Small businesses are often dealing with situations in which performance has not met expectations. It’s not really a failure, per se, but there has to be a change. A restart.
It might be the European division, or the HR department, or the implementation of the new CRM. When the gap between where the initiative is supposed to be, and where it actually is, is big enough, a restart is needed.
(Hmmm, you say, how will I tell if my situation is “big enough” to merit a restart? The answer is different for every situation, but basically, it comes down to whether the business can handle the underperformance for however long into the future you want to look. A failing overseas office in one company might continue to bump along if the rest of the business can prop it up, while a similar office in another company is a crisis because it’s sucking too much cash that other parts of the business also need.)
When I’m faced with this situation in one of my clients, I work along 4 paths to do the restart:
– A credible though possibly uncertain understanding of our value, and an informed belief that people want what we offer, and a vision for why it makes strategic sense to “play that game” as opposed to focusing on something else
– A leader or leaders who can inject the energy needed to change things and break new ground
– The funding needed for the plan…and the mistakes we’ll make as we learn the flaws with the plan
– A story that refocuses the team from the failure and the pain, to the vision and the hope
As a leader, you know what these kinds of situations are like. Not clear. Not simple. Not easy. But if you have those 4 pieces, you’re well on your way to a successful restart, even if the results don’t come right away. And if you don’t have those 4 pieces…then that’s the first thing you need to work on!
My daughter is a huge Harry Potter fan, and she has been smitten by the frenzy of the release of Harry Potter & The Cursed Child. So last week I found myself watching Harry Potter 7 Part 2 with her. And in it, Hermione was recommending that she, Ron & Harry be more careful and plan out their return to Hogwarts, since that journey was likely to lead to a conflict with the forces of You-Know-Who.
Ron, feeling some urgency, dismissed Hermione’s request, saying:
“Hermione, when did any of our plans work? We plan, we get there, and then all hell breaks loose.”
Fortunately Harry, who is an intuitive strategist like most of the Second Stage owners I know, comes up with a short-term plan….”We’ll figure it out when we get there and we see what we’re working with.”
Let’s highlight some of the lessons about strategic planning that are contained in that little scene:
– Planning doesn’t work on its own, because things won’t happen the way you expected them to
– A good plan starts with an assessment of the current situation – assets, needs, opportunities
– There are times when good execution is more important than good planning – specifically, when a lot is uncertain, or you don’t have a lot of resources that you can put toward a plan (this is why planning is less important in start-ups bootstrap start-ups)
There are also some undercurrents to Ron’s statement – the stuff we can read “between the lines”:
– Planning helps get you ready for the battle, even if the plan doesn’t work
– People who fight the battle can use that experience to develop better plans – and do them faster
– When you’ve gone into enough similar experiences, you can rely on your intuition more than needing a plan – it’s likely that the situation will mostly look like something you’ve dealt with in the past, and the stuff that is new will be minor enough that it won’t overwhelm you
You Second Stage muggles have your own version of wands and spells – the experience you have that enables you to solve problems as if you were waving a wand, the insight and service you give your customers that can (truly) be like a spell, all the assets and resources you have built up to solve some of the world’s problems in a way that (if you step back from it) can seem magical to someone new to it. And all of those things will be made better, and more powerful, with the right amount of planning.
In the last week, I’ve had a couple of strategy meetings where the simple idea of going with the flow came up.
In the first, a decades-old company is finding that it’s not as easy as it used to be to get customers. They are facing the prospect of having to cannibalize their current customers to sell something that will have broader appeal – the plan being that the new sales will outweigh those lost from the cannibalization.
The go-with-the-flow idea? “Sell what they your market is buying.” After about 15 minutes talking to a salesperson, whose first reaction was to tell me all the reasons that customers aren’t buying the legacy product, he then said, “You know, there’s one big prospect on the East Coast who would be really interested in this new version we’re talking about.” And from there, we’re off…selling what the market is buying.
In the second meeting, we were debating which of several initiatives should get funding support. We were looking at 6 different programs, with varying degrees of success. Some were clearly “popping” and gaining traction; others were struggling though everyone thought they should have lots of potential.
The go-with-the-flow idea then? “Go in the direction of what works.” The path of least resistance was to double-down on the ones with traction. We didn’t abandon the others, but the question of where to put the discretionary budget we had available was answered pretty simply.
Sometimes business isn’t a struggle. Sometimes the market gives us the answer, and we just have to listen…and go with the flow.
There’s a cost to growth
Here’s a universal truth that doesn’t get enough airtime among business leaders – and that many leader teams, therefore, don’t fully appreciate:
Growth must be funded.
I started working with a company recently that developed a BHAG of doubling in size over the next 5 or so years. The first year went well – but last year was rough, and they’re now feeling pulled between the commitment they made to their BHAG, the desire they have to distribute profits at a level they’re accustomed to, and the need they have to correct some operational issues.
They have a newfound appreciation for the fact that the decision to grow often comes at the expense of the ability to harvest profits.
What does it mean that growth must be funded? Here are a few of the things that you’d need to invest in to grow – that you wouldn’t need (or wouldn’t need as much of) if you weren’t growing:
- Expanding your training and talent development efforts
- Developing new marketing programs
- Hiring more salespeople or programmers – and if they’re hard to find or need training, then you need to hire them before you have the revenue to support them
- Expanding into new facilities or adding equipment
There can be many more, but you get the idea.
On top of those tangible investments, you’d have two more hidden costs: the time that your team spends solving issues associated with the growth, and the inevitable inefficiencies you’ll have the first time you do things.
This isn’t to deny the wonderful benefits of growth, which include more people and customers to make your stuff better, more resources to solve problems and offer rewards, and more impact and influence on your markets and community.
But as you develop your BHAG, realize that you’ll also benefit from having a Big Heavy Accessible War Chest. And that’s why I often recommend that the first 2 years of a growth strategy focus on increasing your profitability and building your reserves. The path to your BHAG will be a lot more fun and manageable if you have the money to deal with the challenges you’ll face.
Crafting a dashboard that works
I’m going to be talking about dashboards on the Rising Leader webinar in March, and as I prep for that session, I’m reminded of why you should create a dashboard in the first place.
It may seem obvious on the surface, but a dashboard keeps visible and helps you track two things:
- What in your business will “move the needle” for success
- What you want to focus your attention on
Companies with fewer than about 25 people often don’t need a dashboard (which doesn’t mean they wouldn’t benefit from one). At that size, the team instinctively knows what’s important, and the leaders are close to the action.
Bigger than 25 people, though, and a dashboard is useful. Unfortunately, a dashboard is also harder at that size, for several reasons:
- There are simply more parts of the business – more things that the company is doing, many of which seem important. What is really important to put on the dashboard?
- There become several levels of “frames” that can be used to understand the business. There’s the tactical/trenches level (returning a customer’s email), the “strat-tactical” level (customer service), and the strategic level (the customer experience). Once you identify a part of your business that’s important, then you need to figure out if you measure it at the 100-, 1,000-, 10,000- level, or 50,000-foot level.
- There often is no immediate, easy source of data for issues that are important. For example, most people would agree that employee engagement is important to most companies – but how do you measure that? [Note: there are some pretty simple ways.]
So, crafting an effective dashboard takes thought.
Many companies have an annual budgeting process – they recognize that coming up with financial plans is complex enough that they should spend time figuring it out.
Well, you should also have an annual “dashboarding” process that figures out what’s important to your business and what you want to focus your attention on. Some things will always be important; others will come and go.
If you’re a middle manager or a high-potential employee, you can join the Rising Leader Program and hear more about dashboards this month in our webinar. Visit phimation.com/start to find out more.
You don’t need to hire every position with the same approach. Sure, some companies have the same hiring process for everyone, and it often involves spending 6 months on each hire and only hiring A+ people. In theory, that’s what you should do, but in practice, there are some hires that deserve more effort and some that deserve less.
How do you tell when to invest more or less? I’ll be talking about that on my webinar this month – the 3 different approaches to hiring, and when each one is appropriate.
For this column, I want to focus in on the highest-investment approach.
When does a hire deserve a heavy investment? The primary drivers are (a) the impact the position can have on the organization, and (b) the experience your company has with hiring that specific type of position. In other words, you should invest more heavily in your recruiting process when you’re hiring:
- Executive or key manager positions – because the impact of that position will be a multiple of the costs of even an elaborate hiring process
- New positions – because you don’t know what you’re looking for, and because you need to train your organization on what the new position will do
What does it mean to invest heavily in a hiring process? You should spend more time…
- Planning the position before even starting the recruiting process
- Choreographing the hiring process – who to include when
- Building a bigger candidate pool
- Interviewing candidates
- Confirming your final choice
It’s OK not to go all-out on every hire. What’s important for growing companies is having the wisdom to know when a more extensive recruiting process is needed, and having the discipline to invest the time needed when it is required.
If you do that, you’ll avoid the costs of a bad hire, which can be dramatic – around 2-3x the person’s compensation for a manager, and 5-10x the person’s compensation for an executive.
Leadership and the under-communication crisis
As the writer of this article, I’ve evaluated all of the possibilities I could focus on, and decided that we should give our attention to communication.
We all need to communicate more, and will be doing things in the coming months to do that.
Not enough for you? Keep reading to see what you should be doing to communicate as a leader.
When I was a debater in high school, my coach gave me the following formula for success:
Tell them what you’re going to tell them
Tell them what you told them
As a company leader, the same formula applies, with a change:
Tell them what you’re going to tell them
Tell them what you told them
This is the time of year when you’re setting your annual priorities, which will be followed in a few weeks by the need to communicate those priorities to your team. I was meeting with a COO last week, and after spending an hour talking about one of his 2016 company goals, I asked how he was going to communicate the goal to the organization.
“I’ll have the VPs tell their groups.” (Mind you, last year, some VPs told me that their colleagues would often communicate very different messages about the same topic.)
“Can you spend time on this in the company meeting?”
“No, we don’t have time. We need to keep those to ½ hour, and we have too many other things to cover. The VPs can cover it.”
Huh? Um, no they can’t – at least not by themselves. In addition to the VPs’ communication, all company staff need to hear a single version of the message directly from the highest leader. It ensures consistency of the message, and ensures that people know it’s important.
The closer a message is to something that people already know and already do, the less energy you need to spend on it. However, it would be unusual for a topic that rises to the level of an annual priority to be something that people already know and already do. So, it’s going to take energy to communicate.
And probably extra extra energy.
Here’s what most annual priorities should get:
- Monthly review by the CEO in a company-wide forum (ideally a meeting, but could be a newsletter)
- Monthly review by the VPs in their department or team meetings
- More frequent attention as needed by the relevant manager – such as the head of HR or Sales
“That’s a whole lot of communicating,” you may be thinking. But it’s actually still a small proportion of the overall communication that your employees are exposed to in all of the hours they’re at work. And we’re talking about a message that’s really important.
“People are going to be bombarded by too many messages,” you may be thinking. And if that’s true, then it highlights the need to reduce the number of priorities. The need to communicate is the need to communicate. If you’re not able to meet that need, then you have to focus your attention more.
Most business leaders are going to under-communicate their 2016 goals to their organizations, and that’s going to hurt their companies in an environment that requires as much efficiency and effectiveness as your team can muster. Are you going to make that mistake?
Use your budget to juice your strategy
A few years ago I wrote an article about why it’s important to do both strategic planning and budgeting. It even has a link to a fun old Reese’s commercial.
So let’s look at what is involved in an annual budgeting process.
There are 4 basic components:
- The revenue forecast
- The baseline budget
- The strategic investment portfolio
- The profit allocation
For those of you in my Strategic Leader and Rising Leader programs, we’ll be talking about how to do each step in upcoming webinars. But for now, let me give a quick overview of them.
The reason most people don’t do a revenue forecast is because of the uncertainty of trying to predict future sales. That uncertainty is pronounced in small businesses – though revenue starts to get more predictable in Stage 2, and that’s why a revenue forecast starts to become a good idea. But a poor revenue forecast is better than no forecast at all, and you’ll get better each year you do them. (Warning: if you have a poor forecast, do not rely on it for major spending decisions!) If you just end up with a range of “between $1.2MM and 2.0MM” or an observation of “our forecast only gets us to 40% of this year’s revenue level,” those are still useful in charting your strategic course.
The baseline budget has all the costs that are involved in continuing your business. The easiest way to start to come up with the baseline budget is to take last year’s budget and replicate it. I suggest you group expenses into meaningful categories – it’s more useful to know your combined spending on rent, insurance, utilities, and other basics is, say, 30% of the budget, than to have each of those items listed separately.
The strategic investment portfolio comes out of your strategic planning – it’s the investments needed to accomplish the goals you’ve set. That information should come from business cases you do for each of the major goals you have. (Detailed instructions for a business case are part of our Strategy Toolkit that is included in our Starter Kit.)
Finally, the profit allocation divides the profit that’s left over into 3 buckets that show how much is actually free and available, and how much is reinvested in the business.
Remember that these steps can be adjusted to be simpler or more sophisticated for your business. To turn an old phrase…it’s the budgeting, not the budget, that matters.
Making Better Goals with a Strong Annual Planning Process
Although it seems like just yesterday that the days were hot and we were at the local swimming hole, this is the time to start thinking about annual planning. Some of my clients have small, simple businesses and handle their planning in an afternoon. Others are larger and more complex, and we spend 4 days over the course of 3 months.
No matter the extent of the process, they all have the same underlying process:
– Assess the environment and identify areas that have potential to improve the performance of the business
– Select the areas that have the best potential impact, and create initiatives to address those areas
– Define and justify the investments needed for the initiatives
– Develop action plans
– Launch the initiatives with managers and staff
There’s a rich set of best practices and tools for each of those steps. For example, many people like to use the SWOT framework to assess their situation. But I’ve found that reviewing hits and misses often provides better insight into areas of improvement.
On my Monthly Strategy Slice webinar, we’ll be looking at a small slice of the annual planning process – how to make sure you have a strong set of initiatives to focus on. On the webinar, we’ll talk about tools to evaluate your initiatives along 4 dimensions:
– Are you focusing externally (e.g., developing new markets), internally (e.g., reorganizing), or a combination of both?
– Are you focusing on initiatives with short-term payoff (e.g., a marketing campaign to existing customers), medium-term payoff (e.g., hiring an important new position), or long-term payoff (e.g., launching a new product)?
– Do you have a mix of initiatives that will have a big (transformative) payoff and smaller (incremental) payoffs?
– Do you have a mix of initiatives that have different investment profiles – some requiring relatively little investment, and others needing heavy investment?
We’ll talk about how to evaluate annual priorities, and how to apply the evaluation tools to your business on my webinar – please join us if you want to see these in action.
I’m going to be talking about sales process on my webinar this month, and I want to focus in on the most interesting part of the sales process for this article – creating a “mash-up” of assertiveness and empathy to engage a prospect about the needs they have.
But before I do that, I first have to talk about an important part of the sales process. If you want to get paid the value you deserve for the expertise you have, you have to make sure that your discussions with prospects start with a collaborative dialogue about their needs. If they’ve already defined their needs, and they’re just talking to you about a solution, then you will not get the value you deserve.
The problem is, though, that most prospects think that they’ve already defined their need.
So, how do your salespeople provoke prospects enough to change their thinking – to throw them off the path they’re already on for a solution, and get them to think more about their needs? To do that, your salespeople need to be assertive – they need to prove that they know as much about the prospect’s situation as the prospect does, and it will pay off for the prospect to listen to the salesperson. But your salespeople need to do that carefully – if they’re too assertive, then they’ll probably be dismissed. So they also need to be empathetic.
And that’s the hardest challenge your salespeople have today – how do you be assertive enough to get people to talk with you, and empathetic enough that they want to talk with you? That’s the sales process mash-up that every growth business needs to figure out.
We find the answer to this challenge in the playbook of a Trusted Advisor. Trusted Advisors have independent perspective that the person values (that’s the Advisor part) and the connection and understanding that reassures the person (that’s the Trusted part).
I’ve worked with several clients recently to create “Trusted Advisor Tools” for their people to use in sales discussions to build trust and provoke prospects to question how they’re thinking. I think every business needs these tools.
The salespeople usually see immediately how valuable these tools are and are enthusiastic to start using them. And many are actually relieved because they haven’t known how to push back against prospects in a supportive way.
We’ll develop some sample Trusted Advisor Tools on my webinar – please join us if you want to see these in action.