Mar 9, 2015 | Change, Governance, Management, Small business
Three core factors of success
Over 20 years of working with mostly small and medium businesses, I have found there are three common factors that are almost always are pre-requisites to a successful business, generally in this order:
- Cash. Cash is the lifeblood of business, and too often small businesses do not manage their cash well enough. Simple tools and techniques are not used that could make a huge difference in the success and often avert the demise of small businesses. Businesses have absolute control of the manner in which they manage their cash, it is entirely up to them.
- Leverage. Most small and medium sized businesses are run by people who are functionally extremely competent, really good at the thing that led them into businesses in the first place, rather than being an employee. However, the flip side is that they often do not let go of their functional control, and they let other things outside their competence slide. The net result is that they work ridiculously long hours to take home less than their employees, and have no life outside the businesses which grinds to a halt if they take a week off. They must find ways to leverage their time, to get more done in less time. Most business people have the opportunity to leverage their time far better than they do, the choice not to do so is usually in their hands, weather or not they know it.
- Simplicity. Simple is good, simple makes life easier, more productive, and more profitable, but ironically simple is really hard to achieve. Unlike cash and leverage, simplicity is to a significant extent out of the hands of the business owners. The really good ones have simplified their processes, ensured their activities are aligned with their strategies, and built a culture that engages employees to minimise rework and maximise the amount of autonomy and innovation that happens, but then they have to deal with the world outside their premises. Customers, suppliers, competitors all complicate life, as does the public sector, unable as it is to even begin to realise the benefit of simplicity and the costs their own complexity imposes on small businesses.
Nevertheless, setting out to do better on all three parameters will most certainly deliver dividends. The first step is to form a quantitative picture of the current situation, plan the improvements, then measure the improvements as the changes bite.
Then “Rinse and repeat”!
Feb 27, 2015 | Governance, Management, Operations, Personal Rant, Small business
Times are tough, success is hard to come by, even for businesses that have been around for a long time, well and truly beating the hoodoo that stalks new businesses, 9/10 failing in the first few years.
Somebody I have known for a long time, who has run a small businesses delivering a range of very good products to consumers via FMCG retailers is about to go to the wall. 25 years of effort and commitment about to slide down the dunney leaving him with nothing, not even his house, left to him by his parents.
Worse than sad. Tragic.
Many things factor in the eventual failure of this business, but one stands out starkly.
Poor management of his cash.
There are two sides to the challenge of managing cash.
The first is the cash itself.
In this case, from week to week even day to day, he knew how much was in the bank, but when the big bills came in, it has been a real struggle to pay them, because he was not adequately forecasting the flow of cash, giving him the opportunity to adjust activity as necessary. His bank has been unsympathetic, creditors demanding, and debtors increasingly reluctant to part with their cash, even in this current super low interest rate environment. Meanwhile costs have increased inexorably, way out of line with his ability to extract a corresponding increase in the prices he can charge in the marketplace.
Not pretty, and all too common.
The second is how the cash you have is used, the level of productivity you extract from it. Cash by itself is worthless, its value is in what you do with it. Purchase inventory, pay staff, provide a factory and all the other stuff we call the costs of being in business. After all that is done, most want some reward for the long hours and stress of being in a small business, and then to have some left over to go towards that world trip on retirement.
The productivity of the cash is not measured by the amount you spend, but by what you get for it, and small businesses rarely spend enough time considering ways to increase the productivity of their cash, concentrating on the absolute amounts coming in and going out. Challenge is that there is no explicit measure for cash productivity, and it is not a notion recognised in the accounting packages everyone uses, the accounting standards, or most peoples mindsets. Best we usually seem to do is have a few ratios like the “Quick” ratio which measures current assets over current liabilities, which are not regularly tracked performance measures, and have room for interpretation and thus manipulation.
Stock turn, debtors days Vs creditors days, Sales or Gross margin/employee, product value produced/realisable value of a piece of machinery, production value/production employee, time taken/task, and many others. There are thousands of ways to measure the productivity of the cash tied up in any business, and every business will be different. However, there will be a few measures for each that capture the essential nature of the business, where an improvement will deliver measurable financial results.
You should be seeking and using these key measures of cash productivity in your business.
Back to the case of my acquaintance.
He did not manage his cash flow well enough. Failure to adequately forecast and thus manage the ebbs and flows of cash into and out of his business, and as a result having to put in place very expensive short term funding in one way or another meant he was always chasing his cash-tail. He also did not measure, almost at all, the productivity of his cash, allowing the ” hidden” costs of poor cash productivity to kill him. Despite his Income statement, often called the Profit and Loss statement, telling him he was making a modest profit, he has hit the wall.
A sad but unfortunately common story, one I hope you are not seeing first hand.
Feb 9, 2015 | Governance, Leadership, Management, Marketing
Gaining some sort of commitment is the first stage of any commercial process, and repeats continuously up till, and after a transaction takes place. Sufficient commitment to click an opt in button, allocate the time to a webinar, look at your product demonstration, conduct a trial, or commit to a purchase, all require that in a variety of ways, the seller has in some way engaged with you, and built your commitment to them.
It does not matter if you are BHP, a local tradesman or the suburban lawyer, addressing these four pillars will bring you business.
- Demonstrate you care. People will be attracted to those who care about what they care about, and who care about them. Showing interest by asking questions and genuinely listening to the answers and responding appropriately demonstrates you care. Next time you phone someone and you get a recorded message telling you that your call is important to them, and then wait 10 minutes to be connected to a call centre in Bangalore, you know they do not really care.
- Demonstrate you can be trusted. Nobody wants to have anything to do with those they do not trust. It follows that demonstrating you can be trusted, that you do what you say you will do becomes a fundamental foundation of a relationship, even a passing one. pretty important. Trust is the foundation of any relationship, and in a commercial one, a money back guarantee usually goes a long way.
- Demonstrate your influence. Being able to get things done, to cut through the complication and hubris that exists in most situations builds confidence in your capacity to deliver on your undertakings. This is sometimes a bit challenging, particularly in the early stages of a relationship, but there are usually ways. Some time ago, I had some work done on my house, and the architect as part of his service took on the task of dealing with the notoriously pedantic and difficult local council. No big deal, no fuss, just part of the service. Clearly he knew who to talk to get things done, and as it turned out, he did.
- Demonstrate your authority. In the past your title used to be a demonstration of authority, but no longer. Just being a lawyer of accountant, or the CEO used to be enough, but we now know that these titles just assure us that there is still a pulse. In these transparent times, authority is usually earned rather than bestowed. Finding ways to demonstrate the authority of your knowledge, leadership and position is a marker to those who may be in a position to seek out your services or products. Social proof is rapidly becoming the marker of authority, the number of comments and shares of a post, speaking at industry gatherings, published material, all point to some level of authority. Of course organisational authority is still important, but significantly less so than yesterday, and tomorrow, it will become just a label.
Your marketing challenge is tangled up in these four parameters of relationship building, and working on them all, tiny piece by tiny piece will improve your outcomes measurably in a relatively short time.
Call me when you need help, or trawl through the years of accumulated knowledge demonstrated in these 1400 odd posts.
Feb 6, 2015 | Governance, Management, Marketing, Small business
9/10 small businesses fail in the first 3 years, leaving behind a pile of financial and emotional debt that generally weighs heavily on the “owner”.
Often, the failure comes as a surprise to the owner, full of optimism and the sense of freedom and commitment that usually goes with a start-up, irrespective of the nature of the start-up, globally targeted tech innovation, or a sandwich shop in the local mall. However, the signs are usually pretty obvious to an observer who knows the symptoms.
- Mistaking sales for profitability
- Having the wrong customers
- Not managing their cash
- Not knowing the difference between cash flow and net profit on the P&L
- Losing sight of the reason they are in business
- Poor allocation of limited resources, particularly time
- Outsourcing tasks to the cheapest available resource, rather than the most appropriate
- Not understanding the detail of their cost drivers
- Thinking that the competition thinks and acts like them
- Mistaking speed for efficiency and productivity
- Not treating existing customers like gold
- Not recognising when the horse is dead
- Poor hiring decisions under pressure to fill a seat
- Not leveraging the digital productivity tools now available
- Not understanding their primary customers sufficiently well
- Failing to leverage obvious collaborative opportunities to engage and serve customers
- Chasing the next customer rather than obsessing about the current.
- Taking the money of anything that walks through the door
- Not being able to say “No”
- Missing some of the regulatory stuff, particularly in relation to staff
- Not understanding and leveraging the digital tools available
- Failure to plan
- Failure to recognise when an existing plan is leading to a dead end
- Unclear business model
- Inconsistent application of the business model
- Price increase “phobia”
The list can go on and on, I am sure you can add some, but people still keep trying. Being prepared to work 18 hours a day,(or often just being sucked in) be the worst paid in the place, risking the house after writing a 100 page business plan for the bank against a template you got from the web that you know they will never read, and being patronised by employees of some institution whose riskiest act today will be to have chicken instead of ham on their sandwich.
Who would not want to work for themselves?
In 20 years of being such a dumb-arse, I have seen all the above, and more, while usually making less than I did as a corporate operator, but reveling in the personal and intellectual freedom. If that experience could help you to avoid that “oh shit why didn’t I see that “step, give me a call.
Feb 3, 2015 | Leadership, Management, Strategy
For years I have followed Seth Godin’s musings, ideas and presentations, a remarkable collection of original thoughts, metaphors, instruction, and repackaging of the complicated into the simple, shared with enormous generosity.
This post that came out this morning, his productivity pyramid, is such a simple idea, bits of which most of us have considered in one way or another, but it takes a deeply inventive mind to articulate it in such a simple way.
I think it was Michelangelo who said something like “Simplicity is the ultimate sophistication”, may have been Mark Twain, perhaps you can correct me, but irrespective, simplicity is really hard, and this is really simple.
I just added the visual.
Thanks Seth.
Jan 1, 2015 | Leadership, Management, Marketing, Small business, Strategy
happy new year
It’s been the Christmas and new year period, and over the break some introspection occurred, along with the pud, family connections and some nice wine.
One of the insights that emerged was the application of Clayton Christianson’s “job to be done” idea to marketing, and specifically the manner in which I approach the task of developing, selling and delivering Intellectual Capital.
As I thought about what is was going to take to be successful in 2015, I needed to ask, and answer three pretty basic questions:
- What is it that I do every day?
- Why would people hire me?
- How can I help them do their job better?
When I worked my way through those, the answer was pretty simple.
The job of a marketer is to discover, develop, and tell interesting and engaging stories to people who care, who may receive value from the experience an wisdom contained in the stories, and who may take an action as a result that delivers them some benefit.
The job is not to make ads, or create blog posts or posters, it is to identify the ways that as marketers we can bridge the divide between what people are looking for, the challenges and opportunities they face, and how we can help them with the task of “finding.”
I trust 2015 will be a good year for us all, at least better than 2014.
Our families, friends, colleagues, and those who are in great need around this shrinking world need some simple wisdom, helping hand and quiet counsel, and it is up to us collectively to give that to them as we can, in the best way we can.
Happy new year.
Allen
