In my work as a fractional CMO, I am often helping small businesses navigate the transition from sales-driven revenue to marketing-driven revenue. This is no small feat, because of the time and investment it takes.
I just had lunch with the managing partner of a $5MM services firm. He was telling me how hard it was to ask his partners to spend money on marketing – and he was talking about $20K, which was a fraction of what they would need to really become a marketing-driven company. Why were his partners dubious? Because the ROI was not going to be fast or definite enough.
Compare that with a strategy meeting I was in last week for a $10MM services firm in which a partner – who was one of the biggest skeptics of marketing 2 years ago – said, “If we hadn’t invested in marketing over the last 2 years, I’m not sure we’d still be here today.” (To his credit, he was a skeptic, but an open-minded one.)
Let me tell you something that marketing agencies have a hard time telling you: the ROI of marketing almost assuredly looks terrible for the first 12 months you’re doing it. And may look terrible the second 12 months.
But if you’ve made the right investments in that time, you almost assuredly will be reaping the rewards of your marketing machine by your third year. And they are rewards that are beyond the scope of anything you could have generated with a sales-driven strategy. In other words, marketing can get your business to the next level – but it’s going to cost you.
It’s not easy for leaders to invest in something that is unproven and takes 12-24 months to start paying off – especially given the “black art” nature of marketing, which means that you can never really “arrive” at a marketing strategy that you can lock in and forget about. Each company’s marketing recipe is different. There are generalizations you can start from, but at least 1/3 of those generalizations will be wrong.
Why “waste” all that money marketing, then? Because building a marketing machine is like driving a car instead of pedaling a bike. If you’re happy biking and it takes you where you want to go…great. Stick with your sales-driven approach, and don’t bother building a marketing machine. But if your market is getting more competitive, or your customers are more price sensitive, or your buying cycle is getting longer…that bike probably isn’t going to be enough anymore.
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.
If there’s one thing in Stage 2 companies that does not take a lot of thinking, it’s identifying who your “High Potential” staff are. They come to mind immediately whenever I ask leaders who they are.
But, as much as it’s a no-brainer to get the most out of the people who offer the most, Stage 2 companies do a consistently horrible job of actively developing their High Potentials. Why? Because the Well-Oiled-and-Balanced Wheel is easy to ignore (and besides, it has a lot of weight to carry and can’t afford much “down time”.)
The first step I’d recommend in developing your High Potentials is to come up with a model that you can use to identify your High Potentials. Since it’s always obvious who they are, why would you need a model? Two reasons.
First, you need a program to develop your High Potentials, both to get the benefit of the full value that they can give you, and to keep them engaged and hopeful about their future at your company. And in order to have a program, you need to explain to people who is part of the program and who is not.
Second, you also have people who are Good Potentials. Most of them will never make the jump to High Potential – but some of them will. And to do that, they need a model of what they’re aiming for – what a High Potential is.
I have a 1-page model for talking about High Potentials. It’s a graphic that you can put in front of High Potentials to talk about why you value them so much and how you want to continue to develop them. And you can show it to Everyone Else to explain in simple terms what it takes to be (and be treated like) a High Potential.
If you want to see my model and learn some tips for using it, sign up for my upcoming August Strategy Hour webinar (even if you can’t make it you’ll get a copy), or go to the Contact Us page and reach out to me to request it.
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.
Annual planning is in full swing, and the Year in Review is a great place to start the planning process. But many companies stop there, and they miss out on a rich source of strategic insight when they do.
Looking at trends adds perspective that the Year in Review usually misses. The two sound similar, and there’s often some overlap, but most of the time there are many observations and issues that are raised only when you look at trends.
Why is that?
When we do Year in Review, we have our Doer hat on – so the question is, what did we do (or not)? When we look at trends, we have our Observer hat on – so the question is, what are we seeing? It’s remarkable what a difference that makes.
What specific questions do I like to ask to come up with a list of trends? I have about a dozen “thought-starter” questions I use that are designed to focus people on what’s important, and changing, in their environment.
Here are a few:
– What’s changing?
– What are you spending more time thinking about than you used to?
– What are your customers thinking about?
– What is your staff thinking about?
– What are the 3 most important forces impacting your market?
If you and your team ask those questions, you’ll open up a new set of opportunities that will stretch your thinking, your resources, and your purpose. And then the strategic planning can really begin!
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.
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.
As usual, the TV show Mad Men is a hot-bed of intrigue again this season – and it’s especially fun to watch the workplace as a management consultant. There are a few lessons that Mad Men can teach Second Stage leaders about Talent Management.
The focus needs to be on people, not work. As Second Stage companies grow, they need to spend less time focusing on how the work gets done, and more time focusing on who is on the team and how they work together. The firm’s partners are still focused on their work, not on managing their team, and I expect that we’ll start to see the team dysfunction increase as the season goes on. (If it does, it would be natural for the firm to break apart at some point – team dynamics usually overtake good work.)
Culture needs to be managed. Sterling Cooper Draper Pryce, like every company, has a culture – the question is whether it’s consciously acknowledged and managed. And the key to culture is defining just a few principles that drive the culture. In this year’s premier, Megan calls out one of SCDP’s principles: cynicism. There’s no inherently good or bad principles – they just have to work for the company. My guess is that the other principles for SDCP would be creativity, individualism, and fun. It’s hard to have principles that don’t fit the executive team.
Manage your high potentials. Pete Campbell is a huge asset to the firm, but because there’s no one helping him manage his development and career path, he’s a problem. High potentials are great – in many ways the heart of Stage 2 companies. But they come with a cost – you need to make explicit, valuable investments in them.
I suspect SDCP could use a better strategic planning process, too, but that’s a topic for another post…
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.