by strategyaudit | Nov 30, 2020 | Customers, Sales
We all use mental models, it is how we get through life without overloading our cognitive capacity all the time. Mental models are evolutions way of enabling us to respond automatically, without a lot of thought, over, and over again, as we come up against similar situations.
They are a bit like driving to a destination. The first time, you need a map, but as you do it a few times, the route becomes automatic, you are responding rather than thinking.
How good would it to be to be able to build a mental model of your customers minds as it relates to the product or service you provide, to enable them to just go there almost automatically?
First step. Distil down how they see your offering to its essential core. To do this you need to understand the how, what, where, when, and why of your ideal customers potential use of your product.
How it is used, what they do with it, where or what context it is used in, when it is used, and why they should source it from you.
With work, you can arrive at a sentence, sometimes two, that describes in a customers words these elements that add up to create the value they derive from your product.
Second step. Recognise this is an iterative process, one that can take some time, and benefits hugely from talking with customers. Therefore, once you have what you think are the distilled words, test them, understand the reasons you get the responses you got, and adjust your proposition if necessary. Use a process to enhance and eliminate items from the list with customers. For example:
IF .. Summary description that captures the mental model you are creating
BY… Removing, adding, changing, tests the variables that influence behaviour
WILL.. Improve performance. Summarises the expected impact
BECAUSE…. Understanding the reason this resonates more than others in your customers mind.
This is a simple process that uses the pretty standard continuous improvement cycle, Plan, Do, Check, Act, in a slightly different context.
The other thing to remember is that copy sells, you need clarity in your copy.
Third step. Live test with customers, this is in effect a minimum viable product of your value proposition.
Fourth step. Roll out the final proposition. Adjust as necessary based on feedback and factors in the market that influence behaviour over time
This is a challenging process, way too easy to take a short cut which will erode the impact of the end result. It is a process that evolves over time, so you need to be constantly looking critically at your offering through your customers eyes to understand the manner in which you can add value to their lives, in return for their money, and referrals.
by strategyaudit | Nov 27, 2020 | Change, Strategy
‘Snowmobiling’ is a term created by Col. John Boyd, USAF to describe the process of pulling down a set of existing items, drivers, or perceptions, and putting them back together in an entirely different way, simply not seen by anyone else, just because it is different, and outside the expectations.
Existing views generate a confirmation bias that ensures that information that confirms those existing beliefs is used as confirmation that the current situation is all there is. Contrary information is either not seen, or dismissed as irrelevant, unreliable, or ‘fake’
The Snowmobile is the result of such a process of disrupting existing perceptions and barriers that made quick, convenient low-cost movement around snowfields a tough problem.
It is the result of breaking down the mechanics of a motor bike, a sled, a jet ski, and a tracked vehicle for rough terrain, and putting them back together in a different form that gives you mobility on the snow.
One of the great outcomes of Covid, which will change forever many of the pre-existing business models, is that is has become the catalyst for widespread Snowmobiling.
I live in Sydney’s inner west. There is Snowmobiling everywhere I look.
For example, the closure of restaurants and cafes was terminal for many, but increasingly, they started delivery via a number of means. Then, a few went a few steps further, breaking down the restaurant experience into its component parts, and putting them back together in a variety of ways.
You can now have your favourite restaurants deliver a pack with all the ingredients for a menu pre-cut, and ready for the pot, along with a USB stick with the specific cooking instructions for that recipe. You want some matched wine, easy. Others have one of the apprentices come to your home, and do all the cooking and service for you, providing everything bar the atmosphere of the restaurant. Then they clean up and take it all away.
Snowmobiling.
Are you doing it, or are you allowing the confirmation bias of the way it was dictate the manner in which you conduct your business?
One of the classic strategy questions is: “What business am I in?”
At a time like this as business models of all types are being not just disrupted, but thrown against the wall, and reassembled in entirely different ways, it is time to ask yourself the question again.
“What business am I in?”
Header photo courtesy DevilDucMike via Flikr
by strategyaudit | Nov 25, 2020 | Governance, Management
I was astonished when I recently went back to all the stuff I had written to copy and paste a simple explanation of cash flow into something I was doing, only to find I had never written such a post.
Astonishing because I rabbit on about cash flow all the time, as it is the measure by which SME’s live and die.
I encourage as strongly as possible, repeatedly, that those I work with do a weekly rolling 13 week cash flow forecast.
It saves a lot of grief, and once set up is simple to do.
A former client who resisted this simple exercise changed his mind when he realised his office manager was going on long service leave. He had to find a lump of cash in 48 hours to pay her. His overdraft was maxed as he had invested in a large shipment of raw material, and there was no chance of getting an extension. Instead, he had to sell several pallets of stock to a retailer at a significant discount for COD, which impacted his sales volumes for the next couple of months, and destroyed his margin. Had he routinely done a rolling cash forecast, that long service cost would have been picked up in plenty of time to get a temporary extension on his overdraft, at a significantly reduced cost to the business.
The real benefit of cash flow understanding for an SME is that it is cash, it cannot be ‘managed’ by various accounting practices, you either have it or you do not. Understanding the detail of where it comes from, and where it goes, and when, is the single most important metric for any business, particularly an SME without a depth of reserves to accommodate when things go pear shaped.
So here goes.
Cash comes in from only a few sources. Most comes from being paid by customers in an ongoing business, but it can also come in from borrowings, sales of assets, capital injections by the owners, and incidentals like dividends.
Cash goes out in a similarly limited manner. Payment for purchases from suppliers, for anything from leases, capital items, manufacturing inputs, wages and salaries, to paper clip purchases, and repayment of borrowings, dividends, and tax payments.
In the presentation of statutory accounts, the required cash flow statement is broken into three parts.
- Cash flow from Operating activities. This records the cash generated, and where it is used by the activities of the business.
- Cash flow from Investment activities. This records cash flow such as dividends, and investments the business might make in others.
- Cash flow from Financing activities. This records the cash flow generated by the necessity to finance the business. It can come from loans, capital raising, invoice factoring, and repayments to those lenders.
For most SME’s, the first is the major item, with only occasional intrusions from the other two, so I tend to just lump them together
The format is the same for each. The source of the funds, and the use of the funds.
It is often useful to break the captions up a bit for a greater level of detail.
For example, you might break out cash received from customers by geography, type of customer, or product group, all of which can give you a more detailed view of which parts of your business are working as expected, and which are not.
The one thing you must do, is to ensure that you do not avoid doing it.
by strategyaudit | Nov 23, 2020 | Leadership, Strategy
It is November, typically the beginning of the planning cycle for budget year 21/22.
First point of call in a formal review is generally ‘How did we perform so far this year against the plan we set ourselves back in November 2018?
Few could reasonably mark themselves as a success. The impact of a pandemic of any type, let alone Covid, was not even mentioned. Despite the warnings from SARS, MARS, Ebola, and from individuals such as Bill Gates, no planning I have seen or even heard of made mention of the possibility of a disruption such as that we have seen, and continue to see. The gap of 18 months between the strategic planning and review/adjust marker posts is terminal against an opposition that evolves and pivots in weeks.
So, to the core of the strategic challenge.
What will the rest of 20/21 look like, and what are the drivers present that will persist?
How do we allocate resources to the longer term?
This will be strategic planning in an entirely new environment, and the only consolation is that all your competitors are faced with the same degree of uncertainty.
Perhaps it is the case where the least worst gets the cake?
It seems to me that there is massive value in making the distinction between strategic planning, and strategic implementation.
A lot of planning goes on, but often the implementation pays only lip service, being driven by tactical ‘necessity’. As Prussian Field Marshall Helmuth von Moltke noted and many have since paraphrased: ‘No plan of operations extends with any certainty beyond first contact with the main hostile force’. This certainly will have been the case over the last 12 months, but that does not remove the importance of the planning part.
Covid has been the catalyst of all sorts of changes, but when you pull them apart, all the things that have come to pass were there previously, lingering on the edges. Covid has just been the catalyst to massively accelerate the growth and impact of those pre-existing trends from out on the edges, from where change almost always emerges.
If this is true, the strategic planning processes are still valid, you still have to make those strategic choices, which markets, which products, which customers, which technologies, and so on, but in the implementation, you no longer have the luxury of time, it is the quick and the dead.
It seems to me that ‘Strategic planning’ should provide a framework within which to make tactical decisions that reflect the intent of the framework. They should be made ‘rolling,’ so as to absorb the learning from the previous cycle, and be able to accommodate changes as they emerge. A strategic OODA loop.
This is easier said than done, but if it was easy, everyone would be doing it.
It also seems to me that the siloed top down decision making and the cultures and processes that support it should no longer have a place at the table. Unfortunately for most existing organisations, they combine to assure that agility and creativity in response to new information is removed from the process.
The ability to deal dynamically with new information and changed circumstances is the new competitive advantage, but culturally it is not common.
We need to be able to give those in direct contact with markets and trends both head time to absorb the things they see, and the power to act on them without a long bureaucratic filtering process of approval. They also need the power to allocate resources to those ‘experiments’ within pre-agreed parameters, and have real time feedback from those experiments, seen at the top level so as to be able to influence the strategic cycles directly.
The feedstock of this cultural change is more than data, with which we have become obsessed. It is the ‘soft’ stuff, human experience and judgement that becomes vital to the outcomes, as it is only by humans that judgements can be made. Algorithms are great at collecting data, and telling us what happened, but lousy at projecting, this requires human judgement, intuition, and experience.
It is this judgement that synthesises the data into something different to an extrapolation, absorbs the lessons of the past to apply to nascent and emerging trends.
In these differences lies the secret of strategic implementation.
Call me now for a strategic reality check.
Header cartoon courtesy Hugh McLeod at www.gapingvoid.com
by strategyaudit | Nov 20, 2020 | Leadership, Strategy
Warren Buffet is renowned as perhaps the greatest investor of our time. To be noted as a mentor, as was Philip Fisher, is indeed being stuck on a pedestal.
Fisher published quite a bit, his seminal work being ‘Common stocks and uncommon profits’ first published in 1958.
In it he outlined 8 principals by which he invested. Buffet credits these 8 principals as being fundamental to his success, along with the quantitative analysis he learnt from Benjamin Graham. These two men, along with Charlie Munger, his intellectual side-kick for 60 years, are credited by Buffet as the foundation of his success.
The Fisher principles in summarised form are:
- Go and see.
- Depth of R&D leads to growth.
- Sales and merchandising are make and break.
- Being a low cost producer, and working to stay there leads to higher margins.
- Generate your finance internally.
- Have only great people. The depth and quality of management, represented by integrity, transparency, willingness to learn from mistakes, and who build working relationships with stakeholders are essential.
- ‘Scuttlebutt’ is a serious business, and should be collected by talking to as many knowledgeable people as possible who may be familiar with any company you were learning about, and analysed in depth.
Like all great advice, this list applies equally today as it did 50 years ago, and the application is much wider than just investing. If you were setting out to construct the framework for the business you wanted to create, that drove the culture you were seeking, then this list would be a great foundation.
I particularly like the dedication in the most recent edition of Fishers book, which reads “This book is dedicated to all investors, large and small, who do NOT adhere to the philosophy “I have already made up my mind, don’t confuse me with facts’. This admonition seems particularly pertinent in these times of an overwhelming volume of opinion posing as fact, being blasted at us, demanding our attention.
