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.
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.
Stage 2 companies must already have a clear and compelling value proposition if they’re successful enough to have grown out of start-up, right?
Well, yes and no. They do have enough traction in the marketplace to show that they have a value proposition that works. But it’s actually unlikely that the company has a systematic way to communicate the value proposition. And if that is the case, it will find that revenue growth is harder and harder to achieve – and in a competitive market, the company may start to lose ground to other companies who are communicating their message better.
What should a value proposition look like? When I started out in marketing, I worked with an excellent marketing agency, who explained that the “brand positioning statement” should follow a classic formula of, “For [market segment], Our Brand is the [product category] that [customer benefits] by [points of differentiation].”
So, for a clear and compelling value proposition, you need:
– A clearly defined target market segment or customer profile – is it marketing directors who work with global brands, or owners small businesses in cities, or…
– A definition of the product category – the marketing agency I worked with explained that orange juice could be defined as a breakfast drink or as a health drink, so picking the product category has a big impact on how the product itself is perceived
– A description of the customer benefits – what are the pains you alleviate (lost revenue, production downtime, etc.) and gains you enable (new revenue sources, talent retention, etc.)
– The points of differentiation – choosing from all the ways that your product works or the ways you deliver your service, what are the ways that set it apart from the competition?
Once you have your value proposition, make sure you reinforce it with everyone in your company, and you use it to focus your marketing and sales messages.
Sometimes I’m asked to help companies find the right path for their next 3-5 years – which qualifies as “long-term” strategy for a Stage 2 company. Other times, my strategy work focuses on short-term performance. In either case, it’s useful to have some way to measure progress and check to make sure we’re on the right track – to have a dashboard or scoreboard.
In designing a dashboard, there are 2 main factors: (1) what you will measure, and (2) how you will measure it. I would rather have a precise description of the business driver and an imprecise metric than an imprecise description of the business driver and a precise metric. In other words, it’s more important to understand what to measure than to have a top-quality measure itself – it’s not much help to have an accurate measure of something that doesn’t matter. Or, said even another way, you should not pick your metrics by what is easy to measure – you should focus on what will drive your business, and then do the best you can to approximate a metric if there isn’t one easily available.
As for the business drivers, when you’re measuring short-term performance, the first job is to decide what’s important to track – what’s going to move the needle. In general, the items to track to improve short-term performance are going to be either revenue or costs/productivity. However, I recommend you come up with more specific metrics that zero in on exactly how you’re going to drive those areas. Examples would be:
- Revenues from our top 20 customers
- Revenues from new customers
- Revenues from a particular product line or market sector
- Costs or productivity of non-customer-related activities
- Costs or productivity in the areas of your largest expense areas
For a situation where the short-term performance is OK and the focus needs to be on medium- and long-term initiatives, there are a broader range of areas that are usually represented in a dashboard. Examples of long-term programs include:
- Development of new products
- Diversification into new markets
- Building a new way to acquire customers
- Changing the sales process
- Training and developing your people in general, or the skills in a particular part of the business
- Developing partnerships
So, what do you do if you don’t have a precise metric available? I’ve found that Green/Yellow/Red works fine as long as (a) there is a clear owner of the area that is being tracked, and (b) there is discussion about the status. The benefit of having an actual metric is that good data leaves little open to interpretation. (“Data ends discussions.”) If you’re not working with good data, but instead using something like a color scheme, then you’ll have to make sure you spend time understanding and interpreting what’s going on.
I’ll have some more specific recommendations for designing dashboards during my upcoming Monthly Strategy Hour – register to hear more and ask any questions you have.
Many of you reading this post are 10%ers. And there’s something in the back of your mind eating away at your conscience. You know there’s something not quite right about it, but you tell yourself that 10% has always served you well.
And you might be right. You’ve probably gotten along well enough with your 10%. Then again, you may feel like it no longer has the same effect that it used to. So let’s take a look at your 10% and see if it’s still serving you.
I’m inspired to write about 10% because I met with a guy last week who said, “It’s just what I’ve always done. I don’t really have a reason for it, and sometimes I wonder if it’s what I should be doing. But I’ve never known how else to do it.”
Later on, after our discussion, he said, “Yes, that’s what I want – that would help me, and it would help my team. They’ve always been a bit confused and defensive about the 10%.”
What am I talking about? Let me use his words, “We did a strategic plan back in 2008, but we’ve never updated it. It was helpful and we did some things because of it. But for the last 5 years, I’ve just said that we should grow by 10% next year. And that’s what I say at the start of each year. I kind of know that I could or should have more to my goal, but we’ve been OK just trying for that 10%.”
It’s something I’ve heard many times before. So, let’s look at the good, the bad, and the ugly of the “Let’s grow 10% next year” approach to strategic planning.
The good is that it’s an easy way to communicate that you want to grow, but not too much. It says, “Let’s get better at what we’re doing.” It’s also quick – most leaders who use 10% as a goal (I just can’t bring myself to call it a strategy!) need about 1 second to access their intuition and come up with that number. And it’s also good that most leaders who use 10% don’t enforce it – some years they’ll decline 1%, and others they’ll grow 20%, and both are received equally.
The bad is that 10% doesn’t tell anyone how to achieve 10% growth, and, since the person who used it likes a planning process that only takes 1 second, they usually won’t commit the time to strategy and planning to figure out how to get the 10%. And so, they just react to whatever the marketplace offers. That’s not good, but often times 10%ers are bailed out by a strong market, and so reacting is bad but OK.
Which brings us to the ugly, which arrives when a 10%er is managing a business in a market that is seeing substantial change. If that’s the situation, 10% is of no use, and in fact may be counter-productive. Because at the heart of 10% is “let’s change, but not more than we’re comfortable with.” And that can breed complacency that appears to be fine…until it’s too late for any small adjustments to work. And if the only goal you’ve ever had is 10% growth, you and your team are not going to be prepared when you need to lead your company outside your comfort zone.
So, if you’re a 10%er, you have a choice – to be passive or active. Either keep enjoying that comfortable feeling until you’re forced to do more…or lead your team to have a new set of discussions that develop your company’s ability to identify opportunities a little outside your comfort zone, go after them in smart ways, and stay ahead of the market.
I like SWOT assessments (you know – strengths, weaknesses, opportunities, and threats) for getting people’s thinking out of the day-to-day and into a creative, strategic “space.” Unfortunately, I often see SWOT assessments that are just marginally useful.
Here are some tips on how to get more value out of your SWOTs.
If you can take a bullet and put it on someone else’s SWOT without changing it, then you’re not specific enough. One of the favorites to put under Strengths is “Our People”…which is also a good example of a bullet that is not specific enough to be useful in the planning process. What is it about your people? Their experience? Their deep knowledge? Their ability to be generalists? Once I know what’s special about your people, then I can create some possibilities about how to leverage that into a better advantage.
Work hard to look at the future. We live our lives in the day-to-day, so it’s hard to look ahead several years. And that’s why it’s an advantage to do – because most people don’t.
Put “the hard stuff” on the list. Every business has issues that it doesn’t like to talk about. The problem customer. The problem owner. The problem staffer. Without knowing the details, I can tell you that those issues consume a large amount of resources. So they need to be on your SWOT – though it will probably take some diplomatic phrasing. (For example: “Some customers are easier to work with than others,” “Owners are not always aligned on decisions,” and “Spotty follow-through.”)
Make sure you have bullets that cover the whole breadth of the areas you’re involved in. Often, leadership teams focus more on certain areas, and that bias comes through on the SWOT. But the non-focus areas are often the places where there is the most opportunity, especially for companies that are developing from the lean-and-mean start-up to a more complete and sustainable enterprise.
So, here’s the question to ask about your SWOT to see if you’re getting the value out of it: “Does it give us insight into where we should commit significant resources over the next 3 years to improve our chances of success?” If it gives you that, then you’re getting the value you should. If it doesn’t, then you should take steps to upgrade it – which I’ll cover in my next post.
I spent the last 2 days in a workshop learning about performance and accountability from Shane Yount of Process-Based Leadership. His model is a terrific match for the strategy work I do – once you know where you want to go, then you need to activate the organization in a consistent, engaging, disciplined-but-flexible process.
I often talk with my clients about “strategic management,” which is the on-going ability of the organization to identify the right things to work on, and then to actually work on them – as opposed to getting consumed by day-to-day work that puts things off-track.
What powers Shane’s performance system is a “culture of accountability.” What does that look like?
– There are clear priorities for each team – and the company as a whole – to focus on
– There is a sense of urgency in each team – Shane is a strong proponent of a weekly cycle
– There are “non-negotiable rules” that people hold themselves, others, and the organization to – things like showing up for meetings on time, coming to meetings prepared, and taking responsibility for “re-negotiating” commitments if they are not met
– The dialogue is about what people do, not how they feel
How do you know if you need it?
– The performance of your company or team is driven by the force of the leader’s personality (and if that wasn’t there, who knows what would happen…)
– The company or team focuses on whatever is in front of it at the moment
– There is selective engagement – people are able to set their own level of effort and contribution
Many companies don’t need or want a complete structured performance system like what Shane offers. But whether you’re talking about my “strategic management,” or Shane’s “process-based leadership,” every company needs its own “management toolbox” to drive performance.
Is your company’s performance saying you have the right tools?
I had a mid-year Board meeting last week, and it was déjà vu to hear the executives from other companies talk about the economy. What did they say…again?
One theme was making sure you’re selling smart – focusing on your best customers and your best offerings – and doing more of what is most profitable and less of what isn’t.
An even bigger theme was to get lean, and stay lean – don’t do things the way you’ve always done them. Instead, look for ways to get more efficient – whether that means changing people, moving people to new roles, redesigning processes…
In the meeting, my mind couldn’t help but go to the ads with Terry Tate, Reebok’s Office Linebacker for Felcher & Sons:
How do you get lean – besides hiring a linebacker?
There are 5 different levers that I use with my clients to get lean, or leaner – people, processes, structure, compensation, and measurement. We’ll talk about all of them on our upcoming teleseminar (register here), but let’s look at measurement in more detail here.
Why measure? Virtually every measure I’ve worked with has told me something about the business that our instinct didn’t (and couldn’t) tell us. It’s what really is happening in your business – what do you really sell, who are really your best customers, how much time do people really take to do that. It shines a light that almost always tells you something – and often something useful and surprising.
Unfortunately, as anyone who has tried to create metrics will tell you, it is not as simple as it seems. Most people start with good – and big – intentions, but they typically run into trouble in 2 ways. Either they aren’t clear about what to measure, and so they create too many measures; or they don’t take into account the time that measuring is going to take, and so they create an administrative nightmare that collapses after a month or two.
So, how do you create metrics?
First, plan to spend some time on it. This is going to take you and your team 5-10 hours to talk about and think through.
Second, ask yourself what the 3-4 activities are that you have to get right to be successful. This will take some time – your first answer might be “Serve customers well,” but after some time (and asking yourself how you’re going to measure that), you’ll get to, “Meeting with the VP of Marketing once a quarter and with the CEO once a year” or “Completing the customer needs assessment once a year.”
And lastly, look for simple ways to administer the measures. I read a great example a few years ago about a company that gave everyone different colored marbles, and each day people dropped the appropriate marble in a jar as they left for the day. At the end of the month, someone counted the different color marbles. Similarly, I often recommend using a simple sheet of paper with check marks when possible.
The value of metrics is in their specificity, but that’s also what can make them so challenging. It’s almost assured that you will not be able to have the specificity you want, because it’ll take too much administration. So, once you’re clear on what you should measure, then think about what easy measuring system can give you most of the information you need to know whether you’re on track or not.
Getting back to the Board meeting, let’s combine the two thoughts – selling smart, and getting lean. What are some measures that could track how well you’re selling:
– Proportion of customers who buy more than one offering
– Proportion of proposals accepted
– Profitability of each job/project (if it’s hard to measure, just use Hight/Medium/Low)
– Number of hours needed to close a prospect
– Number of hits on the web site
You get the idea. There are lots of possible measures, and the ones you should look at depend on what you want to improve in your business.
We’ll talk about all 5 productivity levers – besides hiring an office linebacker, that is – on our teleseminar. (Register here.)
Hammering a screw …
Baking a cake in your dishwasher…
Pedaling your car…
One of the most common ways that small business owners get stuck is to have the wrong mindset for a problem. This happens a lot when companies emerge from start-up and move into Stage 2 of their development.
What does it take to be successful as a start-up? A high-quality product or service, quick reflexes, responsiveness, experimentation, frugality.
But those same qualities work against you when your business moves to Stage 2. With the right mindset, you stay in control of new opportunities and problems; without the right mindset, you struggle and waste time with solutions that don’t work.
There are many ways that business is different in Stage 2. Let’s look at a few…
Focus on ROI, not cost. In Stage 1, it’s important to manage your costs so that you can get to a point of profitability. In Stage 2, it’s important to focus on your investment returnsand the best and fastest way that you can get results. Often times in Stage 2, the best answer – the one that will get you the best results – is not the cheapest. But many Stage 2 leaders can’t break the frugal mindset, and are stuck in a cycle of underinvestment that never gets them where they need to go.
Focus on markets, not customers. Success in Stage 1 is a built on one-to-one sales, and that intimate contact is important to win early adopters. In Stage 2, though, making sales customer-by-customer is not scalable. What’s needed is the ability to sell to a market. The change from sales-driven to marketing-driven is a big one, and if a Stage 2 leader thinks she can just do “more of the same,” she’ll never be able to scale the business beyond her ability to add good sales people. (And we all know how hard that is.)
Spend more time on strategy and communication. Stage 1 businesses are not simple – but Stage 2 businesses are much more complicated. In fact, as a business grows, the complexity grows exponentially – but many Stage 2 leaders are thinking that it’s only growing linearly. Because the business is more complicated, it needs more time invested in strategy (which is how you coordinate and direct all the different parts) and communication (which is how you align all the different parts). Many Stage 2 leaders think that the decisions they have to make are simpler than they actually are, and are stuck in a reactive mode because they don’t spend enough time thinking about their situation to develop (more complicated) action plans.
What can you do if you’re stuck because of your mindset?
- Honestly assess whether you’ve been as successful in Stage 2 as you were in Stage 1
- Find someone with experience in your situation, who can help you understand the right mindset
- Ask your team what frustrates them – they usually have a good sense of how well you are managing, communicating, and planning
- Get trained on management and strategy, which are going to be key to your success in Stage 2
I’ll be speaking about the shift that HR needs to make from Stage 1 to Stage 2, which is a substantial change. In Stage 1, HR is really about minimizing administrative distractions that get in the way of doing work. In Stage 2, HR plays a central role because talent is the key to success in this stage.
When I think about HR in Second Stage companies, I’m reminded of Jerry Maguire telling his client, “Help me help you…Help me help you.” Picture the staff of your business saying that to you, asking you for the kinds of strategic HR programs that make working at your company engaging, productive, and rewarding.
But many Second Stage companies don’t have those kinds of programs, because they are struggling to make HR more strategic.
Let’s look in more detail at the shift that happens as a company develops.
Stage 1: time horizon – this year
Stage 2: time horizon – 2-3 years
A big part of the complexity in Second Stage companies comes from the need for the business to have a longer time horizon. In HR, that longer horizon means that personal development plans need to be developed – and then coordinated across the company…and with the company’s strategy and development itself. That’s much more complicated than the “get the job done” focus of Stage 1.
Stage 1: define responsibilities
Stage 2: define competencies
We like to say that Stage 1 is like beach volleyball – success comes from reacting quickly and going wherever the play is. By the “end” of Stage 1, there is some consistency developing, and so the business starts to define responsibilities. As a business enters Stage 2, each role gets more defined, and as a result each position has its own set of needs. At that point, the business needs to define the competencies needed for each position to be effective.
Stage 1: feedback focused on assessment
Stage 2: feedback focused on development
Just about every Stage 1 company I know struggles with simply doing performance reviews – the evolution they are working on is providing assessment feedback. The assessment framework is usually established by the time the company is a “young Stage 2,” and after that, the evolution that the business needs to make is the context of that assessment – the employee’s development plan.
Second Stage companies need to shift their approach to HR to get the most out of their people – and give the most to their people.
I’ll get into more detail about these ideas at Walsh’s HR Summit on March 10th. You can also read more about how my clients are handling Talent Management issues in my past blog posts on quarterly issues, and I have an article on the subject on our Resources page.