Four strategic tasks for the owner of a successful SME.

Four strategic tasks for the owner of a successful SME.

 

 

Success of an SME means they have crossed that shark filled river where most SME’s fall over.

They have sufficient scale to employ functional personnel to address the day to day running of the business, and are returning the cost of capital and a bit more to the owner.

For some this is a level of comfort that is satisfactory, but to most who have strived to get across that river, it will not be enough, they are of a personality type that will be looking for the next challenge.

So where should they look?

Do yourself out of a job.

When you can go away for 3 months and wonder why nobody missed you, the business has reached the point where you are no longer needed daily. Accept that and get a life, or knuckle down to scale the business. For many that might mean becoming a non-executive chairman, staying engaged, but well away for the week-to-week challenges. You have created a manager system and ‘bench’ that does that. Leverage it.

Identify the industry constraints.

Every industry has a set of constrains that are rarely even noticed, they are just the edges of the status quo. Every useful innovation that has evolved, has done so by addressing a constraint that few, if any had even seen. The outcome of this insight is to deliver the opportunity for significant value addition.

The exempla was Steve Jobs. He saw the constraints in personal PC’s when he saw the work being done at Xerox Park developing a Graphical User Interface. When deployed in the Mac, the GUI changed Apple from a hobbyist into a leading PC. He repeated the magic with the original iPod, then the iPhone, and the App store. Each of them operated in an existing environment, with existing technology that could be deployed in ways that removed the accepted industry constraint, changing the face of that industry. You do not need to be a huge organisation to do this. In my local area there is a plumber who guarantees his work, and guarantees the time he will turn up to do it. Failure to address either means the client does not pay. He charges a significant premium, and now has a number of vans on the road, simply because he redefined an existing constraint in this local area.

Identify and remove internal constraints.

As with an industry, every business has a range of internal constraints that together become the culture and status quo in that enterprise. There are always opportunities to do things better, but are often overlooked, by simply not being seen, or miscategorised.

A former client removed an internal constraint and added 10% to his gross margin overnight by doing so. The business, a medium size in his industry had kept three suppliers of the core item in his manufacturing operations holding roughly equal share of his business, for roughly equivalent products. There was little to no internal competition, each of the suppliers did so from their price list, while maintaining very friendly relations with the MD and purchasing manager. We instituted a competitive bid for a guaranteed 80% of the purchases, with the remaining 20% to go to the runner up as a consolation prize, and ‘backup’ to the major supplier. The cost reduction that came from that relatively simple exercise dropped straight to the bottom line.

Currently the evolution of AI is creating huge opportunities for enterprises to deploy tools that will optimise existing processes and enable scaling at little or no added cost. There is a learning curve, an investment required, but not engaging means you will quickly fall behind competitors, while ignoring the opportunity to go quickly past them.

Build performance consistency.

For those with a view to one day selling the business they have built, there is no substitute for being able to show consistency of performance over time.

Even when an exit is not even contemplated, seeking ways to build consistency has the result of simplifying an enterprise which almost automatically adds margin and cash.

To build performance consistency takes time and effort. It requires a combination of being ‘in the weeds’ implementing processes that recognise and address tactical and operational improvements daily, and taking a ‘helicopter’ view that enables strategic positioning. This combination is easy to say, hard to do.

A buyer is buying two things, both of which are extremely valuable, irrespective of the inclination to exit the business:

  •  Optimise the existing business processes and infrastructure,
  • Map the path that best delivers future cash flow.

Demonstration of positive performance consistency on both these parameters will give you back time, and optimise the buying price if and when you exit.

 

Header credit: My thanks to Hugh McLeod at gapingvoid.com 

 

 

 Is your market research project just a crutch?

 Is your market research project just a crutch?

Every market research proposal must answer a duo of critical questions before it proceeds, if it is to be of any value.

What is it for, and how will it be used?

Market research is done for all sorts of reasons. Many commissioned projects have little to do with the examination of the critical factors in driving success.

They just provide a convenient crutch.

Several projects commissioned and paid for from marketing budgets I controlled would come in under the ‘what the F&&k’ category. However, in my defence they were usually quant studies designed to generate the numbers necessary to pass the accountants various thresholds. This enabled me to progress projects that qualitatively and ‘in my guts’ were winners. That is the way they usually turned out!

In the absence of clearly understanding how the research results were to be used, how they would add strategic, operational, or technical value, why should you bother?

There is a further tier of understanding that is required: Are you looking to define an objective outcome, or are you seeking understanding and insight?

In the case of the outcome required being quantitative, simple yes/no, black/white answers to a question are sufficient.

When you are looking for insight, there may be a few numbers, way below a level of statistical significance, but they can be reassuring. However, the value lies in discovering the connections, implications, options, and potentially hard to anticipate consequences.

Research is a critical step in successful marketing programs. However, in the absence of a very clear and compelling answer to the ‘What is it for’ question, it should not proceed.

The header illustration is the only AI used in this post.

Cash flow as the lifeblood is only half a metaphor.

Cash flow as the lifeblood is only half a metaphor.

 

 

Cash flow is often described as the lifeblood of a business.

While it is correct, it leaves a lot on the table.

If cash flow is the lifeblood, you also need a heart to pump it around the body. The leaner and more efficient the body in which the heart resides, the easier it is to pump, reducing the stress on the mechanism, reducing risk.

Similarly, to be effective blood requires oxygen to be attracted and distributed through the system.

Oxygen is what keeps everything working, it is the source of the power required to run the system, without which the system rapidly grinds to a halt.

In a business context, the oxygen is the input of information, the lungs and heart are the analysis and leveraging of that information, and the culture of the organisation is the body that holds it all together.

You go to the doctor to get a physical, where do you go to get a ‘commercial’?

An accountant will give you part of the picture, based on the books.

A ‘lean’ expert might offer many insights into the operational processes, particularly in a factory, and at the same time offer cultural insights.

A ‘6 sigma’ expert will deliver an arithmetic analysis of the efficiency of each part of a process.

A marketing expert (if you can find a bullshit-free one) will give you opinions based often on questionable and partial information, and usually biased towards their particular view of the role of marketing.

A sales expert will opine that everything else will be OK if you just get more leads for them to convert, and here is how!!

The point is that each will give you a picture of your business as they see it based on their experience, training, predisposition, domain knowledge, and their own assessment of WIFM.

Finding someone who ties all that together, and offers a complete, unbiased, and expert picture is a challenge.

 

 

 

 

The secret of successful coaching.

The secret of successful coaching.

 

As a kid I was a reasonable tennis player, having been coached by an expert and playing competitively from a relatively young age. Nothing outstanding, just competitive at a district level.

Aged about 16, my father who had been an outstanding player and myself started coaching on a Saturday morning on two local courts for a bit of pocket money. I discovered to my surprise, that breaking down, simplifying, and articulating to others the lessons I had absorbed from my coach, to enable me to communicate with those I was in turn coaching, made me a better player.

Recently in a (business) coaching session with one of my clients, we discussed for the 3rd or 4th time the concept of break even. How a break-even point is calculated, the discrimination between fixed and marginal costs, and the management value it delivers. The conversation started because it became evident that despite the previous conversations, my client did not understand sufficiently well to be able to implement in his business.

Therein lies the secret.

The discussion involved him explaining the concept of break-even back to me, while drawing a typical break-even diagram. It took prompting and discussion, but by the end it was clear he understood the meaning and value of calculating his break-even point.

The secret was him explaining it back to me, and demonstrating that he understood by drawing an illustration of how and why it worked. It required him to break down in his mind the elements of a break even into its simplest form. Then, explaining it back to me, as if I was someone who had absolutely no understanding of the idea. Drawing the diagram, enabled the understanding.

This simple act of writing down an explanation is the value that writing this blog delivers to me. I often start a blog with an interesting idea which requires research and building of understanding before writing it down in its simplest possible form. Through that process, understanding builds.

If you cannot explain something in a way that a 10 year-old can understand, you probably do not understand it well enough yourself. The greatest exponent of this technique of using illustrative metaphors to explain complexity in simple ways was Albert Einstein.

 

 

 

How fast can the development beat of AI become?

How fast can the development beat of AI become?

November 30, 2022, will be remembered as the day AI was unleashed upon a largely unsuspecting world. Dall-E had been around for some months, but it was OpenAI’s launch of ChatGPT that opened the floodgates.

Yesterday, November 6, 2023, OpenAI announced they are launching custom versions of ChatGPT that users will be able to customise for specific purposes.

No coding required, the code-monkeys in the background will be doing that for you.

As is now a common strategy, there will be a ‘GPT Store’ where community developed bots will be made available for sale.

This press release from OpenAI gives the story and provides food for thought.

For those few in businesses who have not spent any time figuring out how to use at least a few of the deluge of AI applications and platforms that have sprung out at us in the last 12 months, better get on with it. Your time will be limited.

 Header: was created by Dall-E in about 30 seconds, including writing the instruction.