Did you ever see the Reese’s Peanut Butter Cup ads that showed one person with a chocolate bar, and another with a tub of peanut butter. They run into each other, and discover that chocolate and peanut butter are “Two great tastes that taste great together.”
Click here to see one of the ads.
Those ads remind me of budgeting and strategy – two great processes that go great together!
Now, if you’re an early Stage 2 company, you may not be doing either. If that’s the case, you have a chance to leapfrog over many later-stage companies, because many do either budgeting or strategy, but not both.
Strategy is a qualitative process in which you assess your situation and draw conclusions about what parts of your business have the best opportunities to develop or worst problems to fix. Budgeting is a quantitative process of allocating resources based on the conclusions you draw in your strategy process.
If you have strategy without budgeting, then you haven’t really determined how you will handle all the commitments you want to make. Later, when it comes time to spend money, there will be other things that also need money. If you haven’t decided during your budgeting process what gets money and what doesn’t, then you will make a tactical decision. If you’re lucky, it will still be a good investment. If you’re not lucky, you’ll find you’ve spent your money on the wrong thing.
If you have budgeting without planning, then you will just get more of what you’ve always had, which is usually 10-20% better…until one year you realize that it’s not 10-20% better, and you’re not sure why, and you’re not sure what to do about it. If you haven’t decided in your strategy process what deserves investment, you’ll find yourself realizing too late that “more of the same” only works for a limited time. If you’re lucky, you’ll find a new path without too much investment. If you’re not lucky, the weak area of your business will become a quagmire that costs you a lot of money.
Just as the Peanut Butter Cup combines chocolate and peanut butter in one convenient package, the Business Case combines strategy and budgeting. They’re not hard, but they’re not easy either – there are a few tricks to making business cases work for a Stage 2 company.
So, you’re thinking about what life will be like at your company when you’re gone. Congratulations. Really. It’s a sign of maturity when a leader has the courage to imagine being out of the picture, and the foresight to care before it’s forced to happen.
Having worked with dozens of Stage 2 leaders, what recommendations do I have for you about succession? A few thoughts come to mind immediately when thinking about my clients.
First, those of you who are strong leaders… we love you, and it’s amazing what you have accomplished and do accomplish… but this may be the biggest challenge of your career. The strength that you have in your role means that your shoes are going to be hard to fill. And, strong personalities have a hard time handing things off, so it’s never going to feel like the right time, and your successor is probably going to seem far from ready when you start the transition.
Second, having a healthy company is important to managing a succession. You want a healthy company to retain or attract the best talent. And, successions take resources, because transitions always put a burden on an organization. (Think about how many coaches have a “transition year” when they start even if they’re good and have good players.)
Third, start as early as you can. Succession is best managed not as one big event (“OK, here’s the company…don’t screw it up”), but as a series of small hand-offs. Most of my work on succession is on choreographing the series of small hand-offs based on the departing CEO’s capabilities, the incoming CEO’s capabilities, the needs of the business, and the needs of the transition process itself.
Fourth, don’t look for another you. He or she is going to be too hard to find. Use this as a chance to build up your company’s strength in a new area. (You’ll need to do some strategic planning to think about what area that should be.) I had one client hire an experienced sales and marketing exec because they realized they were weak there. I had another hire someone strong in operations because they were going to need to tighten up that area if they were going to be able to grow. Was the new exec everything that they needed in a CEO? No. But neither are you! You have a whole eco-system around you that complements and supplements your strengths. You may have forgotten about it because it’s designed around you, but no CEO can be everything – and the search for another you is based on flawed thinking that one person can lead your company.
The good news is that, if you plan out and use a succession process, all of these issues are manageable.
Congratulations, Second Stage CEO. You’ve gotten customers, survived cash flow crises, created a vibrant team. And, now, at last, created job descriptions! You put it off as long as you could, because job descriptions are so un-startup. But you’ve realized that it’s time to get clear on what people are responsible for, so that there’s more accountability, and so that it’s clear whether that new hire is getting the job done (or not).
If you’re a young Stage 2 company – say, 10-30 people – your job descriptions can focus on people’s responsibilities – what they do…their functional tasks.
But if you’ve passed 30 people, you’re going to need more from your job descriptions – rather than responsibilities, you’re going to need to focus on competencies.
What are competencies? They are the things that people are able to do – which could mean making copies or putting a design into AutoCAD, or could also mean handling angry customers or juggling multiple priorities. Sometimes competencies are the functional tasks, but frequently competencies are behaviors that go beyond the task. Competencies give a much deeper view into what a person, position, or team is capable of.
Responsibility: process assessments
Competency: recognize errors and problem-solve when one is found
Responsibility: respond to customer inquiries
Competency: empathize with customers in pressure-filled situations
You need to know the functional responsibilities of your people. And if you look at the competencies you need in a position, you’ll paint a much richer picture of who can be successful, and what training your people might need.
I work with a relatively small Stage 2 company that recently changed over 40% of its staff – and is far better because they did.
When I started with them, they had several employees who had been great during the start-up. They handled the relatively focused and simple work that needed to get done, and they were flexible.
But then the company started to leave the start-up stage – client work came more regularly, there was less experimentation…and there was more work! The work got harder and more complicated, and it needed to be done on schedule.
After almost a year of struggling as a company, the leaders realized that many of their struggles were tied to not getting the productivity out of the team that they needed. The employees were still good people and good workers – but the company had different needs, and these people were no longer a fit. And, because these employees weren’t in jobs that fit for them, they were starting to create a negative culture.
This wasn’t an easy decision. Some of the workers were friends. Some had helped build the company. And, truthfully, the decision took probably twice as long as it needed to because of the loyalty the leaders felt to these staff.
But when it became clear that the business needed new team members, the leaders made the decision, and gave the old staff generous severances.
Then they found the right people for the environment, taking their time and thinking about what they needed.
The results are dramatic. The team is happy. The finances are strong. The work is interesting and fun. It really is a different company – because it’s a different team.
In Stage 2, the team is what is most important, not the quality of the work. I know it’s not easy to make personnel decisions, but there are huge dividends for Second Stage companies that take an active approach to Talent Management.
I hear Stage 2 leaders all the time say, “Creativity and flexibility is what made us great – we cannot change that.” It’s a “pound the table” statement for most.
I agree – but my “pound the table” statement back is, “You’re right – but creativity and flexibility look different in a growing company than they do in a start-up company.”
And this is especially important – and hard for Stage 2 leaders – when it comes to innovation.
Most start-up leaders invent and innovate with customers that they know very well, and so there is a very short leap between the innovation process and customer feedback.
In Stage 2, though, companies usually have the resources to start pursuing their own ideas – not just react to what customers ask them for.
This change is far more challenging than most leaders realize.
First, Stage 2 leaders think that their experience with a few customers extrapolates to larger markets – which is true sometimes, but oftentimes isn’t. Second, Stage 2 leaders often involve customers less in the development process (they can be a pain, after all), which makes it less likely that the customer will want it, and more likely that the sales process will take longer. Third, a Second Stage company has enough moving parts that need to work together, that creativity without boundaries will cause more harm than good.
We’re not talking about too many controls here. A monthly review meeting. A customer meeting once a quarter. A paragraph of milestones and expectations that progress can be assessed with.
As your company grows in Stage 2, you should use your sales process to drive more value – yes, for your company…but also for your customers. The only sustainable growth comes from win-win sales, so your sales process will benefit you and your customers.
One of the most important ways that your sales process can increase the value you bring to and get from your customers is by uncovering what the real need is. Oftentimes, customers don’t know what they don’t know, and by managing the sales process well, you can help them realize what they really need. In doing that, you also make sure that you’re paid for any premium value that you give them.
Price is a function of value, and the surprising fact that you need to know is that value is established when the need is defined, not when the solution is defined. If a customer comes to you and tells you what they need, then they have already set the price in their mind. On the other hand, if a customer comes to you and asks you to help define what they need, then you create the value together.
If you’re like most Second Stage companies, it’s hit or miss whether you’re talking to customers about the answer or the problem. It takes a clearly-defined market strategy, and a disciplined sales process, to ensure your conversations consistently focus on the need. That takes some work, but it’s also the best way to grow your small business in Stage 2.
As a small business emerges from the start-up phase, and becomes a Second Stage company, the sales process can and should be formalized.
It can be formalized because you now have enough experience with sales to know some standard steps that you usually follow.
It should be formalized because you need to start building consistent expectations with your customers, you need more consistent information for your team, and you need to start to build up systems around your sales that will need some standardization.
I’m not suggesting you go overboard on this – just some general guidelines or steps that you’ve learned help you.
How do you create a (somewhat) standard sales process?
As a first step, think about the customers or orders that your team handles smoothly. What usually happens when those orders come in?
Then, think about the customers or orders that are a hassle. What usually happens with those orders – and what do you notice doesn’t happen with those.
When I asked these questions of a 20-person manufacturer last year, they realized that most of their sales followed 4 basic steps – but also that complex, unclear orders (which happened to be their highest-value work) needed a different process. They outlined the two different processes, and when I met with them 3 months later, they said, “We’re handling all of our orders much, much better. And the customers are a lot happier.”
If your small business has grown into a Second Stage company, your team and your customers will appreciate you starting to understand and standardize your sales process.
Once you have segmented your customer base, the question is, “What can I do for my best customers that will drive value for them and us?”
The answer to that question should be captured in an Account Plan, which outlines the relationship and opportunities you have with a key customer.
Here’s what I recommend you include in the Account Plans you write for your Second Stage company:
– History and highlights of the relationship
– Background on relevant people you know at the company
– Description of why they work with your company and why they think you’re valuable
– Immediate and next-year opportunities that you’ve identified, as well as the 3-5 year potential for the relationship
– Likely relationship and engagement for the coming year
– Plan for additional activities to expand or enhance the relationship and engagement in the coming year
You’ll be surprised at how much you learn about your customer and yourself when you write an account plan.
Like many other areas of the business, sales change significantly in Second Stage companies. Because there are so many customers that you’re dealing with, you can’t manage them the way you did when you were a start-up – responding to whoever had the hot need at the moment, or treating everyone the same.
No, in Stage 2, you have to start to differentiate your customers. To start to do that, ask these questions:
Who are your best 5 customers?
What are the characteristics of the Top 20% of your customers?
What are the characteristics of the Bottom 20% of your customers?
When I asked these questions at a recent seminar, one executive said that she realized that they were spending most of their effort on their worst customers, instead of on their best. That’s the kind of thing that happens if you manage your sales with a start-up mindset when you’re a Second Stage company.
But once she realized her mistake, she was able to refocus her team and her energy to her best customers – something that her best customers, and her own team, appreciated.
I’m working with a $2MM firm right now to build in a performance-based aspect to their compensation program.
Usually, I would follow a process of compensation strategy (guiding principles for how we make comp decisions) > compensation framework (the components that go into comp decisions) > performance framework (the specific definitions of performance). (If you want a full description of the process, you can get it from my book, The Stage 2 Owner’s Manual.)
But with a small firm, we’ll be able to skip the comp framework step. That’s the step where “What does it take for you to stay in the game?” changes to “What is the right amount to pay you?” It looks at things like market pay rates, and what the role of the person is.
If you’re a small Second Stage Company, the most important things to address when you upgrade your compensation program is why you pay people what you do – the overarching principles that are at play, and the specific performance drivers you look at. When you get bigger, or when compensation starts causing you problems, you can fine-tune your pay program based on some more sophisticated thinking about what makes up employee compensation. But that’s a short-cut that, in most cases, is fine to take when you’re smaller.