GROWING THE BUSINESS
One of my small business owners owned a franchise in the consumer home services field. He built the company and its financials by hiring good people, adding functions not always present in small businesses (e.g., hiring a marketing director for direct marketing and research on prospects), spending on training, watching the cash flow like a hawk, developing a brand reputation for reliability and value.
GROWING THE PIE
The business grew so well that the franchisor offered him an additional geography and then another and another. He both opened in unchartered territory and took over under-performing franchises. Now he did something very powerful: he retained or recruited general managers in the new territories and made them part owners of their businesses with a piece of the holding company to which they all belonged. This impact of this stake in profit-sharing in their unit and of all the units on their commitment and performance cannot be overstated. In periodic meetings, they share best practices and keep each other honest. As the business grew, he became more of a CEO, introducing processes for sales, implementation, financial and operations reporting and sharing of information. But he never stopped creating the climate in which each geographic leader feels he is the leader. But also a climate where these “owners” accept his leadership and the changes needed going forward.
Then, as the revenues went from single digit millions to double digit millions and beyond, the CEO recognized the need for leverage of his time so he could focus on what only he can do and delegate much of the more day to day operation to a qualified partner; which he did about two years ago. It was a big leap in both emotion and money for the owner. Now, the two of them, together with the geographic partners have tackled some problems together and some problems as a tandem team. And there are always problems in such an operation. From time to time the CEO may wince at how much money his partner makes, but he knows that the pie has grown a lot and his take is a multiple of what it used to be. And he increasingly has time to look for new opportunities.
What have you done to multiply yourself to grow the pie?
This article is the basis for a conversation this morning with my friend Jim Blasingame, expert in small business, leader of the brain trust for small business and host for:
That’s just my view. What’s yours? If you like this post tell your friends. If not, tell me.
THE ACADEMIC’S VIEW
Clayton Christensen of Harvard Business School was early in teaching about disruptive technology using cases such as the demise of the steel industry who could not envision any way to make steel except the capital intensive and large scale facilities in which they had invested. His thesis is that few establishment companies (IBM is one) are able to survive sudden and high value disruption which usually starts at the fringes of the customer base but moves pretty quickly to the core.
THE REAL WORLD
Venture capital firms are investing in literally hundreds of companies they believe have the chance to disrupt a market segment, create value that was not there before and “own” the first position. There is an ocean of money chasing a limited number of good deals and potential disrupters top the list.
Think Uber in personal transportation, Air BnB in short stay accommodations, Amazon in all sorts of products and a host of others who are disrupting car services and taxis, small hotels, grocery stores, drugstores, department stores and more. It is not just being able to order on-line. Even in professional services segments of work and clients are being hived away from traditional firms.
Why the success? It is not just having reviews by other consumers or comparison shopping sites. It is not just ubiquitous sources of product information and competitive pricing. It is not just about sites that let people with common interests share experiences and appetites. It is not just a better understanding of unmet needs and ways to make the purchase match what consumers want. It is the emergence of a global army of people eager and able to dis-intermediate you from your customers and prospects.
Many businesses will be blind-sided by disruption if they have not brainstormed how they would do it to themselves if they started with a clean sheet, if they have nobody working on it under, say, 25 years old, if they do not have a real differentiation from competitive offerings, if they have not noticed the emergence of two sets among their customers (traditional high touch slow to switch vs. savvy, informed hunters who know what they want and at what price). And that is only the beginning.
There are still exceptions, of course, though no one can know even their futures. Retailers with regional franchises who are truly omnichannel (integrating strategies across ecommerce and stores and appealing to different segments differently and adopting locally effective tactics), staffing firms who can successfully tap into and oversee the sources of labor as communities, truly understand changing (large) client needs in real time and have the software to do what is required by both business and regulation in a fraction of what it takes their competitors. These translate into high switching costs for the clients.
A STORY OF SELF-DISRUPTION
In an era in which pre-employment screening was expensive, took a long time and often had errors, one business owner had a ream: automate much of the manual processes, introduce process engineering to cut errors and cycle time, spend capital on advanced computers, and software, hire the best people. He wrote a lot of big checks without a guarantee of success but a fear of being disrupted if he did not.
Over time, he outgrew many of his small competitors and was able to acquire a number of them, capturing their business and over time, achieving the savings of near national scale and integration He became the low cost producer serving major corporations. He made win/win deals with municipal sources of data, knowing that if anyone else got their first they would have a sustainable advantage. His new product group was prolific, identifying some that provided unique services to the majority of clients and other products that served entirely new customer bases.
As the business matured, as the internet came of age, he took it further: establishing capability in India and the Philippines, integrating the platforms in the U.S. and off-shore, using the web for all services and most customer interactions. Recently, he has been working on client self-service opportunities. It is much more difficult for a new entrant or competitor to disrupt his business. He has made sure of that.
Banks and investors, whom he had been courting along the way lined up to court him and enable him to take considerable money off the table.
The message is clear: incremental thinking may take the business to a highly vulnerable place — disruption by new kinds of competitors.
What are you doing to be the disrupter rather than the disrupted?
This article is the basis for a conversation this morning with Jim Blasingame, leading expert in small business, master of the brain trust for small business and the host of:
That’s just my view. What’s yours?
ON THE ROAD TO SUCCESS
This is the tale of an entrepreneur who had an idea. He assembled a “crack” senior team, secured blue chip clients, trained recruits and built a company of 30+ professionals which necessitated moving to offices with greater space. He had even negotiated a line of credit with the bank. And invested his own capital in the company. Clients were satisfied. People were productive. Notwithstanding advice to the contrary, the entrepreneur did not know his daily cash flows or balances. As business schools teach: most businesses fail because they are undercapitalized. As venture capital companies teach, an entrepreneur must know cash flows and balances all the time and must be in perennial fund-raising mode. This entrepreneur kept responding to demand, even considering opening an office in another city (but delaying it for reasons having to do with local people).
This tale does not yet have an ending. It is a continuing saga from month to month. However, one day the entrepreneur found out that his largest client would not pay its bill for a period well beyond what he expected. The funds were tied up with other suppliers’ funds. A second client made an error in sending (authorized) payment which never arrived. And then one Monday the entrepreneur found he could not make the imminent Friday payroll. He asked the bank to increase the line of credit. They said they would be it might take 30 days. He was personally pretty much tapped out. He borrowed from good friends. They made deposits which fortunately cleared quickly. This bought about two weeks.
What To Do Next
Furlough staff? Ask the senior team to reduce compensation for 30 days? Ask for emergency funding from one client in return for something of value? Delay start of some projects? Factor the receivables? These are just a starting list of thoughts as there are constraints endemic to the business. But drastic thinking is required until there is a cushion.
The Path Not Taken
What should be standard procedure? Every business needs a cash flow projection, cash in and cash out for the next 12 months with monthly if not weekly balances. “Hot spots” of low or negative cash should be marked. The cash flow projection should be re-done for several different sets of assumptions that drive the results: revenues, hiring, capital spending, taxes. The growth plan and timing of expenditures should be tailored to what the cash will support.
Presuming the owner has some relationship with a lender (if not, they should nurture one) and some standing balance on account (bankers warm to “compensating balances”), presuming the owner has intentionally borrowed small sums and paid them back on time, a conversation with the banker should examine the projections and anticipate needs for borrowing several quarters in advance.
This article is the basis for a conversation this morning with Jim Blasingame, the leading expert on small business, author of the powerful book Age of the Customer and my friend. I urge you to visit his website:
That’s just my view. What’s yours? If you like the article tell your friends. If not, tell me.
Mon, Sep 8, 2014
PERSONAL NOTE: immobilized and distracted for several months since March from an accident, I have returned to coaching business owners and CEOs and resuming sharing the insights with those who aspire to be extraordinary leaders.
My clients are almost all doing well, ahead of last year. But there is a nagging worry that “macro” events could cause a significant downturn in business in the next 12 to 18 months. As in 2007 before the banking system crisis, we have started examining scenarios and what to do to protect each business.
This time, with the banking system relatively sound vs. last time, the worry is consumers getting frightened enough to make serious cuts in their purchases. In our consumer economy it is unusual, but it happens. And with daily news of wars everywhere, virulent terrorism, Europe’s economies still not stable and the likelihood of an end to cheap money, there is a climate of negativity. Last time, our CEOs with leading indicators (related to new employment) gave us a signal well in advance. This time there may not be such a signal.
CEO MINDSET AND ACTION
Our Board, and I might add, my private clients are alike in their response:
“Continued profitability and cash flow are the keys to survival of downturns as in ’07 (it is the company equivalent to job security by being in the top quartile).”
This translates into these actions:
- Intense and well-staffed effort to generate data and analysis of (fully allocated) product profitability and customer profitability
- Creation of Top 20 list of areas where there is suspicion of waste and cost with little value to customers; engagement of fresh faces in the effort; weekly discussion and decisions to act
- Having the courage to develop revised offerings and pricings to selected customer categories
with low margins and differentiated offerings to the new and growing population of customers who really do their homework*
– Continuing funding of product development with strict criteria about differentiation, impact and timing
– Pacing of technology investments with an eye on the cash
- Continued top-grading of the work force, believing that the best team on the field has an edge over the long haul
- Building up the cash reserve
*Jim Blasingame’s Book, “Age of the Cusomter” is an excellent source for understanding how to think about and adapt to this new population. There is an inherent conflict between traditional high touch prospects/customers and the digitally expert prospect who contacts you already knowing their acceptable ranges of offerings and prices. His website is full of useful information:
That’s just my view. What’s yours? If this post is valuable to you please share it. If it could be a lot better, please let me know.
Sun, Feb 23, 2014
CEOs SHARE CULTURE INITIATIVES
My last blog laid out the context for leading culture change and gave a few examples of CEO initiatives to lead the way. Here is a more complete list based on both private client conversations and Vistage CEO peer advisory group discussion:
– Hire a talent manager for development of high potentials
– Make culture change a major project for the senior team with accountabilities for the cascade to lower levels
– Make culture a specific topic in exit interviews
– Get 360s done on senior team and next level and include culture questions (on- line and in supplemental interviews by HR or third party)
– Town hall meetings with open Q&A
– Put culture into goal deployment top down
– Change physical things to encourage collaboration (take walls down, move, etc.)
– Consolidate small groups into big groups and report out and measure as a group
– Give recognition for sharer of best practice to others
– Change names of things so people are one
– Make sure there are consequences of action without consultation or collaboration (stop project, deny funding, communicate examples of the right way and the not right way)
– Hire for culture fit at all levels (senior team participates in senior hires)
– Lunch n learn monthly by CEO with randomly selected people
– Use the lunch n learn (or breakfasts) to enlist a “listening system” of people who will report issues the CEO needs to hear
– Ask direct reports to develop their own listening systems
– Engage administrative department people on projects across functions and across other divides (e.g., administrative and academic)
– Form a non-executive committee (“Associates Committee” and/or Managers’ Committee” – AC or MC)Initialize by CEO message as to purpose and freedom
– Observe (or ask about) emerging leaders on the AC or MCDelegate problems to AC and/or MC
– Encourage them to bubble problems and recommended solutions or process improvements up to senior team
– Let the committee deal with non-strategic operational problems that affect employees
– Broadly communicate thinking behind decisions by Sr Team
– Identify and groom culture carriers in different parts of the organization
– Encourage culture carriers to be close, a community
– Put real effort into a culture campaign…
– Communications cascade down to lower levels on mission and values
- CEO participates (sometimes) in associates committee meetings and
– Raffle off 2 hours of CEO time to work with an associate (“above covers boss”)
– Seminar with CEO teaching 25 employees each month on basics
Questions about the spirit and/or the detail of the above are invited.
Thu, Feb 20, 2014
A huge transition is under way in how customers buy products and services. The customer landscape is shifting from inside-out (company to prospect) to outside-in (knowledgeable buyer seeks satisfaction). It will require major transformations of organizations, cost structures, accounting and more.
Most of my clients are “old school,” regardless of age. In the sense I mean it, this is a compliment: leading by example, valuing ethics, hard work, collaboration and more.
Most of my clients are also “old school” when it comes to sales and the dependence of the enterprise on that function. That is not a compliment.
Why not? Because the customer landscape is shifting from inside-out (company to prospect) to outside-in (knowledgeable buyer seeks satisfaction).
Both Sam Bowers’ (Vistage speaker) workshop and Jim Blasingame’s new book set a great table for a crucial conversation inside any company — references provided at end of this post.
THESIS: TWO VERY DIFFERENT CUSTOMER SEGMENTS
Many companies (many industries) now have two customer segments: (1) those who buy based on value and relationships and (2) those who buy primarily on price for “good enough” alternatives. Good enough may include competing options that are highly specific and truly different. But price will determine the outcome of the final decision.
The difference between the segments? The second set has done their research and arrives at the buying moment informed about choices and prices. They are willing to pay only a small premium if any for a particular value add.
The new school customer wants only the product or service and little if any touch — no sales call, no layers of sales managers, no administration. They see no reason to pay for anything else.
Until your costs do go away, you have a Hobson’s choice of which customer you charge for the SG&A. You will chase away the new customer if the price has even a little SG&A in it and you upset your most valued current and historical customers if they have to pay all the freight. There is real danger in the transition to a majority of new school customers and retaining those who will pay for “value” as they see it. In some industries, the transition will be a tsunami once it starts.
SOLUTIONS: UNBUNDLED PRICING, ACTIVITY BASED COSTING, MARKETING DOMINATES AND SALES GOES AWAY
Imagine that you knew the cost of absolutely everything each customer received (product features, service features, touch, records, speed, whatever). Now imagine you could ultimately get your customers to give up what they wont pay for so each customer pays for only what they want and what they get (individualized prices). Some companies have been doing just this while treating a small base of best customers to a more gradual transition and a small premium based on trust, (customer’s) risk and cost of switching. And by shifting investment from sales to marketing (especially social media and internet marketing) to get in the “consideration set” of prospects.
That’s just my view. What’s yours?
For more on this key topic, visit:
Small Bsiness Advocate and get a copy of Jim Blasingame’s new book The Age of the Customer: Prepare for the Moment of Relevance makes this transition accessible to those with a modest understanding of technology and social media. I read it on a flight to California and am glad I invested the time.
Also check out the speeches, articles and such of R. Sam Bowers (firstname.lastname@example.org), a Vistage speaker and consultant.
If you are not already familiar with Vistage, the best CEO membership organization, also visit:
Sat, Jan 11, 2014
WHO WANTS TO KNOW?
At the last meeting of our Vistage CEO peer advisory board, one CEO asked for ideas for both becoming more informed about the culture in his organization and action he can take to cause positive change. It is the same question I have been asked by several private client CEOs. This note is based on both sources.
Organizational culture is defined in as many ways as there are people who think they understand it. Here is my view:
– Culture is what associates tell people at weekend gatherings about what it’s like to work at the organization
– Culture is the set of unwritten rules about behaviors for success (promotion, compensation, recognition) at the organization
– Culture is how we treat under-performers and those who once were contributors, what misbehavior we tolerate and why
– Culture is openness, sharing, engagement, collaboration, commitment, sacrifice for the common good, risk-taking, ethical behavior, protection of the firm’s reputation or lack (or opposite) of any or all of these in people’s daily choices
POINT OF VIEW OF THE COACH A FORMER MANAGEMENT CONSULTANT WHO FACILITATED SEVERAL CORPORATE TRANSFORMATIONS
Culture forms over time from both “signal acts” by the leadership and interpretations and self-protection by the grass roots.
Leaders are rarely in touch with how pervasive are the positive or negative behaviors in middle management and often at the front line.
Many leaders do less than the maximum to lead the culture.
ILLUSTRATIVE IDEAS FROM PRIVATE CLIENT WORK AND PEER ADVISORY WORK
– Make culture a priority of the CEO and the leadership team; set accountability for assessing change needed and leading it; speak about it often
– Recruit a talent manager whose job is every aspect of developing and retaining a bench of star players
– Conduct monthly CEO lunch ‘n learn with people at all levels selected randomly
– Have Town hall meetings about mission, values and culture
– Address culture first in strategy retreats
– Institute an employee opinion tool that probes attitude about cross-silo collaboration, beliefs about ethics, unwritten rules for success et al
LONGER LIST OF IDEAS
For a longer list of ideas, look for the attachment to my blog tomorrow. For even more, join the Vistage community at:
That’s just my view What’s yours?
If you find this helpful, please let me know and tell your friends. If you disagree, please tell me and leave a comment.