Posts Tagged ‘revenues’

Want Your Company To Grow? Here Are 3 Words To Live By

Tuesday, August 20th, 2013

“We’ve grown from start-up to over $10 million in 6 years. We think we know why but I want to be sure I really understand why. Help me figure it out.”3 words your company should live by to keep you in business

A few weeks ago, a potential client said almost exactly those words to me.

In the 16 years I’ve been working with business owners, I’d never heard anything like it.

It’s the opposite of what many entrepreneurs say and do. Normally they’re very confident that, because they’ve been successful, their company will continue to do well.

More recently, I met with another owner. The revenues in her company have halved.

To her credit she’s trying to find a solution, trying to find a way out of the industry that has matured and declined on her watch.

“Just find me ideas,” she said, “I don’t need advice, we know how to be successful”.

An interesting contrast, don’t you think?

Then, the other day, I saw something interesting that pulled it together for me.

From their earliest days, we teach our children 3 important words – stop, look and listen. We tell them to do it before they cross the road or do anything else that could cause them harm.

As adults, we lose sight of the lesson. Ask the shareholders of Polaroid, or Kodak, or DEC – or Blackberry.

Stop, look and listen – it can keep you in business.

No matter how well things are going, take time out from the day-to-day operations of your company.

Let’s face it, if things are going that well, there’s no reason you can’t take one day a month, or even a quarter, to think about the future.

Look outside the walls of your office or company. What’s happening in your customers’ industries? How do they use your products or services? What alternatives are they looking at?

And what’s happening in your industry? What’s the worst thing that could happen? Do some contingency planning.

Listen – surf the web, find out what’s trending in your industry. Attend some events; what are the rumors about competitors? What are your suppliers saying? What are your contemporaries thinking about the economy and the availability of funding?

The companies I mentioned earlier weren’t blindsided by threats they couldn’t have seen coming. They failed to react to market changes and new competitors that were around for some considerable time. No one came from out of left field with no warning.

Their leaders fell so deeply in love with their success that they were unable to overcome the blinders they put on their own thinking.

Stop, look, listen or risk seeing your success swept away.

The “something interesting” I saw the other day can be found here.

 

If you enjoyed this post you’ll also enjoy 6 Tips for Protecting Your Long Term Success

Click here and automatically receive our latest blog posts.

Share

Being Profitable and Strong Increases Valuation

Wednesday, November 9th, 2011

In my last post I talked about 4 things every owner of a successful business must think about. They are the 6 reasons a company is sold, the 2 factors which apply to each of those situations and what being “profitable” and “strong” mean.

I promised then that I’d talk about how to make a company profitable and strong. So here we go.

1. How do you achieve consistent profitability? Here are 6 things every business owner can do to increase the odds that her/his company will produce consistent, industry beating profits:
a. Develop a strong product line – not only having width and depth in current products but also always having new products under development.
b. Build a great reputation – and recognizable identity or brand – in your target market(s) by delivering quality products and services, on time, that meet your customers’ needs.
c. Be in more than one market (which ideally do well in different phases of the economic cycle).
d. Have a broad customer base built on strong companies or affluent consumers.
e. Generate a stream of recurring revenue rather than working solely on projects which have to be replaced when complete.
f. Innovate – and create some intellectual property, products or processes, which can be protected, creating a sustainable advantage or a barrier to lock out competitors.

2. How do you make a company strong? Here are 6 things an owner can do to survive the loss of key people and keep his/her company’s balance sheet ratios looking good:
a. Document all processes. Especially the sales process which can be mapped, then managed, using a CRM system.
b. Involve all of the key people in a formal, annual business planning (and budgeting) process, which is completed 2 months before the start of a fiscal year and which includes formal, quarterly reviews.
c. Maintain strong internal financial controls, including cash flow forecasting, and insist on timely, monthly reporting.
d. If the management team doesn’t know and understand the drivers of the key balance sheet ratios have your accountant run a training program for them.
e. Always put leases and contracts – for everything and everyone – in writing.
f. Make Human Resources management a key part of your strategy and culture by e.g. driving accountability and responsibility through job descriptions; making decision making independent of the owner; identifying talent and training people for growth.

A company which is profitable and strong can survive the prolonged absence of the current owner as a result of injury or illness because it will continue to: 
• Execute its proven strategy.
• Be innovative, building barriers against competitors.
• Operate day-to-day without missing a beat.
• Produce revenues and profits at, or above, previous levels.
• Keep and attract good people.
• Attract financing should it be required.
• Survive any unexpected crises in the industry or economy.

The ability to do that also makes this type of company very attractive to a potential buyer – because the risk of the company failing in the short term is reduced significantly. And that means the valuation of the company – which determines the selling price – will be at the high end of the scale.

So by doing the 12 things I mentioned (and, in all fairness, some others like them) a business owner wins in 3 ways.

She or he makes great money while they run the company. They build security for themselves and their families in the event they are injured, fall ill or even die. And they maximize the return on the long hours, missed vacations and risks they’ve taken by getting a great price for the company if it’s sold.

How good is that?

If you enjoyed this you will also enjoy The 2 Truths Every Business Owner Has To Face and The Future Of Your Business: Succession or Exit

Bad Strategy – How To Spot It

Tuesday, August 30th, 2011

Many business owners are in the middle of their business planning or budgeting process for 2012.

So, for those pressed for time, I’ll summarize a timely article by Richard Rumelt, adapted from his new book “Good Strategy/Bad Strategy: The Difference and Why It Matters”, and published in the McKinsey Quarterly.

Here are Rumelt’s 4 hallmarks of bad strategy.

1.    Failure To Face The Problem

A strategy, according to Rumelt, is a response to a challenge. But if the challenge isn’t defined, it’s impossible to assess the quality of the strategy. And if you can’t do that you can’t reject it as bad or improve on it.

For example in 1979 International Harvester produced a Strategic Plan which was thorough and rich in detail. The overall direction was to increase share in each of their served markets while reducing costs.

Unfortunately the Plan didn’t address Harvester’s main problem – its inefficient work organization. This stemmed from grossly inefficient production facilities and the worst labour relations in US industry.

This problem could not be fixed by driving people to increase market share or by investing in new equipment. Harvester survived for a couple of years but began to collapse after a disastrous 6 month strike. The rest, as they say, is history.

2.    Mistaking Goals For Strategy

Rumelt describes a CEO who had a plan to grow revenues 20% a year with profit margins of 20% or more.When asked how this aggressive plan would be achieved, the CEO replied “With the drive to succeed – by picking stretch goals and pushing until we get there”.

The CEO then quoted Jack Welch who said “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.” But he had forgotten that Welch also said “If you don’t have a competitive advantage, don’t compete.”

Rumelt argues that a company needs a unique internal strength or an opportunity created by a change in the industry for this type of growth. Stretch goals and motivation alone are not enough.

He illustrates the inadequacy of this “push until we get there” type of thinking, by referring to the great pushes in the 1914-18 war. The troops who were slaughtered didn’t suffer from a lack of motivation – they suffered from a lack of competent, strategic leadership.

3.    Bad Strategic Objectives

This can take the form of a long list of things to do – often labeled strategies or objectives. These lists result from planning sessions in which the focus is on doing a wide variety of things, not a few, key things.

Rumelt refers to the planning committee for a small city whose strategic plan contained 47 strategies and 178 action items. Action item number 122 was “create a strategic plan.”

Another type of weak strategic objective is one that is “blue sky”. It’s typically a restatement of the desired state of affairs or the challenge- and skips over the fact that no one knows how to get there.

Good strategy works by focusing energy and resources on a very few, pivotal objectives and builds a bridge between the critical challenge and action. Thus, the objectives a good strategy sets stand a good chance of being accomplished.

4.    Fluff

The final hallmark of bad strategy is a restatement of the obvious, combined with a generous sprinkling of buzzwords. Rumelt’s example is a retail bank which said “Our fundamental strategy is one of customer-centric intermediation.”

An intermediate is a company that accepts deposits and then lends the money – in other words, a bank. The buzz phrase “customer centric” could mean that they compete by offering better terms and service. But their policies didn’t reveal any distinction between it and other banks.

So “customer-centric intermediation” is pure fluff. Eliminate it and the bank’s fundamental strategy is being a bank.

5.    My final words

In my next post I’ll finish summarizing the article and talk about why there is so much bad strategy.

To Be Or Not To Be…..In The Room That Is

Tuesday, June 28th, 2011

Should senior management be in the room during a session to identify the company’s strengths and weaknesses? That’s a question we’re asked quite often when we facilitate business planning sessions.

So here’s our point of view – and if you don’t agree with it, feel free to leave some comments telling us why not.

1. It’s an “all or nothing” question.

Regardless of who raises the question – the senior management team or the employees invited to the meeting – it’s often accompanied by the suggestion that management “leave the room at some point”.

That may seem like a fair proposal. But is it? Or is it just a way to make a difficult situation seem better?

How do you decide when management should leave and when they should come back? Because how does leaving and returning address the real issue – which is that the people invited to attend don’t believe they can be frank when the senior management team are present?

Management should either not be there at all or should be there all of the time. And the only way to make that choice is to tackle the real issue.

2. The real issue is………

The question is really about trust. The attendees don’t want to say certain things for fear of either not being understood and/or believed. And yes, there’s also the fear of some form of retribution – from being considered negative to being branded a troublemaker

We usually encounter the question when we work with companies whose revenues and profits have been dropping. They may even be losing money and have been through a period of “right-sizing” (according to management) or “downs-sizing” (according to employees). Or in companies where there has been a change of owner.

Both are examples of situations where change has caused uncertainty or where the management team thought that communication was regular and thorough – but the employees didn’t.

3. So how do you tackle it?

It is best done with a mixture of openness, logic and an outside perspective.

Everyone has to agree that the lack of trust exists.

The management team typically understands the value of the employees input and participation. But they also have to know how to act. They have to listen actively; comment only when appropriate; and watch the tone and language they use when responding to employees’ comments.

The attendees can usually be persuaded to suspend judgement until they are convinced that the management team is listening; not dominating the conversation; and not simply forcing their views on the employees.

If the meeting isn’t managed carefully all input/conversation will die. But if it is, then both the employees and management team will learn and trust will grow. Using an external facilitator can help

Logic and common sense dictate that, regardless of whether senior management attends the session or not, they are going to see the output. And they are unlikely to use it to develop a strategy without editing it. That output will only form a strong foundation for that strategy if everyone is in the room for the discussion and there’s been a frank assessment of the company’s strengths and weaknesses.

As a third party we can, for example, point to the investment being made in the session and that it is the first step in developing a growth strategy to secure the future of the company.

4. Final words.

The management team must be in the room. But they have to understand that when the culture is changing most people are confused and uncertain. And when they’re uncertain they usually avoid anything they consider risky.

The attendees have to understand if they don’t speak up they have to take responsibility for not giving management the chance to act on their thoughts.

A Vision – Is It Worth Investing The Time?

Thursday, February 3rd, 2011

1. Yes, and you don’t have to take my word for it.

We are regularly met with a lot of scepticism when we talk to business owners about the need for a vision. But developing one can yield a tremendous return for the time invested.

And you don’t have to believe me.

There’s an article called “Step Into The Future” in the current issue of Inc. magazine written by Ari Weinzweig, a co-founder of Zingerman’s Community of Businesses in Ann Arbor, Michigan.

2. Three reasons why a Vision is worth having.

The original business opened in 1982, almost 30 years ago. Zingerman’s Community of Businesses now has annual revenues of around $37 million, 500 employees and 17 managing partners. They are successful by several different standards of measurement.

“It’s safe to say that we wouldn’t be where we are without visioning” according to Weinzweig.  He’s asked regularly for business advice, often by people looking for the silver bullet. While that doesn’t exist Weinzweig says “There is one thing I wish I had understood more clearly from the get-go – the power of visioning”. And that is one very compelling reason for investing the time.

“When we do effective visioning, we’re moving toward the future we want……..” Weinzweig gives an example of a vision they wrote in 2005 for a new venture that had still to get off the ground. Three years later the successful business actually mirrored the vision in key respects.

Having a vision is fundamental to developing and executing an effective strategy. The vision lays out where the company is going; the strategic plan tells everyone how the company will get there. It also becomes easier to choose which opportunities to pursue when they arise. The first question is always “Will it help us achieve our vision?”

“A great vision is inspiring” and gives everyone a reason to come to work. Weinzweig uses a great analogy. He likens a vision to a cathedral, a lasting monument, the tangible evidence of a group’s dreams and hard work. (Fans of Ken Follett’s book “The Pillars of the Earth” should find it particularly easy to relate.)

3. Three ways to make effective use of the time.

Eight Steps to a Vision is the name Weinzweig gives his process. Three of the steps involve drafting and re-drafting with gathering data and assessing trends etc. saved for strategy development.  So it doesn’t require a lot of time to complete. 

His structure is similar to many others, including our own. Most are easier to use than business owners imagine.

Use questions to get things moving. Asking questions about specific aspects of the future make it more tangible. Weinzweig lists 14 questions covering topics you would expect – such as how to measure success – and some topics you wouldn’t – e.g. what the owner does all day.

In our process, we circulate a few questions to key participants in advance. It helps them feel prepared, which makes it easier for them to participate.

Don’t sweat the details. Inevitably, at some point, the discussion will move to the action steps required to achieve the vision. Save these for the planning session. They’re great input but not required during visioning – which is more about passion than detail.

4. Wrapping it up.

I think one reason for scepticism is that business owners confuse visioning – a process – with the vision – an output. 

And a few years ago developing a Vision was the fashionable thing to do, a fad, a silver bullet. As a result framed Vision Statements, many of them meaningless platitudes, littered reception areas.

But Weinzweig and Zingerman’s are evidence that visioning works and that the ROI on the time can be very satisfying.

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.

Post History