Business Building

The Lure of the "Right" Answer

2007-07-15T16:13:00.000-05:00

I am still fascinated by the number of business owners and managers that seem to be internally wired to hunt for and find the "right" answer to any given situation. When I tell them that there is no "right" answer waiting out there for them to find (like a pot of gold at the end of the rainbow) they do not seem to comprehend what I am saying.

I put this down to the years and years of formal education and schooling where we are conditioned to have the single "right" answer to any question that we are given by a teacher or test paper. The real world does not work this way, and in particular the fast moving world of business in an age of globalization and technology does not work this way.

What worked yesterday might not work today. What works today might not work tomorrow. Don't get upset or frustrated by this. Just accept it! This is the price of entry into the game of business. Rather than coming up with the "right" answer and then treating that problem as if it has been solved forever - these days we need to be constantly testing our assumptions and premises to see whether the landscape or climate has changed around us.

There is one sector of the business world that seems to be grasping this. That is the retail sector for large companies with significant resources. For the small and medium business sector it is the online marketing and retail sector. Increasingly these companies are throwing away the idea that they should know the answers - despite some individuals having many years of experience in their industry ...they know that their ideas are great starting points, but that they can sometimes be utterly incorrect. The only way to know for sure is to test EVERYTHING and find out what generates the sought after results, and what doesn't.

So give it up. No "right" answer exists. You cannot continue to be the teacher's pet. There may be many routes to solve the same problem or to arrive at the intended result. Go experiment and play ...and find out. Your stress will be a lot lower as a result. You will become a lot more flexible in your approach to life and business. As you get good at this, your results will become a lot more reliable. Enjoy.

Accountability and decisiveness

2007-02-08T12:06:00.001-05:00

"You are what you measure". You have probably heard this so many times that it has faded into the background as a cliché that is more of a nice idea than strictly relevant to your daily business success. But how can you or your people ever make progress towards a vital strategic goal or milestone unless you are measuring the appropriate things and know whether you are on course and making progress or not?

Ultimately you need to have one person make a decision and then ensure that it is followed through on by everyone else involved. This requires giving the person not only the responsibility, but also the authority to make the decision and the power to effectively allocate resources to ensure that it gets done.

Businesses also need to review their compensation structures to make sure that they are truly rewarding the behavior that they profess to be seeking.

I have seen Clients where there are multiple owners of the business, and due to the legal and financial structure of the business, there is no clear leader. Hence all vital decisions get postponed, and watered down due to the concerns that a poor decision by a single owner will negatively impact the earnings of the rest. Trust, support, long term goals and true teamwork (where the roles and responsibilities are divided up appropriately) are lacking in these instances. Treading water in this way only exhausts the business long term, and makes it vulnerable to the various tides and currents that exist in the marketplace.

Appoint a leader, then follow and support them. Be In Action, people!

Creating an Execution Culture

2007-02-06T13:03:00.000-05:00

This topic is far from a no brainer. Like you, most business owners will agree that, in order to truly succeed in today's business environment, small and medium businesses need to have a culture that excels at "execution".

In reality almost all of them have no direct experience of about how to go about creating this. It exists mainly in the "I'll know it when I see it" realm. So there exists a significant chasm between the concept and the reality.

How can you tell if this is lacking in your business? Well, you will notice a tendency to have and announce great plans and initiatives, but then, a while later everything is pretty much as it has always been - everyone is in the day-to-day survival mode and reaction driven habits that has the business get by, but there is rarely any significant progress made towards critical goals. Maintenance mode and fighting fires is all very well, but growth - whilst more challenging - is so much more fulfilling for all concerned.

The Strategic Realities of Business Today

2006-11-20T22:22:00.001-05:00

It is highly unusual to find a business these days that does not need up to date IT to run smoothly. Anywhere there is an office environment there is IT. Even if you sell gravel and aggregates for mending road surfaces, the most non-IT sort of business in the world, IT plays a role and will require an appropriate investment to keep functioning smoothly.

Even if you have never had to do this in your business before, no matter how much you resent taking on a new line item for expenses on your P&L, it does not change the business realities. Just make sure that you get good advice, and that your expenditures are wisely budgeted and appropriate to your businesses and your industry's needs. Just because you have been successful in business so far, does not mean that the same good fortune will always be extended to you.

Many businesses in the small and medium business market though, no longer need to have internal people to handle IT - these folks rapidly get out of date and can leave at any time with all of your systems knowledge in their head. Dangerous. Most businesses, even as large as 300-500 employees are now engaging external IT firms that offer Managed Services - remote management of your network and systems for a fixed monthly fee. Some of these IT firms will even own all of the IT systems on their books and keep them refreshed on a regular basis. Off the Balance Sheet and onto your P&L. Finally, IT can now be something strategic that is a stable and predictable line item on the P&L statement!

Risk vs no reward

2006-11-08T10:17:00.000-05:00

Owners of business are often (understandably) focused on just keeping the enterprise running and trying to grow it - and this seems to take all of their available time and resources. They do not have significant amounts of excess funds to pay for multiple advisors to keep them up to speed on the less immediate aspects of owning a business. They also do not have appreciable quantities of time to mingle with their peers or research what areas of business ownership they may be ignorant of.

This almost Catch-22 scenario lends itself to the majority of business owners running a gauntlet of risk that is much greater than they would agree to take on. Especially if they knew the whole range of scenarios that have played out in the businesses of many other owners who are just like them. This is especially relevant to business owners that have made significant personal sacrifices to make it through the tough times – as they may not realize how much they are flirting with any number of disasters.

Many people though take an almost superstitious approach to risk. They do not wish to delve into the details of the range of potentially negative scenarios, because to do so seems to almost invite these scenarios to manifest into their lives. Instead they want to focus on the "upside", or "look in the direction that they want to go in", or focus their energies on what they want rather than what they don't want, …..and then they just hope that nothing devastating will come at them out of this self imposed blind spot.

I have seen owners build businesses to a decent size only to find out that their company name has since been adopted by so many others in the same or a similar industry that they have no brand to speak of. I have seen business owners die and their business partners suddenly find themselves in business with the surviving spouse who has no relevant business skills or industry understanding, yet the other partners had put in place no means through which to buy the person out in case of this eventuality.

A hugely popular scenario, and a very understandable one to find yourself in, is to be over dependant on one customer, or one industry or geography. What would you do if 50-75% of your revenue disappeared almost overnight because something changed? It is one thing to be aware of this risk, in principle, and to know that you really should get around to do something about it. It is entirely another thing to actually do something about it, and then find out that your enterprise is all the stronger for having done it.

What a tragedy – to sacrifice and do everything that it takes to build the business, expecting and hoping that it would all be worthwhile one day …only to have some unexpected event take it all away from you….

Networking - a sales tool

2006-11-06T09:00:00.000-05:00

Perhaps the most misunderstood small business sales tool is networking. I have seen competent and capable sales people waste away by spinning their wheels in unsuccessful attempts at networking and all the while believing that they were keeping busy and keeping their schedule full of activity that was bound to pay off.

What it takes is focus. I mean, how do you get married? Not by dating everyone in town and dedicating only on one or two occasions to each. You focus and commit and dig in over time.

This is sales, not sales avoidance. It takes putting out before you expect anything back. Above all it takes time - and often company sales managers or owners are not willing to take the risk that a new sales person is doing this. Why? Well, how long does it take to find out if they have been doing the right thing? For a long sales cycle business it can be about 6-12 months. Or more. How much salary and benefits has that cost them? Tens of thousands.

These decision makers fall into two groups - Those who are over eager to cut and run at the first suspicion of an investment that has not paid off. The others are those who will ride the losers all the way to the poor house in the mistaken belief that time will tell and the harvest is just around the next corner (they themselves are scared of losing).

Do you have meaningful Business Information?

2006-07-18T22:40:00.000-05:00

This topic is the King - for holding people (whether business owners or managers) accountable and for finding out if they are being intentional, or whether they are winging it and then blaming “circumstances”. It is also good for finding out if you are (frankly) kidding yourself about being on track for achieving the results you have aimed for this year.

The topic is “how you use information in your business”. First questions first though ….do you even have the relevant data in your business? Many businesses operate in perpetual chaos, lurching from one month to the next, and as long as the cash balances in the bank seem to be roughly within expected ranges then they are happy.

Others capture and record meaningful data in some areas of their business, but have not made the time or seen the reason to make it a priority in other areas of their business.

Next are those businesses that have great financial records and clean Profit and Loss statements and Balance Sheets, and they think that they are at the head of the class. But they still only have half the picture. They have not yet made meaningful use of the data and had it become useful business information. You know that you have “useful” business information when you can look at the information about an area of your business and clearly identify an area for action, execute on what needs to be done, and have a result that benefits the business.

The most critical area neglected by most businesses is their sales data:

Customers – How many do you have?

What types of customer are they? (you choose the categories)

What are the average revenues per customer per year that your business has achieved in the last few years?

What are the products or services that are most purchased?

How seasonal is your business?

How do the spending habits of different accounts vary over time – are there any annual patterns?

Is there any correlation between the buying of one product/service by customers and the buying of another product/service?

Are these products/services bought together or in a particular sequence?

How about your margins? Not just annually, but by product/service line? By customer type? By quarter?

How about the ratios of your other expenses? What channels of marketing do you get a return on? How do you know? (or are you just guessing?) What is the return and how are you measuring it?

Many small businesses (a huge number) just claim that they are too busy making ends meet each month to put these numbers together. Well, the sign of a professional business is in not accepting such excuses, but in acknowledging what needs to be done in order to put you in a position to have this data – where you can then use the information that you then pull out of it. Then going ahead and doing what needs to be done. Being too busy and/or overwhelmed and under resourced is not an excuse … it is a symptom of a disease deadly to business - keeping busy and blindly hoping that things change and luck just goes your way.

Well, going to the casino is a more enjoyable way to lose your money. You will also impact less people, such as employees, customers and suppliers.

If you say that you are no good with numbers and systems then find a decent strategy consultant and a “small business intelligence” professional. If you do not know one then post a comment and I will see if I can help connect you with one.

Small businesses still need to cover every angle

2006-06-18T11:47:00.000-05:00

Whilst small businesses do not have the resources and staff of larger enterprises they still need to cover all of the same areas of running a business. Give yourself a quick checkup – look at these different areas of your business and see if you have them all covered:

Do you really have each of these areas covered the way they need to be?

Legal
Employee
Financial
Assets
IT
Sales
Marketing
Vendors

Just because you don’t have the finances to hire full time staff to do all of these things does not mean that you should not outsource these to competent advisors and specialists. How can you grow if you do not have the structure in place to support the running of a larger business?

Sales. Luck or design?

2005-12-18T16:21:00.000-05:00

One of the most significant hurdles that I have seen small and medium business owners face is the one of sales. They manage to get the company just so far themselves, or maybe with the assistance of someone that is halfway competent in sales …and then they hit a wall.

What do I mean by a wall?

Well, they get to the stage where they need to incur major new expenses for the company to fulfill on work at the next (higher) level of professionalism. They now have to charge more, in order to have the ability to have the equipment, expertise and the general infrastructure to do the work properly. In short, they suddenly have to bear the costs of putting in place a professional and procedure driven organization with internal quality standards.

It may be that they have to suddenly invest in some large capital items. Items that cost more than their own annual take home, as the owner. They probably already have some debt and are closely watching their credit scores with the national agencies.

Of course, this is a big deal to a small business owner. This is all new to them. They have to figure it out by trial and error or through the well meaning input of a few semi-experienced friends. Usually, all of this has to be done organically (i.e. without an injection of capital from outside investors or banks - after all the burden of proof is on the business owner who has never crossed this growth chasm before) and from a base of customers that are used to paying for the core cost of producing the goods or services and with not much additional expenses for marketing, sales and legal advice built into the price.

Suddenly this is no longer the "no-brainer" sale to the business decision makers with the Client bases that they built the company on. They actually have to make a compelling business-driven case and be actively identifying the pains of the customer. So they actually have to acquire new levels of sales skills and processes. Dang. Where from?

There are many "schools" of sales. Many of them deliver results …of a sort. Some of them are very focused on the short term/immediate results - "get them in the door and close them" mentality. The belief here being that this proves the sales person is "doing what it takes" and is doing the all the key selling basics and producing measurable results.

This is also a plate spinning way to do sales. Necessary, especially at first, but not what the business owner should rely on as their only sales strategy. It is also easy for average sales people to hide out in the activity and blame mediocre results on "the market", because they can prove that they are doing "the basics".

Every business owner when faced with this transition can hire a new sales person, that months later they let go because the results produced do not yet cover the costs of the sales person …and then stay in this cycle of hire and fire, essentially sinking more and more money into the roulette wheel of hiring a good sales person. Fortunately there are better ways to screen the potential sales people.

This is still a critical transition for a business owner to make. It involves an emotional shift from their original price based selling - where they were purely selling their knowledge and skills, with a minimal costs base and hence it was price compelling for Customers that did not want the increased security of a larger and more professional organization. This is also the trap though. The business owner is not charging enough for their goods or services, and hence cannot afford to take on the expenses and put in place the infrastructure that a larger and more solid organization must naturally incur.

This is a critical test for any business owner - are they willing to push through this barrier? To grow into a business that they can truly choose their role in (based on what they inherently like to do as a personal activity) then this is a must. But it involves new risks that they have never encountered before. Hence new risks that they are not proficient at managing. They may not be able to increase the prices to existing customers and hence they will need to find new ones with new pricing levels that will support the investment and expansion that is required. This will mean that they need to create and refine a message, measure its impact and constantly tweak and refine it.

How will I ever find the TIME?

2005-11-19T09:52:00.000-05:00

Not only do you need to do the core activities that get the work done for your customers (or clients if you call them this), but you now have to do many other things too:

Bookkeeping, taxes, CPAs, lawyers
A shoe box full of receipts will not cut it. This is not your personal tax return being done at the last minute (not anymore anyway). Accurate records need to be kept using financial software designed for this purpose. Start with one of the basic ones and grow in sophistication (time and money) as you can afford and need to.

In addition to accurately knowing where your business is at every month (or preferably every week), you need to be actively managing your cash flow. This means producing invoices and tracking Client payments on an accurate and timely basis. Clients like to be able to discuss any queries that they have in a prompt and professioanl manner (it helps them to know that they made a wise choice in selecting you to work with).

This means that either you, your spouse, or an external (part time) bookkeeper will need to do this. Note that if you go for the external option, it still takes you time to prepare the information for them and to review the accuracy of their work. After all, it is your business! You need to understand all of this and accept that you are ultimately the person responsible. This is after all of the time that it will take you to find, interview and select a high quality one

...and then there is the minor cash flow item of paying them. It is more important to make sure they get paid than it is to make sure that you get paid. If you do not know where your business stands in an accurate and timely manner then you may well end up not getting paid at all!

So yes, this will take time. You have just signed on for becoming financially knowledgeable. It will take you time (and hopefully not too many mistakes) to get this experience. It will also take you time to continue to fulfill on this role.

Sorry, but it does not end there......

You have to think about taxes. you have to think about the legal entity that you are using to do business through (hopefully you took the time to select this appropriately before you got started ...but it is still salvageable if you did not). There are enough books on these two topics alone to take up a lot of shelf space at your local bookstore. Some of them are useful, some of them are very valuable to the business person in helping them to make informed decisions and to navigate this whole minefield that you just discovered that you have wandered into.

Taxes - this requires that you have an accountant (referred to as a CPA in the USA) for your business and personal tax accounting. You may have to provide them with financial results regularly during the calendar year which they will then use to have you make estimated payments to the tax collecting authority in your country - Internal Revenue Service (IRS) in the USA, Revenue Canada in Canada, Inland Revenue in the UK. ...you get the picture. If you do not know this entity well enough by know then you either have bigger challenges than we are discussing here, or else you are just getting started in your life's financial endeavors.

Legal business entity - if you are going to go to all of the effort of building up a customer base, satisfying their needs, and coping with all of the other challenges and distractions that impact an entrepreneur ...then you had better make sure that it is worth it. Make sure that no one can take it all away from you just because they want an easy source of income by suing you, or because a genuine accident occurred and you did not take the time to put together the business and its insurance-based protection (which benefits both you and the unfortunate victim) along the way.

Legal. Yes, that means you will be dealing with a lawyer. Now call me masochistic, but I have not found them that onerous to deal with. Then again, I did not just go out and use the Yellow Pages to find one. I took some time and obtained qualified referrals from people that had actually had successful and useful experiences with them (not just because their drinking buddy has gone into business for himself with his own law practice). After all there are great lawyers and then there are average and below average lawyers ...you get what you pay for.

It will take some time to interview them and have them propose their fees and how they do business with their clients. Some take an upfront retainer and then work through that (sort of like prepaid phones or putting fuel in your car) ...you would be amazed how many people lie to lawyers and attempt to rip them off. Kinda dumb if you ask me. Others, will invoice you weekly or monthly as you use their services. Word of advice: make sure you pay them promptly and in full. You never know when you may need to ask them to do a rush job for you as a favor.

Take a deep breath
Are you hiding under the bed yet? Just wait until we start to cover IT, payroll, benefits, insurance (lots of this to cover), banks, debt and cashflow. We are just getting started. Maybe we should provide you with a book list in some future post - now is about the best time to accept that you will never stop learning.

Seriously though. It is worth it. It is just that most of us tend to plunge in without having a clue quite how much is involved. Then we struggle through the shocking series of events that let us know how much we were clueless about. Then we find out that the business owns us and we are the hamster on the treadmill that is speeding up all the time. It is possible to do it differently. It takes knowing what to handle yourself, and what to outsource to specialists. It takes, time, money and energy and a lot of patience and willingness to make mistakes that you learn from.

It takes keeping customers happy, keeping up with ongoing events and development in your industry, keeping the sales effort going to grow your customer base and being able to eventually (should you choose to) afford to hire a professional administrator or manager to run the parts of the business that you never wanted to run in the first place!

Somewhere in all of these spinning plates, you also have to remember to have and enjoy your own life. Translation: those things that you used to spend time on and the people that you used to spend time with, that having nothing at all to do with business!

Entrepreneurial growth - luck or design?

2005-11-18T21:53:00.000-05:00

So, you want to be a successful entrepreneur huh? Dreams of setting your agenda and controlling your destiny.

I am sure that you will have already heard all of the cliched statistics about how many businesses fail in the early years. No? Well, just start telling the people that you know (and some that you don't) about your dreams and ideas on going into business for yourself and I promise you that you will not have to wait long. Multiple someones will be most eager to inform you of the economic Russian Roulette waiting to wipe you out just around the very next corner. Don't fret though, all they are saying is that they wouldn't be comfortable doing what you just told them you are going to do. It doesn't (necessarily) mean that you should not be doing it yourself.

Most likely you slot into one of a few categories:

-You are someone that is having to (or choosing to) make a substantial career change. If you have actively chosen this then congratulations on getting yourself into a position where you can take this plunge without being financially or emotionally irresponsible. If you are doing this in response to a being down/right-sized, then I hope you have managed to stack the odds in your favor as much as possible somehow.
Most likely you have a particular skill, substantial experience and credibility or else a stable of stellar contacts and are choosing to make a go of being a consultant or freelancer. Possibly you are going to get started with one "anchor" Client.

-You have an idea or a passion that you believe in enough that you know you will be able to MAKE it work. Come heck or high water.
Good for you. Many people all over the world would never even take the first steps on this path of yours, for fear of abject and crushing failure.

-You have the backing of someone that believes in you and your ideas and is willing to back that belief up with capital.
Whether or not they are qualified to make that assessment is another matter for debate. Still, if you have briefed them on your business idea, market, strategy for executing on the plan, proof of concept and maybe even a little market research ...and they are still willing to put up hard earned cash, then you have better confirmation than many successful entrepreneurs ever get.

Especially if you are getting started on your own, you will soon be facing the startling and unexpected reality that, whilst you may know how to do what is required to fulfil the work for your customers (a good thing), you actually have less than no idea of the multitude of other things that you are immediately expected to be an expert at in order to run your business in even a haphazardous way (worse news than you would even believe ...). The learning curve here is worse than vertical (it is an overhang).

I will dig into these areas in a future post and clarify what is required in the constantly evolving game of professionally managing a growing business.

Hints: Financial management. Sales & Marketing, Operations, Recruiting, Human Resources, Legal, Procedures and documentated systems, vendor management, Client account management, research and development, professional and personal development, mentoring and coaching, pricing, advisors and board of directors.