Billy's Thirtieth Law - Skill Three: Becoming a Strategist

“The essence of strategy is choosing what not to do.”

Michael E Porter. 

Running a business is important, however; it is imperative that you keep your ultimate destination in mind.  Deciding on your destination is your strategy. When we start out, or strategy is usually as simple as ‘make enough sales to avoid bankruptcy’. 

When we decide to grow our business, simply saying, “We’ll just do more of the same.”  is just not going to work.  Most businesses start as singular strategy organizations.  They sell one set of products, or provide one set of services to a fairly homogeneous customer group.  You eventually exhaust the market potential for a single service.
  

For a business that wishes to remain small, this strategy need not change.  My father was a self-employed electrical engineer.  He offered engineering services in a fairly limited geographic area.  He was limited to his own skill-set and to the number of hours he could offer for ‘sale’.  His marketing was primarily word of mouth.  He successfully operated his business for nearly thirty years.

Many entrepreneurs want to grow their businesses.  Some do this by selling the same products or services, but expanding their market size.  Others increase their product offerings and sell to their existing clients, or at least a similar market.  Others do a combination of the two, selling a new set of products to different customers.  
 

All of these represent strategic change to the company.  New strategies must be vetted…to that the entrepreneur does not just go off and to the first thing that comes to his or her head. (Oh yeah, they do that and then call people like me two years after the mistake was made.)

Here are some tips for vetting potential growth strategies in your business:

Think of several different, potential strategies that help you achieve success.You can think on pivot around things like adding products increasing customers, adding outlets or changing distribution.  Don't stray too far from your core competencies (the things you do really well) or you may end up starting a new business, and not building your existing business. 
 

1. Do your homework before taking action!  You should know how to provide the product or service, and know how your existing and potential customers will act. For example, changing your pricing strategy to acquire new customers may serve to alienate existing customers.   
2. Develop a break-even for the strategy.  Include your start-up costs, fixed and variable costs and ask determine where you need to get to in order to break even.  Look at that figure and determine if you can achieve this sales target in a reasonable period if at all.  This alone is a great vetting tool.
3. Develop a plan with milestones and budgets.  If things are not on time or on budget, reconsider the strategy.  This is also a great way to determine if you have the tactical abilities to execute the strategy.
4. Unless you are going to the moon, there is no point of no return.  As a part of your plan have a number.  For example, if this has cost us $1,000,000 and we are still not profitable, we stop.  This is difficult due to the Sunk Cost Fallacy.  This is the notion that once costs are incurred, must be recouped.  This is, of course, nonsense.  We feel we are abandoning our investment of time and money.  You are, but you are also preventing this from getting worse.  Track and take action. 
5. Try to test quickly and on a small scale.  This is the putting the toe in the water approach.  
6. Ensure that each new strategic direction pays its own way.  Each strategy must have its own business case.  

New strategies are important to growing businesses.  For many entrepreneurs, trying new stuff is far more fun than operating old stuff.  Don’t fall into the trap of doing something new for its own sake, but do some new that adds value to your enterprise. 

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-ninth Law: Entrepreneurs are forward looking,"Future people".

Don't stop, thinking about tomorrow,

Don't stop, it'll soon be here,

It'll be, better than before,

Yesterday's gone, yesterday's gone.

Christine McVie

Entrepreneurs share many characteristics.  We are focused, persistent and often stubborn.  One characteristic shared by many successful entrepreneurs is a forward view of life.  I thought that this was normal until a friend of mine recounted a recent episode he had with a customer.

This customer didn't treat my friend's staff well.  He was interfering, critical and downright rude.  My friend is a great believer in customer service, however; he draws the line at this kind of disrespectful behaviour towards his people.  He brought it up with the individual involved and nothing changed.  He then went over the head of this individual to the customer's boss.  My friend told the boss that he was at the point of refusing the work if the situation did not change. The situation improved, but the bad blood remained for years.

My friend is a proactive fellow.  He doesn't like 'bad blood' so he visited the individual in question.  He went to his house (it's a small town) and wanted to resolve any issues.  He man was so angry he was shaking.  He accused my friend of costing him $20,000, presumably in bonuses.  They had a drink, talked it out and my friend left on better terms.  This happened four years after the original event!  This customer had held on to this for four years...all the time still working with my friend's company.

So Bill...what's your point?

People live lives in one of three ways.  Some people live in the present.  They really live for today.  I envy people like that as they don't tend to worry or fret about the uncertainties of the future or the mistakes of the past. They can take life as it comes and enjoy each moment for its own pleasure. 

Some people live in the past.  They remember the 'good old days', which were often not nearly as good as they thought that they were.  They dwell on past successes, they obsess about past wrongs.  They cannot get past their previous mistakes.  I think of Bruce Springsteen's song Glory Days:

Glory days well they'll pass you by

Glory days in the wink of a young girl's eye

Glory days, glory days

Entrepreneurs live in the future.  They learn from, but don't dwell on mistakes.  They have the sense of urgency to get today's work out today, but keep the medium and long term in mind.   Things are always going to get better.  Mistakes are just 'water under the bridge'. (OK, we use many clichés as well.)  Entrepreneurs are 'future people'.

There is a psychological concept called 'egocentricity'.  It can mean self-centered, but it can also describe the ways in which we see our own behaviour as normal.  If you are forward looking, you assume that everybody else is forward looking as well. This is a problem, especially when communicating with an individual rooted in his or her past.  This difference in perspective causes difficulty, especially in the work place.  When communicating with a backwards looking person, consider the following:

1. Acknowledge the importance of the past.
2. If the past was positive emphasise ideas such as ‘carrying on the tradition’.  If the past was negative, emphasise the importance of learning from past mistakes.
3. Sharing your future vision is less important than celebrating past successes. Watch your ‘present/past/future ratio.
4. Realize that you communicate differently and that you value different things.

Awareness is half the battle.  Effective communication means adapting to the receiver.  This is especially true when communicating with customers and employees.  Remember, not everybody is a forward looking entrepreneur.  Keep this in mind next time communications difficulties arise.

Billy's Twenty-Eighth Law: When is it time to throw in the towel?

E's passed on! This parrot is no more! He has ceased to be! 'E's expired and gone to meet 'is maker! 'E's a stiff! Bereft of life, 'e rests in peace! If you hadn't nailed 'im to the perch 'e'd be pushing up the daisies! 'Is metabolic processes are now 'istory! 'E's off the twig! 'E's kicked the bucket, 'e's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisible!! THIS IS AN EX-PARROT!!

John Cleese & Michael Palin

I was having lunch with George Hunter, the CEO of Small Business BC.  We got to talking about the ways in which we honour small success stories.  George made that point that sometimes it seems that we are honouring the survivors rather than those who are necessarily the best.  Think of the archetypical small business success story.

I started my business after losing my job in the middle of a recession.  All I had was an idea and my true desire to (fill in the business).  It was a lot of hard work, but we persevered.  The banks wouldn't even talk to me, so we took out a second mortgage on the house.  Times were tough, but we put our heads down and just kept going.  We finally got our big break when we made a big sale to (fill in your choice of either big company or level of government.)  Then we continued our hard work and now have 50 employees in three different cities across the (fill in your choice of province, state or country.)  Now I have a big house, nice car and a swimming pool filled with Champaign.  (OK, that is an exaggeration.)

Unfortunately, we never hear about the small businesses that don't make it.  I know from experience that those individuals work hard, they have ideas that they think were great.  In fact, they may even be the ones who came second in the competition for the big sale.  They are those who didn't survive.

Business fails.  Sometimes, it is lack of competence.  Other times it is failing to realize that the idea just is not viable.  Other times, you are too far ahead of the market to achieve your sales targets fast enough to prevent from going out of business.  It is rarely, in my experience, due to a lack of effort! 

Alas, businesses, like cockroaches, are hard to kill.  There is something deep within the entrepreneur that simply won't admit defeat.  They beg, borrow and rob from Peter to pay Paul, just to keep the lights on. This often creates strains on family finances and relationships. The problem is that it is not hard work preventing them from success, yet the message is that hard work is the antidote regardless of the economic disease. It is simply nonsense. 

Math Geek Time!

Supposing five independent, sequential events must occur in order to ensure your business will succeed.  Further suppose that the probability of success is 95% for each of those events.  The probability of your succeeding is 0.95⁵ or 77.4%.  Reduce that probability of success to 90% and the probability of success drops to 59%.  Each event has a high probability of success, but a lot of things must go right for the business to succeed!  Some of those 'success factors' are beyond your control!

All entrepreneurs need to have someone who will provide them with the best possible advice with respect to the future direction of the business.  They need someone who is trustworthy, honest and balances the line between support and clear direction.  Finding this person or people is difficult, especially when you must make difficult decisions.  

Failure is tough; although I heard a business story about a group of venture capitalists who invested in high potential people whom they knew would fail in their first venture.  They knew that it was often the second or third idea which was the big money idea, and that the learning from the failure of the first venture was an investment in subsequent business ideas.

We all love the rags to riches story, that hard work is the key to success.  There are many factors, including hard work, that account for the success of any new enterprise.  Don’t be fooled by anecdotal information…hard work and persistence is not enough to ensure a successful enterprise.

Billy's Twenty-seventh Law: Public Corporations are really different from Private Corporations

I was at an event for a small public ‘start-up’ corporation.  The company went public using a ‘reverse takeover’ where a public corporation which has no assets (often former mining exploration companies) and is repurposed for another business. My world is the private corporation, when business owners risk their own money and reputation in order to start and operate a business.  This company, which actually has a product, has different needs and goals than the more typical start-ups.

This was a lavish event.  It was held at a four star hotel. As we entered, we were offered a choice of red wine, white wine or Champaign.  There was entertainment and then the CEO made some announcements regarding the bright future for this company

In a private start-up, all of the focus surrounds revenue, expenses and cash flow.  This means there is an emphasis on marketing, on the plan to produce the product or provide the service, control costs, and get paid. In the public world the same conditions apply, however; there is the added dimension of the shareholders.

Whereas in the private domain, profit and cash flow are the goals, in the public world it is also about the share price.  Although profits affect share price, the profit is not the only determining factor in setting the share price.  If it were, every stock would have the same price to earnings ratio.  Share price is a function of psychology and reality.  If a stock has a seemingly bright future, share prices trade higher.  If profits are up and sales are down or are stagnant, the share price often drops. 

A great deal of business training and the majority of the business press address the needs of the public corporation.  That is great, until we take lessons from the public domain and apply them to the private business world.  SME owners and managers must translate advice and observations provided with a public corporate bias and translate that into the SME world.  As an owner of and SME, your primary job is to protect the enterprise.  This protects you, your employees, your customers and your suppliers. In the public world, it is to protect the shareholder. The board of directors has a fiduciary responsibility to the shareholders of the public corporation.

There are many skills, techniques and principles that are good business practice for firm, public or private. Understand the different perspectives and you will better understand the ways in which you can run a better business. By the way…the canapés were wonderful, but I am still not as comfortable in that world as I am in the world of the SME. 

Canada: A great place for business and a great place for life!

Sorry that this is late...eh?

July 1^st is Canada Day…for those of you who aren’t Canadian.  It represents the day in 1867 when Canada was granted Dominion Status…a sort of semi-independence from Great Britain.  Today, many consider Canada one of the greatest places on earth to live.  Notice I say one of the best. I think it is arrogant for any country to claim to be the greatest.  I love Canada, but I have been in other great parts of the world.  The people of Atlanta GA are great…London, England is one of my favourite places to visit and I love Mexico!  There are many great people and great places all over the world.  Here is why I think Canada is a great place to live and to work.

Financially, we have a great banking system.  Our national banking system is uniquely Canadian.  Our banks are big and considered safe.  According to “Ranking the Brand”, All of the Big Five Banks made the ‘top fifty’ list for the safest banks in the world.  What makes Canadian Banks unique is the fact that no one person can own more than 10% of the banks.  Any Canadian with a pension fund or broadly based mutual fund is probably a bank owner.  A strong Credit Union and Caisse Populaire (Quebec) provide local financial services for both individuals and small businesses.   The result is a conservative and stable banking system, which required no government bailout during the recent financial crisis! 

We live in a stable society.  Although income inequality is an issue, Canada sits in the middle of the G7 and the GINI co-efficient has remained stable over the past ten years.  At the same time, Canada has the second highest Per Capita Purchasing Power adjusted GDP in that same G7 group.   Social stability, together with a good education system provides a sense of hope.  Entrepreneurs need a combination of stability and hope to ensure flourishing entrepreneurship.

Canada is a country finding balance.  I would love to report that there is no racism or sexism…but that would not be true.  We are getting better, but there is still work to do.  Socially, our medical system is good, but waiting lists for so-called elective surgery force people to use private clinics or remain inactive for over a year!  Government regulations have a tendency to go overboard.  For example, Vancouver has banned doorknobs for all new construction.  Neighboring suburb Coquitlam forbids off switches for bathroom fans!   Economically, we swing from high debt to emerging as one of the first nations with a surplus after the financial crisis.

Therefore, at 147 years Canada is still a work in progress.  As we strive to find the right social, environmental, legal and economic balance, I hope that we never find it.  My hope is that we remain a dynamic country of change and development, of freedom and hope, of happiness and being “Our True North Strong and Free”.