• Money makes it stronger

    24 October 2015

    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.

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  • What the market wants

    20 January 2015

    “We have to stop talking about what we want, and start doing what the market is telling us to do,” said a COO in a recent meeting I was leading to talk about changing the way the company serves customers.

    10 years ago, the company served its customers start-to-finish, and the profits that it made enabled it to take good care of those customer if anything went wrong in the project.

    Now, more customers than ever are contacting them to buy their service, but fewer want the start-to-finish service.  This was creating tension within the business, as frontline employees tried to force these new customers into the old model – a model that the new customers don’t want and don’t want to pay for.

    We’d started the meeting describing the new way that we’d be working with customers, but the ideas were meeting resistance as people tried to fit the new model into their old mindset.

    Until, after growing frustration, the COO stopped the discussion with his emphatic reminder that the answers to strategic questions start with what the market wants.

    With that clear, we then set off identifying the questions and issues that would need to be addressed to meet customers on their terms.  It involves a lot of new thinking, and it is a 2-3 year project, but the team is well aware of the tensions and problems that it has trying to stay with the old model.  So, we’ve targeted a few short-term changes we can make in the short-term so we can create momentum, and we’ve also highlighted some complicated issues that will take prolonged effort.

    The lesson for you leaders:  when you’re starting in on a strategy, or a strategic discussion, start with what your customers and your markets are telling you they need.  And if you haven’t talked with your team about what that is in the past year, include that in your next strategy meeting.

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  • Taylor Swift Teaches Market Strategy

    5 November 2014

    In case you were thinking that some people haven’t had to rethink their business model to the “New Normal,” Taylor Swift provided a reminder that, well, that’s true!

    While the rest of the world is gravitating toward streaming music services – which apparently don’t pay what purchased downloads do, let alone what good old fashioned CD sales used to – Taylor Swift pulled her new album from Spotify.  If Spotify’s users want to listen to Shake It Off or any other song from her, they’ll have to buy it.  (I’m a Spotify subscriber who ponies up the $10/month for the premium service, for the very reason that I want artists to be paid for their work.)

    Her leverage in this case is unusual, which gives her the flexibility to take the risk to pull her product from a major distribution channel.  Wouldn’t you like to have that leverage in your market?

    So, what has Taylor Swift done to put herself in this position:

    –          Worked hard for a decade to develop her skills, brand, awareness, and business

    –          Put out a quality product that the market wants

    –          Was authentic in her product and brand

    The various promotional strategies her team has used for each album and tour certainly made a difference – for example, I don’t think it was a fluke that she gave Spotify users access to Shake It Off for a short time, so that they could get hooked on the song.  But the core elements of hard work, wanted-product, and authenticity were the start of her success.

    What can you do to increase your market leverage by improving these core pieces?

    –          Do the hard work and tackle the hard issues

    –          Ask your customers what they want, or look at which of your offerings sell the most and do more of that

    –          Describe your company’s personality and culture and make sure those come out in your marketing (not just in what you say, but also in what you do)

    Congratulations, Ms. Swift.  I haven’t decided yet whether I’ll be buying your songs or just waiting for them to come back to Spotify (I expect they will come back), but I respect you for forcing me to make that decision.

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  • “Once you replace negative thoughts with positive ones, you’ll start having positive results.”

    2 January 2014

    The standard chunk of Lorem Ipsum used since the 1500s is reproduced below for those interested. Sections 1.10.32 and 1.10.33 from “de Finibus Bonorum et Malorum” by Cicero are also reproduced in their exact original form, accompanied by English versions from the 1914 translation by H. Rackham.

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  • Empathy & Profitability

    27 June 2013
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    Many of my clients are proud of the “family feel” of their companies. They care about their people, see the whole person, and create a bond of trust that moves them well beyond an “employer-employee” relationship.

    The last few years have been hard for the leaders of these companies, because they haven’t been able to protect their employees from the tumultuous market environment that their companies are operating in. Bonuses have been cancelled, raises postponed, training missed, and some of the “family” have even been let go.

    In a discussion this week with a leadership team that was debating how to balance the benefits of a family feel with the realities of operating a company within the rules of business, I pointed out that it is profitability that provides the flexibility to treat employees well.

    Look at a company that treats its employees well, and you’ll also be looking at a company that has a profitable business model.

    At a Board meeting with one of my family business clients a few weeks ago – a company that has been passed down through several generations – they said it another way: “Always protect the money tree first.”

    After yesterday’s meeting, I thought, “If profitability is the foundation of an empathetic company, what is the foundation of profitability?”

    The answer has many parts, of course – strategy, productivity, discipline, teamwork, culture, accountability, etc. But I’d say the thing that comes first, before making the profitability happen, is…empathy. The ability to empathize with your customers, so that you understand what they need and how to make their lives better, in a way that they value.

    If you want to empathize with your employees – if you want to create that great family feel – empathize with your customers.

    There are many values that a company can live by. If you haven’t considered having Empathy as one of your company’s core values, it’s worth a look. And if you haven’t defined any of your core values…we should talk.

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  • When Should You Add Your Next Salesperson – Part 1

    3 May 2013
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    “When should I add my next salesperson?” is a question consultants hear a lot.

    This is an interesting question.  It’s actually a subset of a broader question, “How do I know if I should make an investment?”

    Unfortunately, investment decisions are usually uncertain, but there are a few things you can do to clarify the answer.

    For hiring a salesperson, I’d ask…

    What is the current capacity of the team, and could you get more out of the team by “training them up” or restructuring how they’re supported?

    How hard will it be to find the right person for the job?  (“Finding a salesperson is easy,” a client told me once.  “Finding the right salesperson is what’s hard.”)

    Being really honest, how good are you at hiring in general, and at hiring/selecting salespeople in particular?  How often do you find and select the right person?

    Since you probably won’t be able to hire the person right at the point your sales team is maxed out, would you rather live with the risk of paying someone who is not fully utilized, or having your staff stretched and possibly having some errors?

    I often talk to my clients about hiring “ahead of the curve” (before the business is there) or “behind the curve” (after the business is there).  The important thing to realize is that it’s unlikely that you’ll actually hire “on the curve.”  So, you just have to decide what kind of risk you want to manage.  You could make the investment before you know if you’ll have the business to support it – and be positioned for growth sooner.  Or you could overtax the organization with more work than it can handle – and keep your expenses down.

    The “right” option for you depends on your situation (e.g., “We’ve got tons of opportunity we just need feet on the street to get”), your business strategy (e.g., “We have to grow”), and the level and type of risk you are comfortable with (e.g., “I don’t like to make an investment until the odds look pretty darn good.”)

    With salespeople, there sometimes is a way to have your cake and eat it too – by paying someone mostly on commission.  The benefit of this approach is that you’re adding the bandwidth without the cost.  The danger of this approach is along the lines of “You get what you pay for.”  If you have proven that commission-driven salespeople can sell your product, and you can characterize the opportunity you have to offer, then you have a good chance of this working.  If you’re still figuring out how to sell your product, or your other salespeople are not commission-based, then it would probably be a waste of time to look for someone using that compensation model – it’s just not good odds that you’ll find the right salesperson with that risky compensation.

    If you don’t want to hire a salesperson now, there are alternatives that can get your more “throughput” from your sales team:

    “Training up” your current salespeople so they are more effective

    Improving processes or systems to make them more productive

    Having your admin staff (who are easier to hire than salespeople) handle more sales support activities for the sales team.

    Lastly, there are a few things to keep in mind for hiring effectively.  It’s generally a tough hiring market, so start looking early, because it’s likely to take you longer than you expect to find the right person.  Also, plan to spend as much time on-boarding the new hire as you took to hire them.  I’ve seen many salespeople flounder at the start because the company didn’t help them get into the business.

    If you want to learn more about what kinds of salespeople there are, and what kind you might need, an excellent book and enjoyable read is Selling the Wheel.

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  • How training can help grow your small business

    6 September 2011
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    If you’ve launched a small business that’s ready to take that next step, there are three things that are very likely.

    • First, you’re working hard. Probably harder than you’ve ever worked in your life.
    • Second, you’re loving it. While the work is hard, you love it so much that your business is stuck at a certain point of growth
    • Third, you’re trying to grow, and you want to grow in a smart way, but you’re not sure how to do it.

    For instance, as your sales have increased, you’ve probably significantly increased the workload of your bookkeeper. But as you continue to grow, will your bookkeeper provide the kind of financial oversight and business acumen your business needs?

    And as the size of your team in all of its functions grows, do you have the right Human Resources structures in place to get the most from your talent?

    Are putting the right people into the right roles to effectively manage your company’s growth? Do you know who your superstars are … and how you define a superstar?

    It’s time you got some expert advice. Someone who can lead you down the path from entrepreneur to enterprise. This is where training can help.

    It gives you another perspective. In the same way that a tennis player will look to her coach to understand how she can tweak what she’s doing to hit the ball harder, you’re going to get the benefit of someone’s expert opinion.

    Our team offers exactly that kind of mentoring. We’ve seen all sorts of small businesses take that next step. We know what it takes for them to increase their sales, staff their teams, and effectively manage their costs along the way.

    You wouldn’t buy a new car without knowing that an owner’s manual, or someone, could show you how it works, would you? Then why would you run your small business without help?

    One example of a business that’s been helped by training is LLamasoft, an ambitious software company who needed some guidance on how to take that next step. Here’s what LLamasoft CEO Don Hicks has to say about training:

    “When your company moves from startup to second stage growth, you don’t have the luxury of being an amateur manager. You’re a professional CEO and you need to learn from the best.”

    At Phimation, we offer the kind of training that can help your business make that leap to the next level. Our Stage 2 Insight program is designed for small businesses with revenue from $1 to $50 million. It combines a self-guided workshop, webinars and a focused resource guide to help you focus on creating winning strategies, then developing them into effective frameworks and tools that grow your business.

    Go back to that list of three likely things from the beginning of this post. If you could find a way to love what you’re doing even more, why wouldn’t you do it? If someone offered to show you how to hit the ball harder, wouldn’t you appreciate their advice?

    Find out more about Stage 2 Insight now.

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  • Is Your Small Business Open Platform?

    16 March 2010

    The question that small businesses should ask themselves in their strategic planning is, “How can we use and extend our unique value to be a platform for others?”

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  • The Great Progression – Reframing Periods of Dramatic Economic Change

    17 June 2009
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    My “Situation Assessment: Today’s Economy” post looked at some positive forces and trends at play in today’s economic landscape. In this post, I want to step back and take a longer view, and include some learning I’ve had about economic change over the last 150 years.

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