Posts Tagged ‘financing’

Is Innovation Part of Your Growth Strategy?

Tuesday, July 16th, 2013

My friend Lisa Taylor is the founder of Challenge Factory, which offers unique career services for individuals and talent programs for companies.Innovation as a growth strategy for Canadian business owners

She, quite accurately in my opinion, describes her company as Canada’s innovation leader in career and talent management.

So it seemed only appropriate that Lisa would see, and forward, an article about a survey on firm-level innovation in Canada¹.

The results contain some interesting lessons about innovation as a growth strategy for Canadian business owners.

1.  The most successful innovation strategy is to provide products and services to new international markets. According to the survey, firms that do this earn between 10 and 30 per cent more net income than their counterparts using other approaches.

Yet more than 85% of Canadian firms prefer to operate within provincial or national borders, or in North America, rather than competing in international markets.

Perhaps this is a result of our conservative nature.

2.  More than half of the Canadian firms surveyed pursue a “user needs-driven” innovation strategy. This means they get new ideas for developing products and services from customers.

In comparison, about one-third of the respondents adopted a technology-driven innovation strategy – one that relies on exploiting advances in technology to gain a competitive edge.

The user-needs approach is probably less risky and may produce faster returns than the technology-driven.

3.  The most common challenges which slow down or prevent innovation include – fear of risk, lack of funding, lack of leadership focus and the organization’s culture.

The fear of risk and lack of focus make perfect sense as challenges to innovation and reflect what we see in our own practice. You can argue that, since a company’s leadership directly influences the culture, those 2 are related also.

4.  Internal cash is the number one source of funding for innovation in Canadian firms. Government financing comes second, ahead of private equity and bank financing.

And firms looking to expand the size of their markets/territory make more use of internal financing and less use of government funding or private equity than do firms with user- or technology-driven innovation strategies.

It’s not clear if the use of internal cash is by choice or by constraint. Either way, it’s interesting that neither private equity nor government financing is more readily available for market expansion, given the fact that the companies doing this achieve better average financial performance than other firms do.

5.  There is a strong correlation between the intensity of innovation efforts and company performance – but only if the innovation activities are well managed.

This should not be a surprise to anyone who follows my blog because it’s confirmation of a point I make often. If company A executes its strategy more effectively than company B, then company A will obtain the best results, even if company B has the better strategy.

You can read the article Lisa sent me here.

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¹  2012 Survey Findings: The State of Firm-Level Innovation in Canada, published by The Conference Board of Canada’s Centre for Business Innovation.

 

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

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Give Yourself A Chance in 2011

Thursday, November 18th, 2010

Last week we sent a survey to over 600 people in our database and asked for their input on 6 things that we think may impact their performance in 2011. They were the Canadian economy; the US/global economy; changes taking place in their industry; competitors’ actions; finding people with the right skills and experience; and the ability to secure financing.

We also asked the respondents if they expected their profits to increase in 2011. Over half of them said yes. Their fairly positive outlook is similar to, but more cautious than, the mood in recent survey by accountants PriceWaterhouseCoopers (PwC)[1]

When we asked the participants how they thought they will do against their goals and expectations for 2010, half said they would miss them.

We closed the survey by asking 2 questions about a key internal process for growing companies – business planning.

About a third of respondents told us they finish planning 2 or more months before the new fiscal year begins. Another 30% complete their planning during the month before the fiscal year begins. The remainder only complete their planning during the first month of the new year, or later.

Then we asked the participants if they used a structured planning process, an unstructured process, or no process at all.  Almost 40% said that they have a structured process, while only around 15% have no process at all. The remainder said they have an informal process.

The answers to the last 2 questions could be influenced by the size of some of the companies responding to our survey. However, it is tempting to speculate that the companies (every participant works for a different company and 75% of the respondents said they were the owner of the company) who expect to miss their 2010 goals are the same ones who leave planning late and have either an informal process or no planning process at all.

But a sample of individual responses showed that many companies who will miss their 2010 goals say they have a structured process and finish their planning before the start of the fiscal year.

Clearly this raises some questions, such as;

  • How well did the companies gather information about the external environment?
  • How realistic were they about their strengths and weaknesses and the quantity and quality of the resources they had?
  • Were the assumptions which formed the basis for their goals/ expectations/forecasts overly optimistic?
  • How well did they actually execute on their plans?
  • Is some combination of these 4 at work?

And if the companies which have a structured process and plan well in advance of a new fiscal year still miss their goals – what chance do those with an informal process who leave planning to the last minute have?

I wonder how many of those companies will actually increase their profits in 2011!

Give yourself a chance next year, download our 2011 Business Planning Checklist

If you want more information about the survey, or would like to participate in the next one, contact us at growprofits@profitpath.com


[1] “The new business as usual. The Business Insights Survey of Canadian Private Companies 2010” PriceWaterhouseCoopers

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.

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