Billy’s Forty-Sixth Law: Sometimes you can do almost everything wrong and still make money

This law is the inspiration of my friend George, of the Fifteenth Law.  He has a customer who does almost everything wrong, and still makes piles of money.  George is a technical specialist, and looks at the world through the eyes of technology.  Here are his observations on this e-commerce company:

1. The search snippet (The brief snippet Google displays below the company name, describing the Website) is useless at driving business. Nine out of ten users ignore the search results and select a competitor’s website. The company spends time and money for search optimisation, yet fails to convert due to this one small, but critical error.  
2. The home page leaves new users confused.  Testing shows the entire forty-nine page Website is so confusing that most users simply give up.  The calls to action do not stand out and it is unclear what action the customer should take.
3. The Website does not take advantage of any management tools such as page based SEO or split testing. There is no conversion optimization testing, but rather the owner bases the design on guessing what customers really want. To make matters worse, there is no performance testing to confirm if the guess was correct.
4. The president institutes changes without any strategy or change management process. The result is unreliable and inconsistent performance.
5. It takes over twenty seconds to return a list of products selected to the shopping cart.  This is due to high levels of unnecessary customization.  Twenty seconds is an eternity in the internet world.

This company breaks every e-commerce rule in the book except one…that they make money!  They are doing one very important thing right that is customer service.  Company policy is is always do right by the customer.  Examples include:

1. Anyone who complains receives a free company T Shirt; talk about turning enemies into friends.
2. If a customer perceives any financial loss, the company reimburses them without question. 
3. The customer support staff are empowered to do whatever it takes to make a sad customer happy.
4. The company president follows up every complaint with an email asking the complainant, "Did we solve your problem, are you happy, and is there anything else we should do? “

Every customer who has an issue is made whole and happy.  The result is Yelp and other review sites are full of meaningful complements.  This fanatical dedication to over the top customer service results in thousands of positive reviews all over the Internet.  Due to this massive volume of positive reviews, the Website enjoys an unprecedented number one ranking for any related Google search.

When a company is successful in spite of themselves, it is difficult to suggest changes.  “If it ain’t broke, don’t fix it” is an oft-heard cliché in such situations.    The challenge for those of us who provide advice to business owners is to encourage change when things are going well.  This is far more difficult than forced change when things are going badly.

In my experience, most business owners are lousy business people.  They are, typically, very good at what they do or very good at sales and marketing.  To sustain a business, owners and their teams must develop a more complete skill set, incorporating all aspects of business and not merely in the areas they prefer or the areas in which they are comfortable.
  

Billy's Forty-Fourth Law: In business, everything takes longer than you think it will.

Hofstadter's Law: It always takes longer than you expect, even when you take into account Hofstadter's Law

Douglas Hofstadter

 

              OK, so I found the very law when searching for pithy quotes on line.  This is another example of a concept from another field, computing science, finding its way into the business realm.  This law is closely related to the Twenty-Third Law…Up is slow and hard, but down is fast and easy.  The difference is the direction and the reasoning. 

I am working with a client whose business needed a bit of a shake-up.  Unfortunately, part of the problem was masked by a very strong division that was effectively propping up the remainder of the company.  When the sales of that division faltered, the truth was revealed. As Warren Buffet once said, ”Only when the tide goes out can you see who’s swimming naked.”

The company’s problems were revealed dramatically, and the owner and I went about developing new strategies and the accompanying tactics for fixing the problem. The owner went about rationalising his staffing levels…fancy talk for downsizing, and reviewing prices, products and even customers.  The work was exhausting, stretching the owner in ways he didn’t think were possible until he was forced to develop new skills and engage in strategies fundamentally different from those previously employed by his firm. 

The firm's owner told me that this was not just a new chapter in his business, but a whole new volume! I was eagerly anticipating the results of these efforts.  When his year ended, I was disappointed.  I had anticipated greater profits, and instead the company broke even.  Now this was a substantial improvement from the previous year’s losses, but still, I believe we deserved a better fate.  The effects of the changes we made clearly took longer than I had anticipated.

The Optimism Bias

When I was doing some research on this subject, I ran across the term, the Optimism Bias. This is the notion that the rational rules of life don’t apply to optimists.  They believe that they are at less risk than others in areas as diverse as driving to smoking.  They believe in themselves and are thus less likely to be realistic than they really ought to be. 

I fell into this trap.  Although I know that the effects of change take time to show themselves in terms of results, I was so convinced that the plan was sound and the execution so well implemented that the results would be nearly immediate. I was kidding myself, another victim of the Optimism Bias. How could a rational, self aware guy like me fall into such a trap?

Illusory Superiority

Part of the explanation is illusory superiority.  This is the phenomenon by which most people believe that they are of above average in fields such as intelligence, problem solving and driving.  (I heard of a study that one exception is looks…more people rate themselves as average of below average looking than above average looking.)  I thought that since I helped come up with the strategies, the normal laws of economics, business and even physics would not apply.  Talk about self-deluded Billy!

Sometimes, the trick is to be patient.  A friend of mine started a business called Travelers Mobile. Fed-up with high roaming charges, he found a source for local SIM cards for prepaid mobile phone plans in the US, UK, and several European countries.  You order the SIM before your vacation, activate it in an unlocked mobile phone when you arrive, and you have a local phone and phone number.  (I am a customer, and had a UK phone number on our last trip to England.)  He was frustrated in all the efforts he put in to the development of the website, logistics and marketing.  He quit working on the business, and his sales slowly went up.  It seems that his efforts were effective, however; it took more time than he anticipated for sales to climb. 

We entrepreneurs are, for the most part, a very optimistic lot.  The combination of the Optimism Bias and Illusory Superiority create this time surprise.  Sometimes, it is best to be a little bit patient before scrapping one idea for the next.  By the way, if you want to get a SIM card for Canada, the USA, UK, Mexico, Europe or Australia, go to http://travelersmobile.com/ and George will get you set up. 

 

Billy’s Thirty-Ninth Law: Stretching is Important

The biggest risk is not taking any risk…In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.

·       Mark Zuckerberg

It is important to stretch ourselves both entrepreneurially and personally.   This law actually comes via my High School Wrestling coach, Sam Scorda.  I spent my senior year with a wrestling partner who was not nearly as good as was I.  Coach told me time after time that if I didn’t practice against someone who was better than I was then I would never improve.  It was so much easier wrestling against Collins.  I won every drill in practice, but I didn't win every match in meets.  I learned this lesson after high school.  When I played soccer as an adult…I made it a point to always mark the best player on my team during practice. I got beat often, as some of my team mates were former collegiate soccer players.  However, I improved my game…specifically my defensive skills.  I wasn’t necessarily very good…but I did improve my game.

It is the same in business.  Not only do we have to take business risks to find new opportunities, we have to take ‘skill risks’.  This is where we try to learn something new or try something new.  The reason is that we need to learn how to face disruption. 

Many years ago, I taught a three-hour ‘Time Management’ workshop.  The premise of my program was that poor time management practices came from poor habits in one of eight different areas.  In order to change our time efficacy, we must determine which areas created the problems, and then consciously change our behaviour.  Disrupting our habits was the only way to affect change. 

In times of stress, we revert to habit.  This is true in all aspects of our lives.  Some habits are good…such as getting into the habit of exercising or reading for an hour every day.  Even then, our good habits can become…habitual.  I am very habit oriented when it comes to sports.  When I ski…I usually ski the same runs every outing.  I know the runs, I like the runs, and I know them well.  I know where to hold back and where I can really let those skis run.  The problem is that it is hard to improve when you are doing the same runs.  Different runs, especially those with different terrains stretch our skills and abilities. 

To bring this back to business, to change our business we must begin by changing ourselves.  If we do not, we run the risk of missing potential opportunities.  We also run the risk of becoming obsolete.  (For those of us in our later fifties, this is especially difficult as we know our strengths and weaknesses and we know what we like and dislike.)  To thrive is to change and to change we must grow, improve and disrupt ourselves.

Change is hard.  The older we get, the harder it becomes.  Lee Kun-hee of Samsung once famously said, "Change everything except your wife and kids".  This is the kind of flexibility we need in today’s rapidly changing business world.

Billy's Thirty-Third Law Transition Three: Finance goes from Internal to External and From Income Statement focused to Balance Sheet focused

When my accountant reviews my year end statements with me, all I see are dancing cows!

Finance for most entrepreneurs is difficult.  Most entrepreneurs' strengths are in the areas of Marketing or Operations and they have to pick up Finance as they go.  There are two transitions in growing businesses of which owners must be aware.  They are internal to external and income statement to balance sheet.

Internal to External

When you start a business, the financial focus is on the internal needs of the financial statements.  Most people simply want to know if the business is profitable.  Sometimes, it is helpful to have an idea of who owes you money, however; it is amazing how many business owners know exactly who owes them how much at any given time. 

That is the first challenge as a business grows.  The entrepreneur who kept track of things in his or her head is now in a situation where he or she cannot possibly keep track of these vast amounts of information.  Keeping track of five customers is one thing...keeping track of twenty is quite another. 

Financial systems develop to keep track of the internal needs of the business.  They usually begin for tax and compliance reasons, and morph to management information reasons.  (OK Sometimes they don't...Some owners only do bookkeeping for tax reasons, but I again digress.)

As a business grows, it often needs outside financing.  This is usually from banks, however; it can also come from investors.  Now the financial systems must serve the needs of the outside user. This often means that the bookkeeper must now take on more complex financial tasks.  Secondly, businesses may consider financial forecasting as a part of controlling their business during growing times.  Forecasting, both cash flow and revenue & expense forecasts, are an important tool for any business, but are essential for a growing business.  The forecasts are required for business loans and for potential investors.  Checking your plan vs. actual is an essential part of financial managements, yet few smaller businesses have formal forecasting or budgeting sessions.  Get into the habit of forecasting annually and monitoring monthly!

Income Statement to Balance Sheet

The second transition is managing the balance sheet.  Most people intuitively understand the income statement...the revenue less expenses for the business for a period such as a month, quarter or year.  The balance sheet has two critical pieces of information.  Assets, the things the business owns, Liabilities, debts a business owes, and Equity, the owners stake in the company.  Simply put Assets are the 'tools' and Liabilities & Equity represent how the business financed those assets.  That is why Assets = Liabilities + Equity...also known as the balance sheet equation.

Now this has important implications for a growing business.  If the business is growing (revenue growth) then the business needs additional tools.  It may have higher accounts receivable, as more money is outstanding due to increased sales. You may need more inventory to support the growing sales.  You may need to purchase new equipment or add additional outlets.  All of these represent increases in your assets. 

We know that all assets are financed.  The question is, "What is the source of the additional funding?"  This can only come from two sources, debt (borrowing) or equity (usually retained earnings.)

If your change in asset growth is greater than your change in profit / retained earnings growth, then you are going to finance a disproportionate aspect of your business with debt.  This is unsustainable in the end, and your business may well hit a ceiling preventing your business from growth or causing a severe cash flow problem. 

This is complex, so I developed a tool to help.  It allows you to calculate the change in working capital required for every dollar in sales growth.  If you would like a copy of this spread sheet, which I have bundled in a work book called 'Dr. Profit's Took Kit’ just send me a comment and an email address and I will send you a copy.  Don't worry, it is free and there are no strings attached. 

Finance is hard.  If you don't get it, or don't want to get it, please seek advice.  Your accountant is a good starting point.  Take courses from your local business development centre or your local colleges' Continuing Education department.  Your investment in finance is valuable, especially as you grow and develop your business 

Billy's Thirty Third Law - Transition Two: Operations must become systematic

The biggest challenge to scaling your business is to move away from the chaotic and towards the systematic.

When we start our businesses, there are usually no business processes.  Everything is new...everything is custom...and everything is often made up 'on the fly'  Business is improv theatre or  jazz.  For some, these free wheeling forms are a means of expressing creativity and uniqueness.  Just as many marketing entrepreneurs love customer acquisition, or hunting, many technically oriented entrepreneurs love the challenge of developing something new.  For them, routine is boring!

In the previous blog, I talked about capability-- the different things a business can do with its existing resources.  This week, I want to introduce a second term...capacity. Capacity represents how much your business is capable of producing or providing.  In a service business, it may be represented by 'billable hours'.  In a production business it is the number of units you can produce.  A restaurant's capacity is limited by the seating.  Growing a business inevitably means managing capacity growth.  The wise entrepreneur knows how to get the most with what he or she has before hiring more people or purchasing additional assets.  The starting point means developing a business process.

The business process takes the guesswork out of producing or providing products or services.  It is the difference between playing off of a musical score, and jazz improvisation or the difference between adding a pinch of this or that until you like it and cooking from a receipt.  Developing systems allow you to duplicate and scale your business.  Michael Gerber's The E-Myth and Hammer & Champy's Reengineering the Corporation effectively address the issue business systems and documentation.

The Limits to Systems

Many entrepreneurs resist systems.  We believe that each situation is unique and that each situation has a unique solution.  Gerber takes the opposite approach, believing that everything is as systematic as making a McDonald's Big Mac.  Gerber is wrong.  There are many parts of a business process that involve creativity, special skills or scientific knowledge.  This is the ‘missing link’ in process development. Some of these include: creativity, special knowledge, special skills & abilities and judgement. 

A bank may have a process for a business loan application.  Sometimes, the answer is an obvious yes, or an obvious no.  These are decisions made by the system.  Some situations are somewhere in between.  The bank may default to saying no, to those ‘in between’ situations.  A better process would include having a specialist evaluate these situations and making a decision based on judgement. 

A manufacturing client of mine had a request for a lower cost for a particular part.  The owner could not produce the part for less, and was unwilling to reduce the price without reducing the cost.  The solution was to re-design the product and the process, creating a less expensive part to produce thus reducing the cost of the part to the customer.  The solution was a combination of both creativity and special knowledge.

The challenge is to develop flexible systems.  These systems allow you to combine structure with creative and specialty skills and knowledge to affect growth without compromising the uniqueness your enterprise provides.   

Remember...think systematically but never forget the importance of creativity, knowledge and judgement! 

Billy's 33rd Law: Transition One - From Hunter to Farmer

All business success rests on something labeled a sale, which at least momentarily weds company and customer.

 Tom Peters 

For most business start-ups, finding initial customers is often the initial challenge.  Many businesses are successful due to the outstanding sales skills of its founder.  In the world of sales, these are the hunters.  I admire hunters.  They prospect with wild abandon...make quick pitches designed to get them a longer hearing and don't worry about rejection.  Hunters are great at executing customer acquisition strategies.

Great sales skills usually drive of business growth.  The great hunters thrive on the challenges of bringing new customers on board.  The weakness of the hunter is they are often a bit ADHD...they get bored once they have closed that sale.  That is why we have  farmers. Farmers are great at executing customer retention strategies.

Farmers (I have also heard the term shepherds) thrive on  'customer care.'  They keep the customers engaged and often look for opportunities to meet customers’ needs in an entirely different way.  They are essential for sustaining a business.

When a company develops a growth strategy, it comes from one of two sources.  You can either find new products/services, or you can find new customers.  You can of course use a combination of the two.  This is obvious - but sometimes the simple and the obvious are amazing starting points.

 

	New Customers	Existing Customers
New Products	Product Growth	Hybrid Growth
Existing Products	Stable	Marketing Growth

To add products, you must determine if you must add additional capability.  Capability represents the things you can currently make or do.  For example, an accountant may want to offer business planning services to his customers.  If this individual has the ability to do the plans, then there is no need to add capabilities.  If the accountant lacks skills in marketing, or market research, he must develop or otherwise find these skills to add business planning to the product offering mix.

Your choice is important, as you will dedicate both time and resources to the direction you choose.  Product growth is great for companies with a breadth of competencies.  Large consulting firms can offer many different services to their existing customer base, and are never short of new ways to generate income!  Companies whose 'marketing customer' is very 'farmer oriented' are often great at finding new customer needs and then developing strategies to meet those needs.

Some companies are great at finding new customers for their existing product mix.  They thrive on the Hunter style of marketing.  They are adept at re-creating their success formulae in other markets.  Franchises and chains are good examples.  Many offer a limited product mix, but can duplicate this in many different markets.  (I am amazed how many sandwiches Subway can generate from such a small area.)  These companies grow by saturating markets and finding new customers for their products or services.

No company can use a single strategy forever.  Eventually, you must find new customers and expand or revise your product offerings.  Making such changes requires many of the same needs identification skills that made your company great in the beginning.

I have seen too many companies grow their market by going from one opportunity to the other with no strategy what so ever.  Opportunism is great (and a hallmark of many great entrepreneurs) however strategic growth requires evaluating the direction that best suits your corporate strengths, culture and abilities.  It is important to understand the role of hunters (customer acquisition) and farmers (customer retention) as a part of your overall growth strategy. 

Billy's Thirty-Third Law: Growing a busineness is different than starting a business

The skills required to grow a business are different than the skills required to start a business; the challenges found in growth different than those in start-up.

Several years ago, my friend Barb Mowat asked me to join her in a two day program devoted to business growth.  Barb spent the first day on how to grow a business.  She was, as she always is, supportive, encouraging and left the crowd feeling great!  I was responsible for the second day which we called, The Pitfalls of Business Growth.  Needless to say, my message was quite different and a bit less supportive and encouraging.  Our participants liked the balance that growth for its own sake was often misguided, but with planning and foresight, growth is successful and rewarding!

As a part of that presentation, I developed a model called The Growth Trap.  Consider the following scenario:

An entrepreneur starts a business.  She works hard and she has some success.  People like her product or her service.  As time passes, the business becomes more popular.   Customers become advocates ... create a real buzz around her business.  Sales begin to grow quickly and she is ecstatic.  She remembers those early days when sales were difficult and now the orders are rolling in!

Her product popularity pushes her productive capacity to the limit.  She is barely getting product out the door on time, or performing services for her customers on time. She continues to work hard on sales, all the while the timeliness service and quality begin to diminish ever so slightly.  Everybody works hard and the company keeps up with the ever growing demand.  But sales are up, so everything must be all right!

Unfortunately, as the company grows, she needs outside financing.  As her sales grow, her inventory and outstanding accounts receivable grow with them.  This creates a Working Capital crunch as her cash flow becomes a cash trickle.  She needs another increase in her line of credit and her banker wants this thing called a forecast her bookkeeper has no idea how to do one and a consultant wants $5,000 to do a financial plan.  "Why don't they give me the money", she wonders with exasperation, "After all, sales are up so everything must be all right."

To fill the demand, she starts to hire people.  At first she is very choosy, but as the business is growing she falls in to the 'hire and hope' method of recruitment.  At five people, it was just like family.  At twenty, it seems that the staff is not even on the same page.  But, everything must be all right because she has just opened another new outlet and sales are up.  One day her first hire...her right hand woman, so to speak, announces she is resigning.

If this sounds familiar, you are in the same boat of many entrepreneurs who are growing their businesses.  You are entering the growth trap... a trap which you must manage to avoid collapsing under the weight of your own growth.  Notice that that each aspect of this business grows at a different rate.  The result is a company with greater sales capacity than productive capacity, financial capacity and human resources capacity.  Eventually, something has to give!

 

The Growth Trap

 

 

The Growth Trap

Over the next four sessions, we will examine the effects of the four aspects of your business growing at different rates what you have to do in your business development to actively work on the critical business aspect and importantly, anticipate the aspect that will next require your attention.  Growth for its own sake is dangerous ... growth with planning and intent is rewarding and profitable

To get a free chapter of Grow your Biz, the book Barb based on our workshop, go to http://groyourbiz.com/about/free-chapter/.  

Billy’s Thirtieth law: The Three Business Skills Every Entrepreneur Needs - Being an Analyst

I never guess. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.

·         Sir Arthur Conan Doyle’s Sherlock Holmes, A Study in Scarlet

When we facilitate planning sessions with our clients, we begin our session with the diagnostic section. Diagnostics form the second of the three important skills all entrepreneurs must acquire in order to ensure the sustainability of the business. All entrepreneurs managing in a changing environment must master the art of business analysis.

Analyzing a business is not simply using a series of metrics.  As you know, I believe that Happiness is a warm spreadsheet, but by the same token, the spreadsheet and information found are the tools…the entrepreneur is the craftsperson. Here are some key ways to use both analytics and business judgment to help you grow and develop your business.

Step One:  Determine important measures

Many entrepreneurs look at financial metrics.  There are other important metrics in other parts of the business.  Marketing, Human Resources and operations all have measures that help keeping an eye on the health of your business.  Establish a series of monthly and even weekly measures that allow you to take fast action, and annual and quarterly metrics that give you a sense of the ‘long term’ health of the business.

Step Two:  Look for changes

Spotting trends and changes is an essential part of analyzing the business. For example, a drop in sales may represent a downturn, or simply a seasonal shift.  Comparisons to the previous year help reduce these seasonal factors.  Changes can come due to three factors.  Internal factors are changes to the metrics caused by internal actions of the company.  External factors are changes to the metrics caused by outside forces.  Anomalies are random fluctuations with no identifiable cause.  A single change does not necessarily indicate a trend, but may have no cause. 

Step Three:  Take Action

Once you have examined and sorted the changes, create strategies, or execute tactics to overcome these changes.  Alternatively, take action adapting to the change.  For example, if sales are down, execute a marketing strategy to increase sales, or reduce staffing levels.  In the case of an anomaly, keep an eye on the metric involved and see if there are any underlying factors that are driving change to the metric and to your business.

Underlying Conditions / Assumptions

When performing your analysis over a longer period of time.  For example US consumption of soft drinks is off by 20% over the past ten years.  This trend indicates a change in the ‘underlying conditions’ under which beverage companies are operating.  Demographics changes also change the underlying assumptions in healthcare, financial services and travel & leisure. 

Spotting these changes longer term changes is challenging.  Missing such changes often trips up large businesses. Ken Olsen, CEO if Digital Equipment Corporation (DEC) was quoted as saying, "There is no reason for any individual to have a computer in his home."  DEC went on to merge with COMPAQ and then…disappear.

Good entrepreneurs often started their businesses by sensing changes.  Great entrepreneurs, with the help of great analytics, sense these changes and adapt before the changes overwhelm them.

Billy’s Thirtieth law: The Three Business Skills Every Entrepreneur Needs. Skill One, develop great Tactical Skills

As I previously wrote in The Eighteenth Law, the entrepreneur must develop his or her skills ahead of the development of the enterprise. We can look at specific business aspect skills; learning more about finance, management, marketing and the operations of the business. Development also includes developing skill sets in three important components of business planning. These skills are Analytical, Strategic and Tactical.

Analytical Skills include all aspects of measuring, and interpreting those measures to make more effective business decisions.

Tactical Skills include all aspects of achieving goals set by the company.  These include everything from performing tasks to the systems and workflows that efficiently get things done. 

Strategic Skills are the planning, goal setting and visioning aspects of your company.  Strategies set direction while tactics get you to the destination.   

To use a simple example, when you take a vacation, strategy is deciding where to go, tactics is deciding how to get there and analysis tells you how long it will take. These three skills are taken from business theory; but don't let that scare you. You are already using each skill on a regular basis. The challenge is developing skills and building on the skills in which you may be weak. Over the next three blogs, I will shed light on each skill, why they are important to your firm and how these skills are essential parts of developing your enterprise.

Tactics:  Most Entrepreneurs' Strongest Skill

Strategy requires thought, tactics require observation.

·         Max Euwe, Chess Grandmaster & Mathematician

Most of the entrepreneurs I have met have little idea of why they are successful.  They attribute success to creativity, insight, hard work and other factors popularized by the press.  When I look at successful business owners they do not invent a better mousetrap, but rather build and sell mousetraps better than their competitors.  Successful entrepreneurs deliver well and deliver early.  This simple fact is not exciting, but it is the truth. 

In a previous blog, I suggested that success was more than simply hard work.  Successful entrepreneurs combine hard work with great tactics, especially when the goals (strategies) in the early stages of business development are quite straight forward. 

Tactical thinking is essential to success…especially early success.  An entrepreneur with whom I worked was in the solar control business.  This industry uses window tinting and roller blinds to reduce heat and glare in both buildings and automobiles.  The owner got his start installing tint automobiles and recreational vehicles.  He was extremely good at it, got a good reputation in the industry and built a profitable business. 

He didn’t invent window tinting.  He didn’t apply it to an entirely new industry.  He just found a better way of doing thing others were not doing well, and then building on it. There are tactics in production…finding better ways to produce your products or deliver your services.   There are marketing tactics, ways to influence your customers in ways that help you achieve your sales and profit goals. 

The challenge, as we shall discover going forward, is that strong tactics alone only take you so far.  This comes back to the hard working entrepreneur who works hard, but never really achieves much of anything.  It is fine to have your business exist to provide you with a job, if that is what you want.  There is nothing wrong with that…in fact that describes my own situation.  Many people want more…and tactics alone will not allow them to accomplish that goal. 

Good tacticians always look for a better way.  They know that there are no best practices, just best practices thus far.  In manufacturing they look at systems such as LEAN, TQM and Theory of Constraints; apply behavioral event interviewing in their recruiting efforts and apply online efforts to marketing.  Smart tacticians take from the best systems, adapt them to their unique situation and improve their ability to deliver.  

The weakness with tacticians hurt businesses in the long run.  These include a lack of the ability to delegate, assuming their tactic is the best tactic and failing to realign tactics when the company needs to change strategy.  Firms can get stuck in a ‘tactical trap’ where the means becomes more important that the ends. 

Most entrepreneurs are tactical and that is great when both the enterprise and the economics are stable.  Alas, we live in turbulent times; times that require more than great tactics, but add analytics and strategic thinking to the mix to develop a growing and sustainable enterprise. 

Billy's Twenty-Fourth Law: It really is all about the numbers!

Happiness is a warm spreadsheet!

Many entrepreneurs hold great faith in their 'gut feeling' or intuition. A well-honed gut feeling can prove to be an asset when starting your business but as your business grows you must become more systematic and analytical . Many entrepreneurs continue to use the 'seat of the pants' approach long after they ought to. Sometimes this is due to stubbornness, and other times due to a general distrust of figures.  Unfortunately, for you 'mathaphobes', analytics are important especially in a growing business in a changing environment.

When you start your business, you can keep track of what is going on in your head. You know exactly how much money is in the bank, how much you are owed by your customers and the birthdays of every employee. As the business grows, it amazes me how wrong many entrepreneurs are about their businesses. These false assumptions lead to poor decisions which, when executed, make the business worse and not better.

I had a client whose sales were declining. I asked her why she thought this was the case and she was certain that it was the lost sales were due to lost customers. She wanted to embark on a price oriented customer retention strategy. I wanted to be sure that customer retention the real problem. I performed a three-year analysis by top ranked customers.

It turns out that she was not losing many customers at all. In the three-year period, she did not lose a single of her top customers. (These customers are in the group representing the top 80% of revenue for the company.) The problem was not customer retention. The real problem was that her top customers were ordering less than they had in previous years. She then called these top customers and found out that they too had experienced a slowdown, reducing the need for my client's product. A price cut as a customer retention strategy would simply have reduced her revenue and her margins. She needed to add to her customer base and find more top clients.

Business owners must analyse the past, to determine how their business is doing, and analyse the future to make better business decisions.  I had a client add a new product to his company only to find out later that the new product increased revenue, but reduced profit.  I had another who added an entire division without doing a forecast or a break-even. 

Analytics are not solely the domain of finance.  Every business should track important metrics in Finance, Marketing, Operations and Human Resources.  Some are monthly metrics, others are quarterly and others make more sense over a year.  These metrics, also known as a ‘dashboard’ or even a ‘balanced score card’ form the basis for goal setting and progress measurement. 

One business adage, often attributed to both Peter Drucker and to Lord Kelvin is, “What gets measured gets done.”  I believe that the right metrics help.  You do not run a business with metrics, however; you can use the metrics to run a better business.

The question you may ask is, “Is there a place for intuition in decision making.”    I believe that there is.  Many people have insights they cannot explain, but are often correct.  Others say that intuition is the sub-conscious processing of information. 

Therefore, my rule is that my head must say yes…but my gut can say no.  Many ideas and decisions sound good in theory, only to go south in practice.  If it does not feel right, I do not do it. This is especially true with respect to people.  I would not hire anybody about whom I did not have a ‘good feeling’.  That said I would not hire on feeling without checking out if the candidate had the ability to perform the tasks required for the job.    

So find some key metrics that reflect those things important to you and to the success of your business. Ensure you are measuring the right things for your business and your situation.  Measure and share them, and create responsibilities around them.

Year Seven: Renewal

Risk: Medium

Satisfaction: Medium

Key Issue: Creating a new challenge for yourself

There is nothing more dangerous to a business than is a bored entrepreneur!

Year Seven is a tough year on which to comment.  For many business owners, this is a time to capitalize on the gains built in the first seven years and grow their enterprise to the next level.  For many entrepreneurs, starting a business is more enjoyable than growing or operating a business.  This is how many businesses go onto divergent paths growth and renewal or neglect and decline. 

The story of the bored entrepreneur is personal to me.  Before starting his own business, my father was a shareholder in an electrical contracting firm.  They brought in my father to acquire his engineering expertise, just as they brought on another individual for his expertise in the field of programmable control. The founder of the business still owned 51% of the business and thus had controlling interest.  The company had a line of credit, backed in part by the personal guarantees provided by each of the shareholders and their respective wives.

The founder of the company was a bit of a tinkerer and inventor.  He invented, and patented as ‘self-propelling’ boat.  It took the side-to-side rocking motion of the boat and turned it into forward propulsion.  As with many entrepreneurs he thought that just because he was good at one business, he would necessarily succeed at all his businesses.  He decided to begin manufacturing these self-propelled boats using the line of credit from his original company.

When the other shareholders found out about this they went to the bank, asking the bank to ‘call the loan' so the founder could not drain the company on this boat venture.  The bank agreed not to call the loan provided the company undertook not to forward money towards the boat company.  The bored entrepreneur continued to follow his dream, resulting in the bankruptcy of both companies.

I have seen too many entrepreneurs follow this pattern.  Sometimes, they are like Richard Branson…sort of entrepreneurial polymaths.  Most are not, and have both successes and failures.  Many are  one-trick-ponies, and confuse a single success with entrepreneurial genius. In planning sessions, I tell these ‘serial entrepreneurs’ that the start-up plan should include an exit strategy.

So what should Year Seven look like?  I believe strongly in the following:

·       Ask yourself “Is this really, what you want to be doing?”  If it is not, develop an exit strategy or a succession plan.  If so, think of it as signing a seven-year contract extension.
·       If you want to commit yourself, re-vision your business to align your personal goals with the goals of the many stakeholders around you.  These include investors, employees, customers and your community.
·       Take action.  Inaction means attrition and attrition means an uncontrolled end to your enterprise.  It is better to go out of business than to be forced out of business.

 

The reason I am so passionate about planning in Year Six is so you can execute strategies in Year Seven.   Exit strategies and succession plans are just as important as are growth plans.  Too many entrepreneurs do not even think about the end as they are so busy building a business they never know when it is done.

One client with whom I am working is in year seven.  I put the ‘contract extension’ concept to him.  He told me that he wanted to do the next seven years, but that after that, he would be done.  This will help us develop a planning framework with an end game in mind.  By having a well thought out exit strategy, he can ensure continuity for his employees and his customers, and at the same time, reap the rewards of what will have been fourteen years of hard work and commitment.

Year Seven is either a springboard to bigger and better things, or it is a black hole drawing the enterprise to perdition. Not since the founding of the business is the passion, desire and direction of the founder more important.  There are two key differences.  Firstly, you have an infrastructure of success.  You have customers, you have production / provision methods and you have a financial track record.  You are not in uncharted territory.  The second is that you have more to lose.  The stakes are higher now than they were at the beginning. You have more people relying on you.

As a part of a strategic planning exercise, I had the planning team calculate how many people were directly affected by the success of the enterprise.  Over 200 peoples', lives depended on this firm.  This helped put the importance of planning into a greater context than profit or loss, but into a context of families.

Seven years may seem like a long time, but ask any entrepreneur who has succeed for that long and he or she will tell you that it went by in the blink of an eye.  As Geoffrey Chaucer wrote, “time and tide wait for no man.”

Year Six: Mastery

Risk: Low

Satisfaction: High
Key Challenge: Balance

The emerging picture from such studies is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world-class expert…in anything.

Neurologist Daniel Levitin Quoted in Outliers by Malcom Gladwell

The sixth year of business is often one of the most satisfying.  If you are still around, you have not only developed a client base, but have experienced losing customers and gaining new ones.  You have developed your business skills, learned from the arrogance of year four, and carved out a specific role for yourself within your own company.   In many ways, this feels like smooth sailing.

This is a time for you to enjoy yourself personally and professionally.  If you have developed your business correctly, the business has become less dependent on you more dependent on your staff and your systems.  Even if your business is primarily about your own contribution to the enterprise, as is my one person training and consulting firm, you will have developed sufficient goodwill with your clientele to take some time for you and your family.

The problem for some entrepreneurs is the habituation to working long hours.  If you work forty hours per week, that soon seems to be the norm.  If you work sixty hours per week then that seems to be the norm.  The problem is that we do not necessarily use our time as efficiently as we should, or even as we once did.  Many people define themselves and their success by their effort rather than their results. 

 

This poses problems for the enterprise and for the entrepreneur.  The entrepreneur can give the impression that people are not trusted do their jobs.  This may not be true…in deed often entrepreneurs have great faith in their teams, however; the perception is more important than the reality.  From the entrepreneur’s perspective, this dogged mindedness to the business often comes at the expense of other aspects of life.  This includes long-time friends and often times family. 

In year six, you must review your personal and business goals.  Is the business doing what you wanted it to do?  Is your lifestyle all that you envisioned it would be when you started the enterprise?  Alternatively, do you need to make changes?  This is a great year for some personal planning.  This could even include thinking about a transitional plan or even developing an exit strategy.  It takes time to exit a business, so beginning this process early helps.

You have worked your butt off for five years.  In year six, remember the reasons you started the business, the price you have paid, and the rewards you may seek.  You don’t have to be religious to appreciate the wisdom of this verse:

 

For what will it profit a man if he gains the whole world and forfeits his soul?

Matthew 16: 26

Next time is the last this series…the transition of Year Seven.