I was in a meeting this week with a client, and they were talking about the gigantic case they take to trade shows – which is called “The Coffin” and may have cost an employee a finger (the story wasn’t clear and I didn’t want to ask). The person who bought it, and still saw it’s utility, countered the jokes and jabs by saying, “Well, actually, it’s light if you have a forklift.” I’m not sure if it was a joke or a legitimate argument, but it got me thinking…
There are a number of pitfalls that will trip up people who don’t have a lot of experience with strategic planning. One of the more regular ones – especially in retreats where people are asked to free their thinking – is not taking into account limited resources.
All kinds of amazing things are possible to dream up if you assume you have unlimited time, effort, strength, brainpower, flexibility, etc.
That case is light (if a forklift is available where we’re going, and we have the money to pay for it)
That metal is flexible (if we have a sledgehammer and the strength to wield it)
That market is accessible (if we have the VP of Sales who knows the right people and can use their trust to benefit our product)
That new initiative is going to be easy for people to support (if we have a culture that is very adaptive and a leader who consistently pushes it)
Options that look good with unlimited resources often look terrible when limitations come into play. So it’s important to take resources – money, bandwidth, expertise, relationships – into account when choosing a strategy.
Overlooking resource constraints is just one form of a broader category that undermines strategy – the hidden assumption.
There’s no way to avoid hidden assumptions – we all have them lurking in our blindspots. But there are things you can do in your planning to reduce the likelihood that assumptions will lead you into a bad decision:
- Include people with different perspectives in your discussions – and listen to them all
- Ask, “Why is this a stupid idea?” or “Why would this fail?”
- Think of other decisions that ended badly and were driven by hidden assumptions, and assess if there are similarities
- Clarify the criteria that you use to evaluate your options
One of the things that separates good strategists from poor ones is the ability to see what’s missing and hidden. It’s a hard skill to develop – it takes knowledge and experience and inquisitiveness and discipline.
But it’s a really valuable skill. If you reflect on the worst decisions you’ve made, they are usually built on top of a hidden assumption that turned out to be way more off base, and way more important, than you’d have imagined…if you’d known to think about it.
AI and machine learning have exploded onto the business scene in 2017. If you haven’t gotten an email asking you if you want to learn how IBM’s Watson can help your business, you will be soon. And we’re just getting started.
The bots are coming, and if you’re thinking your business is immune, I don’t think you’ll feel the same way by 2020.
What should you be doing in 2018 to prepare?
Many small companies are not going to have the budget needed to use AI. But if you’re in a small company, you should still learn about what it can do and how it can be used. By hearing how AI is being used in your sector, you can make your offerings better and your operations more efficient – even if you don’t spend a dollar on AI technology itself.
You should also figure out your company’s algorithms. AI works through algorithms – coded logic about how to interpret data. You may not have Big Data to work with, but you have algorithms operating in your company…like which customers are better to work with, what products help with what needs that a customer has, and which of your staff to assign to which types of projects.
Back in the old days, this was called Experience, or Tribal Knowledge. Now…we call it Algorithms.
Your algorithms will probably start simple – like which customers are better to work with. But that’s just the start. The real power comes when you think about branches that you can build to make the thinking more complex. For example, once you identify what services help with what needs, then you can identify if customers of one service are more likely to buy another service you offer. Where are the connections and patterns in your business?
Many of the small businesses I work with know these algorithms intuitively – they’re operating all the time in the heads of the staff who have been there more than 10 years. Often the first reaction I get when I bring up the idea of capturing the company’s algorithms is, “Oh, we don’t need to do that. We know that already…in our heads.”
Which is great…but right now, someone is working on coding into a computer the algorithms that are needed to run your type of business. It’s happening. Right now. Believe me.
And the need to document your algorithms will be much clearer – and more urgent – when your staff person is competing with a machine that costs less than a month of that person’s salary and doesn’t need health care. When that happens, you’re going to wish that you’d asked your staff to outline how they make the decisions that run your business. And that staff person is going to wish that they’d been thinking about how to build value on top of their knowledge, rather than clinging to the knowledge itself as the differentiator.
What do you do when knowledge and experience are no longer differentiators? What will the differentiators be? I have some guesses, that I’ll outline another time…
So, I don’t know how all of this will play out. I’m sure bots, at some point, will be able to do most of what we rely on workers to do now…and that there will be needs that bots can’t handle. But while we’re waiting for that to play out, you can use the thinking of AI designers to make your business better and be in better control of your destiny. And you can do that whether you can afford the actual AI technology or not.
Pretend that you’re designing your own bots, give them fun/interesting names (Watson! Alexa! Siri!), and have some interesting discussions with your Leadership Team about the algorithms driving your business.
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.
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.
Not all strategic decisions need the same amount of analysis. This is something that many founders understand intuitively. But it’s also something that becomes more complicated as a company grows.
Why? Because the decisions get bigger and more complicated, what worked for a Big Decision in the past often doesn’t work for the Big Decisions of a bigger company. In addition, the “decision environment” gets more complicated, with more potential participants and more dynamics among them. Who do you include? When? How? Who provides input and who participates in the decision? How is the decision actually made?
What qualifies as a Big Decision? Something where the payoffs are extraordinary – say, it could have an impact of 20% or more of a company’s revenue, or it could impact more than a third of the employees – and/or where the risks are extraordinary – say, it could take 20% or more of a company’s discretionary resources to implement.
Decisions fall on a continuum – as the stakes rise, so does the need to treat the decision more seriously.
And how do you do that? As the decision gets bigger, you should add more information, more structure and process, and more focus and energy on the decision before its made. If you don’t, you can be pretty sure you’ll be spending more time than you’d like or expect after the decision.
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.
How could I not take up the challenge of finding the link between the 50 Shades juggernaut and my beloved Stage 2 small business clients!?!
Putting aside the more mundane topics of what Christian Grey’s DISC profile is, the importance of proper inventory processes, and the merits of NDAs, I’m struck by the similarity between Christian’s dominant role and how Shane Yount, owner of the Process-Based Leadership system, describes some companies:
“(Managing by position, proximity, or persuasion) creates dependency. Employees become dependent on their leaders to make the decisions, to solve the problems, to show them what to do and when to do it. Certainly managing by position, proximity and persuasion gets short-term results. But dependency is dysfunctional.”
It may seem extreme to draw a parallel between 50 Shades’ dominant/submissive relationship and how many small business leaders operate, but there’s probably more truth to it than many owners would like to admit.
Recently I talked with a group of Stage 2 company CEOs, and one of their big a-ha moments was when they realized how dependent their organizations are on the leader’s opinion, intuition, and judgment.
If you realize that your leadership is out of balance, or if your employees start to refer to you as Mr/Ms Grey…what can you do?
The first step is creating a dialogue with your managers. You want a process to be guiding the company, not a person, and to do that, you need to start a process that involves your leaders in key decisions – and then you need to stay committed to it. And, if you’ve been doing a lot of the talking, start listening more. Don’t totally hand over the reins, but start to share them.
What should you talk about? To start, I like to focus on today – what is working, what isn’t working? Once you have things working OK, then you can start looking out farther on the horizon – to the next few months, and then to the next year, and then to the next 2-3 years.
Let’s be honest about something Christian Grey knows – it’s fun and exciting to be in charge, to be The One Who Makes the Calls. But it’s also not sustainable, and if you’re looking for your business to prosper for the long-run, you need to mature as a leader and expand how you relate to your business.
Your sales process sets up the success or failure of your production team.
I’ve often been in meetings with operational people who are overwhelmed and not hitting their targets. They struggle to get more efficient or productive, and desperately seek more resources that rarely come.
But when I see a target that is missed more than 5% of the time, I ask, “How did you set the target?”
It’s then that we find out that there is no good rationale for the target. It’s also often the case that the sales team is part of the problem.
Although it certainly makes it easier in the short run for salespeople to tell customers they can have whatever they want, it usually ends up costing the company money. Why? Because it puts excessive burden on the production team to meet targets that aren’t a good fit for the business.
Most customers can be managed. When they understand the costs and risks of different options, they will make a reasonable selection. But it requires a sales team that is able and willing to talk with customers in an educational, supportive, and firm way.
If your operations team is struggling, dig into your sales process, and understand how you’re setting customer expectations. It’s likely to have a huge impact on your operations team – and will likely improve your profitability too.
How good is your business’ radar system?
Do you have a radar system for your business?
For my clients who are using my 12-month strategic planning process – and for those of you who want to create a system for sustainable success – summer is the time we wrap up our survey of market trends and forces. So, as I look back on the process I’ve been through over the last 3 months with my clients, it’s interesting to think about the RADAR system we’ve built for their companies.
How can you build a radar system for your business?
You can build a system on the cheap by using what your company already has:
- New project or product ideas customers have asked for over the last year
- Recent customer requests
- Internal brainstorming about new ideas
- Clippings of trade journal articles that you can collect throughout the year
You can build a more robust system by adding some resources:
- Using a consultant or service (or intern!) once a year to get more information about your markets – through web searches, customer interviews, and/or research reports
- Building a searchable database of market intelligence facts
- Naming one of your managers Trend Czar or Head Trendie, and
Once you have your company’s radar system built, then you have to read what it’s showing you. There are 5 steps to turning your “readings” into action:
1. Determine what resources you can devote to pursuing trends and new areas of business (as opposed to improving or expanding your current lines of business)
2. Assemble a long list (at least 12) of important trends from all the data you’ve collected
3. Filter your long list down to a short list (at most 5) by evaluating the general impact and potential of the trends
4. Determine which short-list trends will get resources by evaluating the details of the opportunity, the likelihood of your company’s success, the investment needed, and the risks.
5. Create an action plan for the trends that will get resources
Like any radar system, yours will give you advance notice of issues coming your way, so that you have time to prepare and react.