Every change has unwelcome side-affects

Every change has unwelcome side-affects

Sep 11, 2017 | Change

Change has side-affects, like any medicine. Usually those side-affects are not palatable, and sometimes the medicine does not work.

However, not taking the medicine never works as a cure.

I am 65, so have had a few friends ‘pop off’ from various ailments over the years.  In particular I remember two because of their amazingly different responses to the very similar conditions that eventually beat them.

Colin was diagnosed with a virulent form of cancer, and did undergo some pretty mild palliative treatment, but essentially accepted his fate with grace, and went quietly.

Kevin did not go quietly. He fought the disease with everything he had, going from a big, robust, outgoing, exuberant character, to a tiny defiant shell with a huge smile on his face. He accommodated the numerous and challenging side effects of the aggressive treatments he was receiving as a human guinea pig in several clinical trials with a brand of black humour that made visiting him a joy. I saw him a few days before the end, which I think we both knew was close.  He was consoling me over his coming demise, (unbelievable) reflecting  on his gratitude for the life he had been given, and hoping that his role in the trials would help others.

Much of what I do involves commercial medicine that is not always easy to take, there are side-affects, which are often very unwelcome to some, but there is little about the medicine that is experimental.  Taken in the right doses at the right time, and most often the patient will survive and thrive. However, it usually gets worse before it gets better in the early stages of treatment, which is where many give up and go quietly.

No silver bullets, no gain without pain, and several other such cliches all apply, but the real trick is not to give in too early, and not to accept the seemingly obvious as the inevitable.

 

The value of effort compounds

The value of effort compounds

Sep 5, 2017 | Personal Rant

For the first time in 8 years of blogging, my rhythm has been disrupted. I have not posted a blog now for almost 2 weeks. Over the 8 years, I have averaged 3 posts a week, a real effort, that has just become part of my routine.

The last two weeks have been an enforced layoff, knee replacements, a result of an active life, with lots of sport and other physical activity.

The rehab and drugs (I made plenty of jokes of a ‘back to the 60’s genre) have made it impossible, but while being still pretty stiff and sore, my brain is at least starting to function again. (knees are still stuffed)

So what.

In my absence, the 1550 blogs already up there continued to garner attention, to attract readers, both old readers coming back for another look, and new, finding me via the various channels I have inhabited over the last 8 years.

It occurred to me that this is the result of the compounding power of effort, and specifically the compounding effect of the slow building of knowledge, because that is what this blog is.

For me, it is a way of recording the varied, and often whacky ideas that emerge from between my ears as I observe the commercial  world that I inhabit. I record all this random stuff, and sometimes it makes enough sense, even to me, that it ends up as a post.

It is not a grindstone, it is a joy, an intellectual journey, and if it helps someone else, that is great, but the base reason is far more selfish; it helps me.

Einstein is reported to have said ‘Compounding is the greatest mathematical discovery of all time’ and if we needed any further proof that he knew  what he was talking about, the continued engagement with StrategyAudit in the absence of any new material proves it yet again,

Thanks for reading, and as the fog clears, I will get back into the swing of it.

 

11 growth strategies for small businesses

11 growth strategies for small businesses

Aug 23, 2017 | Leadership, Management, Small business

The last 23 years of working with, reconstructing, and observing small businesses in all sorts of situations has resulted in a pile of insights on many areas of business. A common fact or is the desire to grow, even when in the darkest times, almost all businesses aspire to grow. This is not ego, or self-delusion, it is simply a general acknowledgement that to stand still is to be overtaken.

Grow or get trampled.

The common factor of those that have successfully grown is that they do not follow any recipe, there is no guaranteed growth map, but it is clear that they have all combined some common elements in different ways to succeed.

Be different.

Every successful business I have seen has done something different to those around them, with whom they compete on a day to day basis. Being part of the crowd results at best, at being on the top of the ‘average’ range. Differentiation in the manner that they deliver value to their customers is perhaps  the most common element of success I have seen. It need not be a major thing at first glance, but combined with some of the following elements, differentiation becomes a powerful driver of growth.

Great product.

As the old advertising  saying goes, ‘The customer is not stupid, she is your wife’ . There is no situation where an average product can sustain above average performance. All the clichés and PR gloss in the world will not do any more than get a first sale, after that the product has to deliver value greater than available alternatives. It is the form of that value that differs dramatically, and value does not always mean technical quality, it means fit for purpose.

Growth is a relentless master.

Growth never happens in isolation of focus, effort and commitment. Every sustainable growth business I have seen, or read about, has somewhere in its DNA, a focus on growth, in a way that seizes opportunity, makes it work, learns from what does not work, and goes again. It can apply this focus while ensuring that the every-day operations, the ones that pay the bills today, are well taken care of.

Marketing is shaped by the need.

Too often marketing is seen as a formulaic process that just requires the appropriate level of investment and capability to be successful. Wrong. Every situation requires a differing mix of marketing elements, and there are no two situations where the template will just ‘work’. Just ‘doing marketing’ will not lead to growth, the marketing has to be connected to the intended customers viscerally or it just becomes another of the millions of messages to which we are all subjected every day.

Find a niche and own it.

Whether you are the corner store of Apple, you cannot be all things to all people, in one way or another, you need to focus on those to whom you can deliver superior value. The evaluation of your target niche, the motivations of those at the bottom of the niche who are likely to be your best, stickiest, long term customers, then delivering value to them, is a key to growth. Once you have consolidated your niche, widen it a bit, seek adjacencies, look for novel uses of your capabilities in other niches, but never forget the niche.

Growth is long term.

Nothing useful happens overnight. Growth happens as a result of patience, commitment, and an ability to remain focussed on the goals, even when the short term stuff looks dark, or there is some compelling distraction. While it is fine to experiment, sustainable growth comes from building smaller success over time, not from frequent changes in direction. When looked at in hindsight, successful growth always has some elements of compounding small success present. Remember the fable of  the wise adviser who wanted nothing but compounding grains of rice on his chessboard, each square having double the grains of rice of the previous.

Seek leverage.

Identifying the means by which you can apply leverage to the assets you can deploy always pays dividends. Often this means combining your marketing with the behaviour  drivers of those in your niche to deliver some unique value, bit just as often is means ensuring that the basic processes that deliver the cash every day are robust, and repeatable. Having Standard Operating Procedures that are a part of  the operational DNA saves huge amounts of time and energy better applied to activities outside the mundane . Successful growth engines always have their core processes working well, and those growth activities seeking the points of greatest leverage.

Insights not data.

These days we run the risk of being overwhelmed with data, unlike when I started in business, when quality data was a rare beast, hard won. Today there is just so much data that the real skill is sorting it out and finding the hidden gems that offer insights you can leverage.  Data guru Avinash Kaushik calls it ‘data puking’ which is in my view a fine description. The metaphor I use is going into a library, without any idea what you might be looking for. You end up overwhelmed by the choice, with little chance of finding the right book.

Recognise your ecosystem.

What makes successful businesses successful is an ability to mix and match the best options for  their target customers, in ways that best deliver leverage for both parties. Growth is a two way street, no business can be sustainably successful unless their customers and suppliers are also successful. The task is to make the pie bigger so everyone benefits, not to take a bigger share of a static pie.

No silver bullets.

Growth comes from hard work, focus, determination, commitment, and not from luck or circumstances. My old dad used to say, the harder I work  the luckier I get. And that has been echoed by every successful person I have ever come across. It is never left to chance, it is a managed, deliberate process of making choices between alternative applications of limited available resources, being proved right more often than not, and learning from the times when you are wrong.

Clarity.

Finally, and perhaps most importantly, is clarity. We are in a world that is intensively competitive for the attention of those we may be able to serve. It does not matter if you are the corner store, or a multinational, your marketing challenge is to gain, then hold attention of those we can best serve, while we relate to them the reasons their best interests are best served, their challenges overcome, by working with you. The first test is to ask a few of your employees, close friends, and current customers what problem you solve, looking for a consistent and clear response. In its absence you have some work to do.

A lot of this is common sense, an increasingly rare thing in a complex world.

 

 

 

 

 

A simple way to value your SME

A simple way to value your SME

Aug 21, 2017 | Governance, Management, Small business

The value of your business is absolutely dependent on its ability to generate free cash flow, which in its simplest terms, is the cash required to keep the business running, after necessary capital expenditures have been considered. It is a measure with many formulas that differ only in the detail, and means of determining the meaning of ‘necessary capital’

The durability of that free cash flow is simply an estimate of the confidence you can have in projecting that free cash flow into the future. The durability is usually expressed as a discounted cash flow, which simply applies a rate of inflation expected over time to the current value of a dollar. However, this is only half the calculation as financial projections are impacted by far more than just inflation. They are impacted by competition, regulation, emerging technology, and many other factors. In 2001, who would have thought the global Blockbuster video rental chain, who had built a multibillion dollar turnover, had 54,000 employees, and thousands of franchised and owned stores worldwide would be dead in a decade.

This thought was sparked by a conversation I was involved with that wondered at the difference in the value of two service businesses, that on the surface look very similar. One of them was a successful but modest sized suburban accounting practise, the second a similarly sized suburban wealth management practice. The wealth business had a market value several times the value of the accounting practice, should either of  the principals choose to sell up and enjoy a retirement.

When quizzed, the customer retention rate of the wealth practice was far greater than the accounting business, as was the share of the clients wallet that they had. There are accounting practises, selling pretty standardised services on every street corner, all with a similar offering solving similar problems for a potential client, whereas Wealth management is a way more specialised business, focussed on bespoke solutions to the wealth retention problems faced by wealthy individuals.

Therefore the durability of  cash flow from the wealth management business is considered by those who might be considering buying such a business to be more reliable into the future than that of an  accounting practise.

How does this apply to your business.

If you want to open a sandwich shop in a strip shopping precinct, there is nothing stopping someone opening a competitor next door, indeed, they often do when the first is seen to be successful. However, a similar sandwich shop in a shopping mall will not have a competitor next door, as the mall will not allow it. You do however pay for the privilege of that increased  certainty with the lease rates and turnover ‘tax’ extracted by the mall ownership.

The more specific and specialised  the problem you solve for customers, the less likely they will be to move elsewhere, and you are able to price your services accordingly, delivering both a higher free cash flow, and greater confidence in the durability of that cash flow. It also follows that clients are harder to find,  so the marketing costs prior to them becoming a client are likely to be higher.

The value of your business is absolutely dependent on the amount of free cash flow, and the expected durability of that cash flow. Little else really matters beyond arguing about the book value of fixed assets and any inventory.

 

The excruciating paradox for the innovator.

The excruciating paradox for the innovator.

Aug 17, 2017 | Innovation

Successful innovation generally comes from being small, with little baggage, no institutional ‘downside’ and few inhibitors to the ability to be truly agile in response to weak feedback signals from customers. Innovation is also a consumer of cash, rather than a generator, although that fact of history is being rewritten by the plummeting cost of tech. Usually the innovators have the will, but do not have the cash, the big companies have that.

So, to be successful, as a rule, you at least have to be able to think and act like a small enterprise, but have the resources of a big one.

Back in my early corporate days I worked for Cerebos Australia, then a modest sized, but hugely profitable offshoot of a British multinational . When I joined, Cerebos marketed Cerola Muesli , with considerable success, but margin was hard to get. In the process of creating new products, we created a muesli bar, a mobile, healthy snack that could go into  a lunchbox, and being made of muesli ingredients, was guilt free, or at least, less guilty than a candy bar.

We cobbled together a  bit of gear to add to the production muesli line, and successfully trialled the products to modest outcomes in market research. With the great benefit of hindsight, the encouraging but modest research outcomes were the result of asking people about something they had not seen, so had no context or frame of reference. Nobody to that time had seen a muesli bar, and did not really understand what it was, or more importantly, the value it could deliver.

I did the work, produced a business plan, and was committed to the launch, but the top end of the volume projections I was comfortable to put my name against were below those required to generate the rate of return demanded by Cerebos, and given the perceived risk,  setting out to create a totally new category, was too large, the project was binned before birth.

Then, several years later, when Uncle Toby’s launched their version, which was a close match to the products we had developed, the volumes they achieved in the first 6 months bettered my most optimistic 3 year projections  by a considerable margin.

Creating a sales forecast for an entirely new product, is a function of research, insight, optimism, wishful thinking, and plain lies, all mixed up into a set of projections. Often the most important ingredient is the insight and domain knowledge , but the only thing you know for sure is that the forecasts will be wildly inaccurate. Mostly those inaccuracies reflect the optimism which fails to materialise, but from time to time, great projects are left in the dust, and it is only with hindsight that we wonder why they could not see what now seems obvious.

Innovation inside a large company is challenging. They became big and successful by doing a few things well,  time after time. By improving operational efficiency, they leverage the mathematics of scale and scope. By contrast, anything innovative is messy, risky, and not subject  to rigorous quantitative analysis: there are no hard numbers, just instinct, dodgy projections, and belief.

Perhaps that is why the successful VC’s around do not, as is commonly believed, fund the true start-ups at start-up. Those are funded by the ‘Trinity of F’:  Friends, Family and Fools. The VC comes in when the proof of concept is at least partly there, and they do not invest in the business plan, weighed down by mindless excel projections, wishful thinking, and desperation to snag some money to keep up the car payments, they invest in the people.