’s developed a quick test to help people figure out whether they’re cut out to be scale-up entrepreneurs.

The test contains 18 questions that are, in fact, all statements. Business owners must decide whether they agree or disagree with them.

I particularly like 4 of the questions/statements.

•  “When I don’t know what my next step is, I have experienced people I can turn to for ideas”.

•  “When I achieve my objectives, I keep raising the bar higher and higher.”

•  “If my venture stands in one place too long, it runs the risk of perishing. We have to keep moving forward”.

•  “I used to think our great technology would take us to leadership in our market — now I realize it is our team, our organization, our marketing and our ambition to sell”.

To my mind, if a business owner agrees with these statements, he/she is saying they will change.

The most explicit support for my theory comes, I think, in the final statement/question. In order to agree with this statement, the business owner is admitting that they have changed.

I’ve written in the past about my belief that the single biggest thing that separates companies which continue to grow, from those that don’t, is that the business owner understands that he or she personally will have to change, and that they are willing to do so.

Giving positive answers to those 4 questions – agreeing with the statements – I think supports my belief.

Are the topics made in the other questions in the survey equally important? Yes, they probably are.

But Isenberg says that to clearly be a “scale-up entrepreneur” requires agreement with 16 of his 17 question/statements. To do that, the business owner has to agree with at least 3 of the questions I‘ve highlighted– as well as all of the others.

Isenberg’s book Worthless, Impossible and Stupid is being published in July. You can read about it and take the test here.

 

If you enjoyed this post you’ll also enjoy Pilot, Perfect, Scale Up.

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Buying A Company As Part Of A Growth Strategy

Tuesday, June 4th, 2013

Acquisitions fail far more often than they succeed. You can easily find statistics to prove that.Acquisitions fail far more often than they succeed.

If you’re not a numbers person, then you only have to think of AOL and Time Warner; and News Corp and MySpace.

Those are all big corporations, I know, but it’s nice to see the big guys get a bloody nose every now and then.

Buying another company, as part of a growth strategy, isn’t something that we see often.

It’s probably done most frequently when a client buys a smaller competitor in a Province, State or country they’re not already in. They’re quickly expanding their existing business by adding experienced sales, service and support staff where they had none.

What’s even less common is seeing a client buy a company whose products and services are “complimentary” to theirs.

There’s a lot for privately-owned businesses to worry about with acquisitions.

For a start, there’s getting a fair valuation for the target company and being thorough in due diligence to make sure nothing is missed. If a ‘biggie’ like Hewlett-Packard can make a mistake (with Autonomy), then anyone can.

Then, when the deal is done, there’s the whole challenge of integrating the people, who may be used to doing things in a completely different way. Not to mention different (and often incompatible) accounting and CRM systems.

When business owners buy a company for the first time, they often underestimate the lack of direct control they have over their new acquisition. And it seems to increase with the distance between the parent company and the new one. (Compare driving across a city to flying across the country to “sort something out”.)

So, why bother?

Because, like many things in life, it’s not what you do, it’s how you do it. Go back to the ‘biggies’ again for a moment and think about Google and YouTube or Best Buy and Geek Squad. Done well, acquisitions provide a great return on investment.

There’s research that says if a company is bought to expand the existing business, then it should be absorbed into the buyer as quickly as possible. Signage, letterhead and all other image stuff must be changed to that of the parent company. Duplicated or conflicting processes and systems must also be replaced. But if the acquisition is made to complement the buyer’s business, then the new subsidiary is best run separately and left with it’s own identity.

Which makes sense if you think about it this way. ABC company buys XYZ company.

If the XYZ is same business as ABC, the owner and management team at ABC already have been successful in that business and, hopefully, know why. XYZ should be folded into ABC.

If the XYZ is in a separate, but complimentary, business or industry, XYZ’s owner and management team have presumably been successful. Otherwise, ABC would have bought another company. So ABC should leave them alone.

All of which will make watching Yahoo’s acquisition of Tumblr interesting…..

 

If you enjoyed this post you’ll also enjoy Are Your Core Competencies Coming – Or Going?

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