Wayne Wilson on Companies in Transition

6 Critical Areas of Business Management

Here are 6 critical areas that every business owner must constantly monitor and manage:

Business Planning – Business planning involves a regular review of your strategies and tactics for achieving your business’ goals. How is the new store location doing? Is your web site producing a steady stream of sales leads? Are the Friday specials attracting new customers?

Financial Management – Is the business profitable and generating sufficient cash to pay bills, salaries and needed capital improvements? How strong is your banking relationship? What is your backup plan if sales slow down?

Project Management – Major projects and initiatives such as marketing campaigns tend to work out better if carried out on the basis of a well thought out and executed project plan. What are the tasks to be accomplished? Who is responsible for each? What resources are required? When will the tasks be accomplished?

Ownership Transition Planning – Every business needs a succession plan to address continuity in the event of illness, disability or retirement of the owner and other key managers. Lack of a transition plan may result in the business losing value or being unable to continue as a going concern.

Human Resources Management – Your people are your most important asset. Without your associates, who would service your customers and support your business? What types of associates does your business need? Where will you find them? How will you attract and retain them? Despite the recession, good people are always in demand.

Marketing/Business Development – Marketing is about finding, attracting, and connecting with customers. Business development is usually taken to mean developing new markets or major business partner (vendor or customer) relationships. Both are important components of a successful business strategy, but don’t forget about sales. Your sales activities are the one which actually close transactions with customers, move product and bring in the cash.

Rate your performance in each of these areas with a simple one-page, two-column analysis for each area. Label one column "What's working well" and label the other column "What's NOT working well". List 5 or 6 positives in the first column and 5 or 6 negatives in the other. Then at the bottom of each page, list the three most important actions which you could take to improve your performance in that area.

After completing this process for all six areas, summarize and prioritize all of the potential action items, and resolve to work on the top three or four items over the next three months.

You will be amazed at what you can accomplish!

Connections Drive Success

Our last post described the power of entrepreneurs to succeed through:

1. Opportunity

2. Ingenuity and

3. Hard Work

Much of that entrepreneurial power comes from contacts and connections – the more contacts we have, the more ideas and opportunities we will be exposed to. The more connections we make, the greater the number of partners, investors, suppliers, and resources we will be able to call upon.

Here is a great example of making contacts and connections. Jason McKinstry, an information technology (IT) services professional with Sogeti, USA LLC in Charlotte, North Carolina saw the need for a better networking mechanism for business professionals in the Charlotte area.

In June 2008, McKinstry launched the Charlotte Business Professionals Group on LinkedIn.com. Eighteen months later, the Group has nearly 5,600 members! [1]

LinkedIn builds on the phenomenon popularized by the play Six Degrees of Separation by John Guare. Also referred to as the "Human Web", the concept refers to the idea that, if a person is one step away from each person they know and two steps away from each person who is known by one of the people they know, then everyone is, at most, six steps away from any other person on Earth. [2]

LinkedIn lets you post a detailed work and education history, write and receive recommendations, join industry groups and correspond with others giving a user a complete online presence that also shines when you are seeking a job. [3]

The larger your network becomes, the greater its power to help you achieve your goals!

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1. Last September, McKinstry launched CharlotteBP.com, a companion web site to the LinkedIn Group containing feature articles, commentary, and other resources to support the Group’s members.

2. http://en.wikipedia.org/wiki/Six_degrees_of_separation

3. http://www.charlotteobserver.com/408/story/913069.html

Where there's a will, there's a way (or two or three)

Entrepreneurial success in business is often driven by the combination of three forces:

1. Opportunity - someone has an unmet product or service need

2. Ingenuity - an entrepreneur figures out how to address that need and make a profit doing it

3. Hard work - the entrepreneur stays the course, doing whatever is necessary to make the product successful

And sometimes, the entrepreneur must overcome additional or unusual obstacles to reach his / her goals. Here's an example from Smartbrief on Entretreneurs about Doing business the old-fashioned way:

"Miller Farm, a Pennsylvania producer of nutrient-rich foods, has more than doubled its sales to $1.8 million in just four years -- without the benefit of cell phones, Web access or office machines. The Amish-run family business relies on snail mail and a single landline telephone to maintain connections with the outside world. The company also uses trade show appearances to help bring more foodies into the fold." (Read the full article at BusinessWeek )

The Amish farmer in the story is a classic entrepreneur - he saw an opportunity, figured out how to meet the customer need while staying faithful to the Amish community's constraints and way of life. And he did it with a farm!

Maybe some of our best business opportunities are just outside our windows.

What’s your business worth?

Every business owner dreams about what his/her business might be worth – the bigger the dream, the better they feel. But what is that business really worth? Only as much as someone will pay you for it.

Here then is the real question: how do you figure out what someone might pay you for your business? Investment bankers would say, “Let’s run a process (quietly put the business up for sale) and see who comes and what they offer.” But that’s not practical if you are really not yet ready to sell or if you are worried about the impact on customers and employees if word leaks out that you are shopping the business around. Such processes can also be time consuming, distracting for management, and potentially expensive.

Another avenue is to ask an investment banker or appraisal professional to prepare what’s called a “range of values” study based on comparable company sales, public company trading multiples, and discounted cash flow analyses. Such studies can provide you with indications of your business’ value under various scenarios. The fees charged for these studies may be modest or significant depending on the size and complexity of your business.

And then there are the “rules of thumb” – those quick and dirty formulas for estimating the value of a business based on the ranges of prices other people have paid for similar businesses over time. [1] To be useful, business valuation rules of thumb should be market-driven, that is the result of actual sales. While valuation rules of thumb do not take into consideration all of the factors which might affect the value of a specific business, they are a useful starting point.

Here are two good resources to consider in your search for appropriate rules of thumb:

• 2010 Valuation Survey of Architecture, Engineering, Planning & Environmental Consulting Firms, published by ZweigWhite is an excellent resource for business owners and managers in those professions.

• For a more general resource, check out the 2010 Business Reference Guide: The Essential Guide to Pricing Businesses and Franchises, 20th Edition.

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[1] In the Introduction to his book Rules of Thumb, Tom Parker calls a rule of thumb “an easy-to-remember guide that falls somewhere between a mathematical formula and a shot in the dark”.

Riding the roller coaster

Coming to another year-end always reminds me of the roller coaster. You know the one: it’s the one you ride every day.

Running a business is like riding a roller coaster. You work, work, huff and puff climbing that big hill to get your business going (or get it out of the ditch). Finally, one day, you reach the top, and with a great sigh of satisfaction, you start to relax to enjoy the view for a bit. But, while the car has slowed to a crawl, it has not stopped moving, and then…

Flying down the other side you go fighting the next crisis, competitor, or just the next quarter’s numbers. And they call this fun? And here’s the best part – as long as you stay on the ride, it never ends. Round and round you go…

What are some of the lessons here?

• Life, nature and business run in cycles / seasons – get used to it unless you have a craving to be road kill.

• Different strategies work best at different points in the cycle. Think about approaching a sharp curve in the road. You slow down, or even brake, a bit as you enter the curve, and then you re-accelerate coming out the other side. This maneuver lessens the chance of a crash while maintaining your overall momentum.

• Anticipating change works better than reacting to it. Recognizing your approach to the top of the ride allows you time to grab the rails anew and take a few deep breaths before going over the top, thereby reducing the chance of losing your hat, your wallet or your lunch.

Facing a sudden challenge or crisis with a calm demeanor works a lot better than wide-eyed panic. Trust me on this.

Partnerships can be perilous

Partnerships, joint ventures, and strategic alliances seem to be all the rage. Companies engaging in these activities are usually seeking leverage beyond their means, either by marrying their ideas with other people’s money or by gaining access to markets and customers not easily reach on their own. These are all good reasons.

But partnerships and alliances often have limited useful lives. Managements change on one side or the other, their interests diverge, the world changes, or frequently the arrangement just fails to create the expected value for one or both of the parties. And then divorce looms – sometimes messy and protracted depending on how complicated or intertwined the arrangement had become.

Here are a few partnership arrangement rules of the road:

1. Don’t rely on a partnership or alliance as your principal business strategy unless no other avenue to market exists.
2. Consider any industry precedents as a basis for negotiating the best possible governance and dispute resolution provisions up front.
3. Assume the relationship will eventually break down and begin planning for its successor early on.

Expect the best but plan for the worst.

Speed is not the problem

Debates run rampant these days about whether businesses (or governments) are moving fast enough to solve their problems. Speed is not the problem.

The real challenges are:

• Leadership
• The Right Plans
• Decisiveness
• Steadfastness
• Patience

Effective transformational change requires leadership. This week’s example: Ed Whitacre, GM’s new chairman, is taking firm control of the carmaker with a swift reorganization of GM’s creaking management bureaucracy.

Before taking action a leader must have the right plans. How does one know which plans are the right ones? Start by identifying which ones are not right:

• Plans that have not worked in the past
• Plans that protect vested interests and inhibit initiative and change
• Plans that rely on top-down management direction or government regulation

Plans, once developed, must be implemented decisively. Time is always of the essence, and a failure to move swiftly can severely limit the effectiveness of the chosen plans because competitors and enemies are not sitting still waiting for us to make our move.

Steadfastness means staying the course even when results are sparse and support wanes. Making course corrections to address changing circumstances does not mean fundamentally changing your objectives.

Patience and urgency are two sides of the same coin. Effective action often requires that a leader move quickly, but that does not mean that results will come quickly. They usually do not. Bringing about effective change is more like turning the proverbial battleship – it will take awhile. Stay with it and you just might get there.

Truth telling

As children most of us were taught to always tell the truth. As we grew to adulthood, we learned that there were multiple versions of the truth and some kinds of truth should not be spoken such as those that might hurt other people’s feelings (like telling your sister her dress was ugly – even if it was!).

Telling the truth in business can also be hazardous to your health and we’re not talking about illegalities or allegations of impropriety. For example, investment analyst “sell” ratings remain highly problematic, even unpopular. [1] Investors and analysts benefit when stock prices rise; few benefit when prices fall.

But “truth telling” is a critical element of efficiently functioning markets, and the same is true for business organizations. Here are three examples:

• CFOs talk about “creating one version of the truth” – all units and personnel using the same information systems so that everyone is looking at the same set of numbers.

• Savvy general managers and CEOs routinely talk with outsiders and people down the organization to find out what’s really going on rather than rely on the sanitized reports that come up through their staffs.

• Investment decisions based on inaccurate or erroneous information will likely yield sub optimal returns, if not losses.

Are you telling / hearing the truth or are you just kidding yourself?

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[1] “A Tough ‘Sell’ for Jeffries Analyst,” WSJ, 11/20/09, p. C1

The demise of professional services firms

The headline of a recent article read, “Consulting Firms Must Become Real Businesses to Survive”.

The theme of the article is obvious and the author went on to enumerate some of the areas in which professional services firms must change their ways. Like all periods of transformational change, there is good news and bad news here.

Improving business practices has clearly been necessary for many professional services firms including architects, accountants, attorneys, and consultants. I have advised and worked in such firms and the opportunity for improvement has been enormous.

On the other hand, most professionals join professional services firms to “do the work” rather than run or be part of a business. Something important is at risk of being lost when clients become “customers” and not “clients.”

Advisory professionals have a higher calling than just making sales and booking hours or fees.  Their job is to be there when you need them and do for you what is in YOUR best interests, not what is in theirs.

Truly good advisors become successful because their clients become successful. It should not be any other way.

There are goals and then there are GOALS

A coach on LinkedIn recently asked the question, “What stops you from achieving your goals?”

The initial responses from other participants in the discussion included:

• Other people
• Losing hope
• Lack of skills or competencies
• Our beliefs

I have a different theory – we do not or cannot distinguish between little "g" "goals" and big "G" "Goals".

Little "g" goals are all those things we say we want to do but lack the conviction down in our gut to achieve. Sometimes, these goals are transient or simply unrealistic. We are not really motivated, and therefore we do not make the necessary, all-out effort.

Big "G" Goals, on the other hand, are those Goals which grab us where we live, which are aligned with who we are, and which are inherently desirable and achievable IF we are willing to commit the resources and make the effort. If a goal is not truly aligned with who we are, we will not likely make that commitment.

How do you distinguish between a “goal” and a “GOAL”?

For me, big “G” Goals define themselves via an internal clarion call that shouts in my mental ear: “This is it! Now is the time! Go for it!” Failed little “g” goals may litter the landscape, but my personal track record on the big “G” Goals has been pretty good.

Life is about contracts

Did you know that life is about contracts? I thought only lawyers worried about contracts, and then I read the following:

“Life is always about contracts that you make with people. Very few of them are written. Most of them are implicit, and most evolve out of a course of dealing and understanding. And if you are good for your people, they’ll be good for you.” – Lloyd Blankfein, CEO of Goldman Sachs [1]

In the broad sense used by Blankfein, contracts include commitments, promises, arrangements, bargains, compacts, conventions, pacts, pledges, understandings, allegiances, and loyalties. They are comprised of the myriad daily transactions that build up mutual trust leading to long-term relationships, be they personal or business.

As business owners and entrepreneurs, we develop implicit contracts with our customers, suppliers, employers, lenders and investors. While more and more of these relationships are today based on formal written contracts, those contracts by no means capture all of the dimensions of the relationships involved.

Some formal contracts are the foundations of relationships. In other cases, they are the fences setting the bounds but not defining the relationship’s potential. But relationships based solely on formal, written contracts seldom have the resiliency necessary to sustain themselves when the ground twists and turns beneath our feet.

Think of the potential – every person you meet or deal with has the potential for a mutually beneficial long-term relationship. Your actions and reactions during those interchanges will form a large part of that future relationship tapestry.

What kind of pictures are you painting?

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[1] Quoted in “The Most Influential People in the Boardroom,” Directorship, October/November 2009, p. 33

Changing of the seasons; changing of the guard

The changing of the seasons at Lake Sunapee is clearly marked by two events:

1. Peak leaf-peeping, usually Columbus Day weekend, and
2. The hoisting of Indian Cave’s sailboats onto dry ground on October 15

We can deny the leaves, but when the boats come out of the water, the season is over.

Indian Cave Marina in Sunapee Harbor

Depending on your business, the season may be over, or just beginning. These natural turning points provide an ideal time to:

• Review recent results,
• Make necessary changes, and
• Plan for next year or next quarter.

Yes, I know that the economy is experiencing upheaval, and we supposedly live in unprecedented times. None of that, however, relieves managers of their responsibility for managing their businesses for growth and profitability.

Over 90% of the people are working. They continue to buy all manner of goods and services. There is money to be made. Your job is to find it and bring it home!

Managing Business Risks

The first risk management problem for both executives and directors is identifying the risks they need to be worried about. Some of the biggest problems are stealth risks – they seem to come out of nowhere.

At a recent seminar for corporate directors, the seminar leader, Dr. Krishna Palepu of Harvard Business School, suggested the following matrix as a good place to start.

Types of Risks

- Strategic – did you pick the right strategy?

- Execution – can you effectively execute the strategy you picked?

- Reputation – how could your corporate reputation be damaged?

- Compliance/Fraud – something bad happened; will it be caught in time?

- Legal – regulators, customers, etc sue the company.

Sources of Risks

Internal

- Pressure to perform – the hill is too high

- Incentives – the compensation system encourages inappropriate behavior

- Rationalization – people have a unique ability to convince themselves that what they are doing is okay when it is not.

External

- Competition/markets – aggressive competitors or changing markets

- Regulatory changes – someone changed the rules or the level of enforcement

- Technology – new technologies make what you are doing obsolete

- Society – the larger society decides it does not like something you are doing

While not exhaustive, the above lists can point you in the right direction.

The Coming Leadership Deficit

"Members of Generation Y are less adept at handling ambiguity, Jason Seiden writes. That doesn't just make them more difficult to manage, he suggests, it may require a complete rethinking of what leadership means. Companies will have to readjust their organizational charts to put decision-making power in the hands of the few people on staff who can handle it, while career paths will become more structured, he argues."

Read more at SmartBrief/SmartBlog on Workforce (10/5)

This article introduction from today's SmartBrief on Leadership reminded me of a recent conversation.

A group of people were assembled to talk about the resolution of a potentially serious business problem. When I inquired as to the basis for this particular assemblage of people from throughout the organization, I was informed by the convener that the situation at hand required the skills of a group of thinkers as opposed to doers.

Thinkers versus doers - what does that mean? Seiden talks about the problem in terms of discomfort with ambiguity. Doers like clear direction with defined rewards and penalties. They struggle with uncertainty and ambiguity.

Decision making - deciding what to do - requires thinkers. The decision makers must develop a direction and an action plan for moving forward despite rampant ambiguity and uncertainty. No leader ever has all of the facts or other information they would like to have before making a major decision.

Once a strategic decision has been made, doers become critical to its successful execution.

Organizations need both thinkers and doers - we just need to have the right people in the right roles.

Chasing excess profits

Every entrepreneur dreams of capturing excess profits. Excess profits greatly increase the value of a business and therefore the wealth of the owner(s). Excess profits are the reward for the outsized effort and risk undertaken by entrepreneurs.

What do we mean by “excess profits”? In economics, “excess profits” is usually defined as profits earned by a business in excess of the opportunity costs of labor and capital employed in the business. They often result from oligopoly or monopoly situations where one or a few companies dominate a particular market either through differentiated products (initially) or market muscle (eventually).

Can excess profits be sustained? Research conducted by McKinsey [1] suggests that strategic differentiation (and therefore sustained competitive advantage leading to excess profits) is inherently unsustainable in most markets. Competitors constantly “scrutinize one another’s products, prices and marketing” reacting quickly to counter any competitor initiative which might allow the competitor to gain an advantage. As strategic differentiation diminishes, industry margins shrink as well.

What about companies like Google and Microsoft? They are exceptions proving the rule. Both achieved market dominance in their respective spheres through technological innovation combined with aggressively seizing a first mover advantage. [2] But such companies are few in number, and competitors, emerging technologies, or anti-trust regulators will eventually erode their market dominance. Nothing lasts forever.

What’s an entrepreneur to do? Relentless innovation must drive everything you do, and then run like hell lest someone be gaining on you.

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[1] “When best practice isn’t enough,” McKinsey Quarterly, August 2004

[2] While neither company was the initial market innovator in their respective spaces, both were able to quickly pull away from the pack and thus gain the equivalent market power of a first mover advantage.

Leveraging Leadership

The September issue of our periodic email newsletter to clients and friends has been posted to our website at Companies in Transition – September 2009. The theme of this month's issue is leadership and it includes the following articles:

• 5 Dimensions of Leadership - Leadership is often hard to define. Rather than try, many people simply say, “I know it when I see it.”

• Judgment is the Foundation of Leadership – Good decisions are usually based on the exercise of good judgment.

• Practicing the Art of the Possible – All leaders seeking to bring about significant transformations struggle to bridge the gap between who they are and who they hope or wish to become.

• Confident, upbeat consistency carries the day - Employees, like voters, recognize that their personal fates often depend on the actions of their leaders.

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Planning and Planting

Fall is for planning and planting. Approaching Labor Day and the end of summer, many business owner/CEOs and their management teams are beginning to think about planning for 2010 – not an enviable task given the roller coaster of the last year.

Planning itself is the critical act, not so much the exact shape of the plan that results. Bywords for 2010 might include:

1. Conservative assumptions – the current recession is unprecedented in modern times. No one really knows what a recovery will look like or when it will become meaningful.
2. Multiple scenarios – Economists talk about recession-recovery cycles in terms of V’s, U’s, W’s, and Lazy L’s (you don’t really want to know about that one). Each type of cycle could require a different response from your business. Prepare thoroughly for the most likely variations.
3. Flexibility – The greatest learning of last year’s market contractions was how quickly the markets and economic environment can change. In the face of such volatility, those who were able to move nimbly tended to fair better.
4. Contingency plans – Your scenarios should include extreme variations (sales down 40-50%) even if the likelihood is low. See 3 above.

Then comes the fall planting when you consider and commit to the business and operational investments that will drive your revenue and profit plans for next year. Making those investments may require reducing other costs now, but they are absolutely essential to your future success.

The flywheel begins to turn

A few weeks ago I wrote about a new business development project in which I am involved. The flywheel is finally beginning to turn, but there is still a lot of panting and I’m wheezing for breath (mentally) some days.

Project activities have become more routine (read: several hours of grunt work each day), but interest is building slowly, bit by bit, and a few other people have signed on to carry part of the load. Missionary work is slow, tedious stuff.

That chance lunch encounter last month brought me three business opportunities last week, none directly related to the biz dev project and yet all were potentially complimentary. I had to pass on the first due to a conflict, the second sounds really exciting and the third can only help the cause.

And to top those off, a fourth opportunity appeared in last night’s email!

What would we do without a bit of serendipity?

It’s about Results

Apparently there is a social workplace conflict brewing [1] between those who are perpetually committed to self-improvement and those who just come to work every day. On one side are those who tend to be fanatical about self-improvement, be it networking online or working out at the gym. On the other side is the rest of the working population.

Progress leverages ideas, not frenzied activity. For me, self-improvement is not about expanding my IQ or enhancing my physique (both hopeless causes) but about learning from others, as well as by doing myself. I much prefer to implement an idea that has worked successfully elsewhere rather than try to re-invent the wheel.

Benjamin Franklin is one of my heroes. Claiming to be the laziest man in the world, Franklin was always looking for a better, cheaper, simpler way to do things. His inventiveness was driven not by hyperactivity but by a desire to accomplish his goals with the least effort possible.

In the end, it’s about results; it’s not about effort, showmanship, publicity, or taking credit. Self-improvement efforts only matter if the results improve. Acknowledge the effort, but only reward the results.

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[1] Michael Schrage, The Self-Improvement Vortex

Playing for time…

Surviving during the recession is often about playing for time. A California architectural firm hangs on by reducing staff due to lack of work. A large insurance company pushes vendors for lower prices and bigger guarantees. Sales of high-end golf equipment have gone AWOL in some markets. And on and on…

Other companies are making time. I’ve heard three new startup stories in just the last week. At least one software company is preparing for an IPO. And would-be entrepreneurs are coming out of the woodwork.

It was the best of times; it was the worst of times… [1] The relative mix of those doing well versus those not doing so well is clearly out of balance compared to our recent history, but at 9.5% unemployment, 90% of the people are still working. They need services and they are buying products. Companies focused today on emerging consumer trends, needs, and desires will be tomorrow’s winners.

The times are what we make them. The choice is yours. What will you do?

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[1] Charles Dickens in A Tale of Two Cities

Looking for a few good “yes men”

Successful entrepreneurs mimic the Marines – they actively recruit a few good “yes men” for their teams. [1] This may sound counter-intuitive. We usually think of “yes men” (or women) as subordinates lacking independent value who follow their bosses around constantly telling them what they want to hear. Never mind the facts, let alone the truth…

But there is another kind of “yes man” – the kind of whom Napoleon Hill would have approved. [2] Hill championed the notion that successful people surround themselves with associates and advisors who are of like minds – who see the world as they do, who share the same goals, and who are willing to do and give whatever is necessary to achieve those goals. [3]

These “yes men”, like the marines, are comrades in arms. They are loyal, committed and disciplined, but that does not mean they are incapable of speaking the truth because the mission must take priority over everything else. And sometimes that means they most go toe-to-toe with the boss to ensure that decisions made and actions taken are based on the best available information (facts) and in accord with the reality of the world around them (truth?). You as the CEO should want them to do that lest you find your company in the ditch.

Hence the term – a few “good yes men” – like minded and committed – yes, timid – no. The marines clearly got it right. Have you gotten it right?

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[1] With apologies to the U.S. Marines

[2] Author of the seminal work, Think and Grow Rich

[3] Hill called such a group a Master Mind Alliance

Craving simple answers to complex problems

Humans suffer from a dreadful condition – we crave simple answers to inherently complex problems. Healthcare, climate change, and financial regulation – people on each side of these debates demand immediate, specific policy choices to address their specific concerns (and to be paid for by someone else). But none of these “solutions” are cheap and they all come with the potential for massive unintended (harmful) consequences.

Business leaders are seldom immune to the malady. One CEO verbally trounced his chief sales officer for “missing the numbers” without any concern for (or awareness of) the complexity of the company’s sales cycle. A marketing executive was adamantly determined to pursue his plan without regard for the company’s shifting market position. Analysts and investors expect stair-step growth in revenues and earnings.

Here are a few helpful principles for managing this condition.

NOTHING lasts forever – Just as “trees don’t grow to the sky,” neither do housing prices, booming economies or stock prices. The natural world we live in is inherently seasonal and cyclical. Our mistake comes in assuming that we can extrapolate from whatever is happening currently. Maybe we can but only in the short run. And then there are those sudden, unexpected discontinuities. Prepare for the fall. Expect the unexpected.

The Muddle in the Middle – Very little in this world is truly black or white, or right or wrong. The vast majority of things come in varying shades of gray including ethics, public policy and business strategy. Significant business and policy decisions involve costs, tradeoffs and invariably unintended consequences. 

Ask lots of questions and listen – Except in extreme emergencies, thoughtful, consultative decision-making usually results in better decisions, and better outcomes. Scientific discovery and technological innovation come in fits and starts. Why should anything else be different?

Life is a Rubik’s Cube – Finally, take your time; the solution seldom comes any faster by furiously twisting the pieces.

Doing the Biz Dev Dance

Someone invited me to lunch recently to pitch their concept for a new business service. I am familiar with the target market and therefore was a reasonable sounding board. [1]

Obeying the Golden Rule – Having recently pitched a new biz dev project myself, I was keenly sensitive to listen intently and respectfully to the new idea. The concept is high-minded and potentially of high value, but I questioned whether the market timing was right for the proposed offering.

I offered several suggestions for test marketing the proposed service, including targeted roundtables and an email survey, to see if it might develop some legs. The conversation was engaging and stimulating as we massaged the growing variations on their original theme, but I also sensed some disappointment that I did not personally embrace the proposed service.

It’s a delicate balance – you don’t want to get a reputation as a naysayer lest you lose out on the opportunity to hear early on about interesting new ideas. On the other hand, concepts left unchallenged can become expensive failures, and that’s not in anyone’s interest.

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[1] Lesson #1 from Biz Dev 3.0 Fundamentals in 5 Easy Lessons

Biz Dev 3.0 Fundamentals in 5 Easy Lessons

Biz Dev 3.0 [1] is hard work. There is all that messy business of actually talking to potential customers, and even worse, having to modify your grandiose plans to conform to external reality. What a pain…

Biz dev would be a lot less painful (and costly) if you followed a few simple rules. Herewith are my Biz Dev 3.0 Fundamentals in 5 Easy Lessons.

Lesson #1 – What’s the concept? Does it make sense? Does anyone care? What’s the customer value proposition? Better yet, will anyone actually pay for it? Talk to some smart people in the target market. If no one salutes, it may be a mirage (in your head).

Lesson #2 – Is it feasible? Can you actually: design it, develop it, build it, and sell it? What should it look like? What will it cost? How long will it take? Rapid prototyping or iterative development can keep the costs of this phase manageable. Accelerate the learning process by a series of rapid failures. Figuring out what doesn’t work can help you zero in on how it might work.

Lesson #3 – Develop it – Now comes the hard part of actually translating all of that feasibility work into a high performance product or service. Time to turn on the investment spigot while staying flexible to fine tune, fix mistakes, and re-focus as necessary on the target customer value proposition.

Lesson #4 – Launch it – Contrary to popular opinion, a new product or service launch results in still more costs, not profits. The investment bulge in your P&L has merely shifted from development to sales and marketing. Your new “whatever” may in fact be the second coming of sliced bread, but if potential customers cannot see it, try it, and test it, they are not likely to use it, let alone pay you for it.

Lesson #5 - Promote it – And you thought launching a new product or service was the hard part! Sustained promotion over the long term is essential for any new product or service to attain a favored position in the eyes of customers. You must create value for your customers before you can expect to create value for yourself.

Only after the new product or service is well established with lots of customers singing its praises do real profits begin to flow. Think Amazon. Think Apple’s iPhone. It’s called long-term value creation for a reason.

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[1] The Coming of Biz Dev 3.0

The Coming of Biz Dev 3.0

Business development (biz dev) is one of the most amorphous, even shadowy, of business functions. What is biz dev anyway? That depends on who you ask and when.

During the late 90’s tech boom, biz dev often meant strategic alliances and partnerships. The goal was to partner with a big guy who had big bucks and market presence. The little guy would then ride in the wake of the big guy’s fountain of funding to glory and profits. (Or was that just a big market cap?)

Before the onset of the current ice age (circa 2008 – 20xx), biz dev usually meant acquisitions funded by cheap money and high stock prices. The mantra – get bigger, quicker. Managements often touted (believed?) that it was cheaper to buy than build whatever it was they wanted or needed. Never mind that many of them did not know what their customers needed, nor did they really know how to build whatever it was. Besides, doing deals was flashy and fun compared to the difficult task of building a business one day at a time.

Now comes Biz Dev 3.0. Return with us to those thrilling days of yesteryear when biz dev meant inventing stuff, thinking up new products and services, actually engaging with customers to figure out what they might want or need, and then actually developing or building something useful which could also be sold at a profit. What a novel concept…

There is no lack of opportunity to build successful new products, services or businesses; there is only a lack of imagination and a willingness to put your head down and work – for however long it takes.

Brain streaming

You’ve probably participated in brainstorming at one time or another – one of those strategic offsite retreat exercises where you try to solve a problem by coming up with as many potential solution ideas as possible in a short amount of time. No analysis or commenting on each other's ideas is allowed. That’s for the staff/management team to crank through back at HQ after the session is over.

But have you tried "brain streaming"? No, this does not involve hard-wired video streaming directly into your brain, although someone, somewhere is probably working on an app for that.

I am blessed / cursed (depending on your point of view) in being an external thinker. External thinkers do their best thinking while interacting with others. Few deep thoughts occur in the solitude of your office. But connect with someone else in a mutually stimulating discussion of a challenging topic and it’s like sticking your finger in an electrical socket. Your brain goes into overdrive; it’s been zapped.

Brain streaming is most exciting in a pitch or sales meeting when you find yourself connecting with the personal across the table and the ideas begin to flow about how they could benefit from your product or service. (What did I do with that order form?!)

But brain streaming is probably most effective in the context of a finely tuned management team where several senior members are external thinkers. (Internal thinkers don’t need a team – they get their ideas directly from the cosmos.) When this group bears down to tackle an issue, it’s like everyone just grabbed onto a hot electrical wire – the kind you can’t turn loose of until someone turns off the juice. (It’s a fantastic endorphin rush without all that sweaty exercise.)

If you are an external thinker and your teammates are not, a consigliore will do just fine. In a prior life, I had a close adviser who tended to be more of an internal thinker, but he was very good. When I wanted to develop an idea, I would call him in, shut the door, and work the whiteboard for an hour or so. I would sketch out the ideas / options. He would comment, elaborate or push back.

The beauty of this approach was that he (like all good advisers) had no agenda other than helping me develop the idea/issue at hand. Nor was he invested in any of the options. His was a pure intellect; he was only interested in what would work.

Brain streaming is not for the faint of heart (figuratively or literally), but try it. You might like it.

Stacking the (slide) deck

Business development projects are built on PowerPoint, right? Well yes, and no, unless you want to kill the deal before you start. Let me explain.

The Goods –

• PowerPoint helps you organize, re-organize and refine your pitch.
• PowerPoint forces you to be parsimonious with your words (if you expect anyone to be able to read them).
• PowerPoint creates a nice handout / leave behind – I prefer two slides per page, readable while reducing the paper poundage.
• I also like to send the slide deck in advance of the meeting – some people actually read them! More time for conversation and less time for sitting in a circle while reading the slides.

The Bads –

• When under pressure / on deadline, the technology will defeat you every time; take handouts for everyone.
• Too much pressure to put more stuff on each slide or, worse yet, increase the number of slides. 20 slides should be the max – at two minutes per page if you actually present them formally, that’s 40 MINUTES!
• If you can’t cover your idea in 20 minutes or less, think about going back to the drawing board before your prospect sends you involuntarily.

The truly Ugly –

• Contrary to popular belief, PowerPoint will not, and cannot, close the deal for you. Only you can connect with your prospect, communicate your value proposition, answer their objections and close the sale.
• The profit is in the preparation, not in the presentation. In numerous recent pitch meetings, I have yet to complete even an informal presentation of “the slide deck.” Every meeting has turned into a whirling, spinning conversation about the value proposition and how it can help the prospect get to where they want to go. [1] That should be your objective – to engage your prospect in a fruitful conversation. The slides are props and nothing more.
• If you cannot tell your story without a slide deck, the slide deck will not save you. I have watched people practically drooling (not salivating) when forced to sit through a very smart person reading his/her slides.

Now if I can just find that cord for my projector…

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[1] This outcome presumes that you are speaking with a qualified prospect to whom you have been properly introduced.

Spinning up the fly wheel

I am currently involved in a new business development project – you know the kind: Constant wheel spinning trying to get traction while at the same time sucking all of the oxygen out of your life.

And there are good days and bad days. Good days when you feel euphoric and bad days when you just want to stick your head under a faucet. This week has finally seen two good days in a row where pitch meetings with potential partners went very well. (They will sign up officially, won’t they?) I can feel the wheels occasionally grabbing hold a bit even if they are still spinning a lot.

And then you have one of those kindred spirit encounters that really put a glow on the end of a long week. I had one of those yesterday.

A brief chance meeting turned into a quick lunch and three hours later we were still sitting at the window table of this little café delving into the who, what, how, and when of a significant potential business initiative tangentially related to the biz dev project.

The new initiative may or may not click, and it may or may not leverage the biz dev project, but it was one of those exhilarating intellectual moments when you feel yourself connecting with someone, whom you have previously known only casually, on multiple levels at the same time with ideas flowing rapidly between you as the energy and excitement about the prospects build.

Now if I good just gen up a day like that every week or so…

The Business Advantage Show Features Wayne Wilson June 30th

Consider this a special invitation.

On Tuesday, June 30^th, Wayne will be the featured guest on the Business Advantage Show on WKXL1450 Radio in Concord, New Hampshire (www.wkxl1450.com) hosted by Christopher Thompson. The show runs from 11 am until noon. Listen on WKXL 1450AM, 103.9FM or listen live from any PC, Blackberry or Iphone @ www.wkxl1450.com (click "listen live")

The Business Advantage Show addresses a wide range of business related topics with a particular focus on sales and business development. The purpose of the show is to provide solutions and advice to sales professionals, business professionals and entrepreneurs.

Christopher Thompson is the Founder of Catch 22 Solutions, a sales performance consulting company, based in Manchester, New Hampshire. Catch 22 Solutions helps companies and sales professionals accelerate sales performance by enhancing and improving their current selling process.

The Business Advantage Show is broadcast live over the air and at www.wkxl1450.com and recorded for future listening or downloading at WKXL1450 – The Business Advantage Show.

Please join us on Tuesday, June 30th at 11 am.

Where have all the growth companies gone?

A few years ago, a growth company [1] from a public investor perspective [2] was any company whose revenues and earnings per share were growing at rates greater than 20% per year.

Earnings growth drives valuation and revenue growth is the essential precursor for earnings growth. And owners of privately held companies aspired to the same growth rates, especially if they wanted to go public company or sell out to a public company.

Where is the growth bar today?

In a recent conversation with bankers from a major Wall Street firm, I asked that very question. Their answer: “anything in double digits.”

How times have changed. But some things have not changed - above average revenue and earnings growth rates are still the keys to above average valuations.

Management’s three financial priorities remain the same:

1. Keep costs under control
2. Manage cash carefully
3. Plan for growth

Now is the time to set in motion those plans and strategies which will drive growth and profitability when the economy emerges from recession.

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[1] “Any firm whose business generates significant positive cash flows or earnings, which increase at significantly faster rates than the overall economy. A growth company tends to have very profitable reinvestment opportunities for its own retained earnings. Thus, it typically pays little to no dividends to stockholders, opting instead to plow most or all of its profits back into its expanding business.”  Investopedia at http://bit.ly/QIVRc

[2] Excludes companies that have not yet reached operating profitability.

Using Web 2.0 Tools to Run Your Business

David Spark just published a fascinating article at Socialmedia.biz about using web 2.0 tools to run and promote your business. He describes the experience of Stephen Jagger, CEO of Ubertor when he decided to take his entire company virtual:

"Rarely, though, do we get an opportunity to see one person or one organization completely open up the kimono and show us step by step how they deploy all of these time and cost saving techniques to actually run their business.

"Last week, Stephen Jagger (@sjagger), CEO of Ubertor (web pages for real estate professionals), Reachd (web marketing training courses) and Outsourcing Things Done (high level virtual assistants), spoke to a group of entrepreneurs of the San Francisco Entrepreneurs Organization (EO) at Samovar Tea House at the Metreon in San Francisco. Here’s a summary of his presentation in which he talks about each of the tools he uses and provides an explanation of the value it brings to his business."

Read David's article and learn about the latest web productivity tools.

Measuring your ROI on acquisitions

Many CEOs rely on acquisitions of other companies or product lines as an important component of their overall growth strategy. However, they seldom look back through rigorous post-acquisition financial analyses to measure their return on investment (ROI), especially how the deals performed versus expectations at the time of the deal.

I prefer two relatively simple measures: annual cash-on-cash (COC) return on capital invested and cash payback or how long will it take for the buyer to recover its investment on a cash basis. Other methods such as discounted cash flow, while more theoretically pure, suffer from complexity of calculation and estimation bias when trying to determine appropriate discount rates. If not done properly, the analysis is worse than worthless.

A proper analysis should be performed on an annual basis covering all significant acquisitions made by the company (or the current management team). EBITDA (earnings before interest, taxes, depreciation, and amortization), adjusted for significant changes in the level of capital expenditures and working capital, is often a reasonable proxy for cash. Some would argue that free cash flow is a better proxy. Pick a method and use it consistently.

The real question and value is less in the numbers than whether the management team holds itself accountable for results through an open and honest “lessons learned” analysis.

One company recently completed its annual exercise indicating somewhat mixed cumulative returns for several transactions over several years with COC returns barely exceeding the company’s weighted average cost of capital. On the qualitative side, one acquisition was truly transformational and displayed excellent returns.

It’s better to do deals with your eyes wide open than your eyes wide shut.

The day goes as the day begins

On days without early scheduled commitments, I have noticed that the day goes as the day begins. A feverish early commitment to a priority project usually results in a very productive day, while more leisurely early time spent with the morning’s papers and news sites frequently becomes one of those, “what did I do today?” days.

What gives? The same hours (excluding the newspaper time) may have been committed to work on both days, but the intensity clearly differs. Start strong; finish strong. Start slow; well, you know….

Business owners, free-lancers, and independent professionals all have the same problem: How do you hold yourself accountable for performance without someone constantly looking over your shoulder?

Here is my formula:

1. Focus – Be very thoughtful and clear in your own mind about what you are trying to accomplish. Write it down if that helps, but be very clear.
2. Prioritize – Some tasks simply matter more than others. Concentrate your most important tasks during those hours of the day when you are personally most productive.
3. Commit – There is no shortcut; just put your head down and get going.
4. Decline – Don’t get distracted. Decline to participate in the daily time waster activities. (You know what they are.)
5. Deadline – If you aren’t facing a real deadline, create one. Nothing concentrates the mind like a deadline.

The recession grinds on

At ground level the recession grinds on, despite recent optimistic comments by various government and other public figures, A recent survey of corporate chief financial officers [1] highlights the gap between hope on the one hand and reality on the other.

Fifty-four percent of U.S. CFOs surveyed were more optimistic this quarter than they were last. But on average, the “CFOs say the recession will last another 10 months,” and they are continuing to maintain tight control over spending.

This is a classic pattern: management actions tend to lag changes in the environment. At the beginning of a recession, managers hope for a quick rebound. They begin to seriously reduce spending only when it becomes clear that the revenue decline is not a brief aberration. On the rebound, managers must be absolutely convinced that revenues are turning up before they ease up on spending controls.

The key strategy is watchful waiting. Those business owners who have the courage to begin investing again before the pack does will have an advantage over their competitors.

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[1] CFOs Hoping for the Best, Planning for the Worst, www.CFO.com, June 3, 2009

Do you love what you do?

Do you wake up in the morning excited to go to work? Do you look forward with eager anticipation to the day’s challenges and tasks? Do you become so engrossed in your work that you lose track of the time? Do you have a passion for what you do?

Passion and commitment have long been associated with the lives of successful people. It’s not always about the fame or the money or the power. It’s about commitment to something larger than your self. It’s about what you can accomplish that might make a difference in the world.

Jonathan Fields has written a great new book, Career Renegade: How to Make a Great Living Doing What You Love. [1] While not cutting edge new material, the book does compile a range of useful information about ways to make money from your passion – a sort of primer for those seeking to gain personal traction on the issue.

The book includes exercises to help you find your passion, tips for conducting research and launching a new business and stories about the success of others to inspire you.

If you are not currently pursuing your passion, Career Renegade might be a useful read.

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[1] Jonathan Fields, Career Renegade: How to Make A Great Living Doing What You Love, Broadway Books, 2009, 288 pages.

How can I protect myself from supply chain failures?

Michael Gonnerman had some great advice for business owners in his “Ask Mike” newsletter this week.

Question: "We depend on a lot of companies in our supply chain, from vendors who supply components to several retail chains who sell our finished goods. I'd love to get an early warning about companies that might be in trouble so a failure won't catch us by surprise. Suggestions?"

Mike: In my experience, there are always warning signs whenever a big manufacturer or distributor begins to have financial problems. Industry rumors, news reports, SEC filings, layoffs, an uptick in "lost" paperwork, declining stock prices, negative opinions by auditors, high turnover among key executives--it's all evidence that you're dealing with a supply chain partner with problems. Especially during tough economic times, you should make a serious effort to track information about all the companies you rely on.

And if you depend on a company that's public, buy a few shares of their stock and attend their annual shareholder meeting. Chances are, you'll be the only customer or creditor there, and you'll have plenty of face-to-face access to the directors, the CEO, and the CFO. Feel free to ask questions like, "Why aren't you paying your bills on time?" or "What are you doing about the defective goods your Oshkosh factory is shipping?" Believe me, you'll get attention.

Bear in mind that your warnings may ruffle some feathers inside your own company. Your purchasing department may be sending too much business to a single vulnerable supplier, or your sales reps may be happily writing big orders to a distributor who can't pay his bills. Make sure your have a company-wide buy-in on reducing supply-chain risk, or the information you collect won't do any good.

******

Michael Gonnerman is the Founder and CEO of Michael Gonnerman, Inc. (http://www.gonnerman.com) in Sudbury, Mass. He may be reached at 978/443-1340 or through email at michael@gonnerman.com .

Catching the Social Media Wave

The May issue of our periodic email newsletter to clients and friends has been posted to our website at Companies in Transition – May 2009. The lead article in this issue is about catching the social media wave and includes the following articles:

• Catching the Social Media Wave - Facebook and twitter are all the rage now, but can they really be effective business tools?

• Has your company reached a strategic inflection point? – The key business fundamentals may be changing but the management challenges remain the same.
  

• Yogi Berra was right when he said... – What can companies in transition learn from Yogi?

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Invest During Hard Times

-         Craig Barrett, former Intel CEO

Owner/CEOs often find it difficult to invest during difficult economic times. And yet, it is the investments made now which will drive revenue growth when the current economic recession ends. The challenge is to reduce spending while preserving or increasing investment. What’s the difference?

Investments support or drive increases in revenues and profitability. Spending is the cash disbursed for everything else which does not meet the investment definition. Like politicians, spending sponsors will argue vociferously that their particular program / budget / personnel are necessary investments and are absolutely essential for the health and even the survival of the enterprise. It is simply not true.

Finding funds for investment requires reducing large amounts of spending. Most managers are tempted to start with the free coffee in the employees’ lounge and the travel budget. There is often not enough money here to make a difference. Instead, challenge programs, markets, product lines, customer concentrations, and significant research and development programs.

Can the particular program or activity make a difference in the trajectory of the business and if successful will it be big enough to matter? The chief decision maker must be brutal in choosing among all of the good ideas. Only the very best should be funded; everything else must be jettisoned. The future of your business depends on it.

Pricing Pitfalls

It takes a strong manager to consider raising prices in a period of declining consumer demand and falling profitability. And yet pricing is one of the most important tools available for improving margins, strengthening customer relationships, and trimming the business’ overall profile.

There are right ways and wrong ways to manage pricing. Per Sjofors, [1] a pricing consultant, recently offered his list of the Top 10 Pricing Mistakes Most Companies Make. [2] Here is an abbreviated version:

1. Basing prices on costs, not customers’ perception of value
2. Basing prices on the marketplace (whatever that is)
3. Trying to achieve the same margin across multiple product lines
4. Failing to segment customers
5. Holding prices for too long at the same level (too high or too low)
6. Compensating sales reps on revenue rather than profitability
7. Changing prices without considering competitor reactions
8. Failing to actively manage pricing practices
9. Failing to establish internal procedures to optimize prices
10. Spending too much time serving the least profitable customers

Improve your business’ prospects for prosperity by taking charge of the product or service pricing process.

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[1] Managing partner at Atenga Inc., a Newport Beach California, strategic pricing consulting company

[2] Financial Executive, May 2009, p 30.

Lingering on the mezzanine financing ledge

Most sources of business financing are in tight supply: bankers are skittish, the IPO and equity markets are almost non-existent, and even the mezzanine players are having trouble moving the money.

According to Bank of America Business Capital,

"Very few private equity firms will do a [mezzanine] and equity deal; they want senior lending," says Andy Steuerman, a senior managing director with Golub Capital. …the deal market has effectively stalled. Economic uncertainty, on top of the credit woes, has both buyers and sellers retreating to the sidelines until more clarity emerges. …the only deals being pursued are the transactions that are absolutely necessary for a company's survival.

Translation: it’s not yet safe to come out of the financing storm shelter. Companies must continue to rely on their own wits for preserving cash and funding their businesses. As the recession drags on, customer profitability and working capital management remain key pillars of financial stability.

Do you know where your people are?

For parents, worrying about the health and welfare of their children is a lifelong obsession. Reaching adulthood is merely the end of one phase in the relationship and the beginning of another more complicated one.

Employee relationships work the same way. Hiring talented new associates is often the easy part. Holding on to them and facilitating their productive engagement in the organization is a lot tougher.

Consider some of the lessons of parenting:

• Your employees are your partners not your serfs – your relationships with employees will generally be more effective if you meet them as equals. Your roles may vary based on experience and responsibility, but you are all on the same team.

• Your employees have ideas, too, and they are not the same as yours – we could all benefit from a lot more listening and a lot less talking. Besides, they own the future; we are mired in the past.

• The world is different now, but the stories are the same – I am already hearing the “oh Dad” when I commence what my children refer to as a “when I was a child” story. The challenge is to engage both children and employees through time-tested stories about integrity and excellence but cast those stories in terms that are more relevant to their lives and jobs.

Would you buy a nice house or investment property and then let it fall into disrepair? Your people are far more valuable than any investment property.

Are you focusing on what’s strategic?

Owner/CEOs frequently struggle with resource allocations, especially among tactical operating initiatives and potential game changing strategic moves. And strategic investing can be especially difficult in the current economic environment.

A proper prioritization might look like the following:

1. First, ensure current tactical performance and organizational sustainability,
2. Then, determine what’s strategic for longer-term success, and
3. Finally, hire key talent to support new strategic investments

Apple is a great example. It’s iPhone and iPod products are riding high, and now the company appears to be hiring to bring key parts of its chip design process in house as a way of protecting its proprietary strategies while differentiating its capabilities from competitors.

Another company is stretching out the introduction of a new generation of products to better match current market demand while shielding some of its newer technologies from pre-mature competitive challenges.

Working out what’s strategic and then committing sufficient resources is critical for every company’s long-term sustainability.

Looking for financing? Community banks have money to lend.

Business owner/CEOs frequently ask about new or alternative sources of financing, especially in the credit crunch of the last year. Community banks can be great sources of funding, but you have to meet them on their terms.

An experienced intermediary can also be helpful. Here’s some recent information from Fantini & Gorga:

"New England alone has over 200 banks with over $500 million in assets. Collectively they’re well capitalized. Many are lending actively in the $1,000,000 - $25,000,000 range.

"But although their focus is local, it can be hard to get the best loan terms from these community banks.  They move in and out of the market. They have very particular – and frequently changing - loan criteria. Often these banks need a participant, or even a small syndicate of banks, to reach the needed loan amount. Terms and pricing vary widely.

"Check out our most recent Out of the Ordinary  to get a composite picture of what this critically important, but highly fragmented source of financing is doing."

Fantini & Gorga can be reached at the following address: *

Fantini & Gorga
265 Franklin Street
Boston , MA 02110
(617) 951-2600
(617) 951-9944 (Fax)

www.fantinigorga.com

* I am familiar with Fantini & Gorga's work, but othersie have no affiliation or arrangement with the firm.

What's your agenda?

Do your professional advisers understand your agenda? Have they even asked you about it?

As the new general manager of a two hundred million dollar company, I had a clear agenda – ensure the company’s economic survival and position it for sustainable future growth. Every decision I made was focused on those two strategic objectives.

Consultants and other professional advisers who could help me advance my agenda were welcome partners in the struggle. Those merely attempting to sell me something were vendors to be squeezed for the best possible deal if not simply shown the door.

To be effective, an adviser must be able to:

• Put themselves in your shoes, to appreciate the pressures and concerns you face
• Draw out your most pressing issues through thoughtful and creative questions
• Help you shape your agenda through supportive, but intellectually honest discourse
• Deliver bold, forceful advice consistent with your mutual understanding of the challenges you face

Effective, empathic advisers are few and far between. Keep looking until you find one, and then don’t turn loose.

The power of militant simplicity

Igor Shindel introduced me to the concept of militant simplicity. Some years ago, I hired Igor to lead the development of a next generation B2B e-commerce web site for PC Connection. The challenge was to build a fast, robust web site on time and under budget.

Militant simplicity became the mantra. Keep the site fast, clean, simple (what would now be called the Google model) by providing the 20% of desired functionality that would drive business value and ignoring the rest. Everyone seeks simplicity until the requests start coming in. Can we do this? What about that? Soon the team is mired down by the 80% of stuff that will never matter.

That’s where the militant part comes in. Once the project strategy, core objectives and critical functionality had been thoroughly defined and vetted by both business and technical teams, the team became militant in resisting scope creep. They made a list of all the ideas coming in and promised people the new ideas would be considered for the next release (maybe). Having their idea on the list seemed to keep people happy even if you never worked on it. Strange …

The free dating web site, Plenty of Fish, is a great example of a business built on militant simplicity. Founder and owner Markus Frind is currently taking millions of dollars to the bank while retaining 100% ownership. His secrets?

• A “dead-simple,” web site that practically runs itself on eight servers while serving up 1.6 billion web pages per month
• A free service attracting millions of users and supported by ads (often from competitors)
• Avoiding any improvements to the site that do not support fast, efficient matching
• Fixing problems quickly and simply instead of throwing resources at them

How much more effective and efficient could your business be if you adopted militant simplicity as a guiding principle?

Countering the decline in sales closing rates

Jill Konrath (Selling to Big Companies) recently reported, “It now takes 4.5 prospects to get a sale – up from 3.0 prospects just a short time ago.” That’s a closing rate decline of over 30% - an alarming, though not surprising, decline given the current economic environment.

The causes are many – longer sales cycles, fewer customers buying, more pressure on pricing, too many me-too products, not to mention management paralysis all around.

Countering the decline in closing rates requires that companies and their sales organizations focus on all the metrics in the sales cycle:

• Increasing the numbers of prospects – most sales forces are working with too few prospects to begin with. Shift more marketing resources to targeted lead generation.

• Accelerating prospect qualification – too many prospects in your pipeline are “china eggs” – they will never hatch. Sales executives can improve sales force effectiveness by rigorously scrubbing the pipeline to eliminate or downgrade poor prospects.

• Creating compelling offers – customers who routinely purchased your products in the past now require a compelling reason to turn loose of their cash. Product positioning is critical here. If your product is not a must have, it will be left by the wayside.

• Improving the overall customer value proposition – most customers today are pressing for pricing discounts, but it’s not always about the price. They are often seeking improvement in the overall value transfer from you to them. What problems can you solve for them that create more value for your customers than cost to you?

• Getting to a yes today – the sales process must drive a sense of urgency; everyone has quarterly sales targets to meet. The solution is to work backwards up the sales funnel and address the problems in the earlier stages of the sales process.

If you are generating a large flow of high-quality prospects that need your products and you rely on conservative conversion metrics, there will be plenty of qualified buyers to close each quarter.

Sales and marketing alignment

Brian Carroll over at B2B Lead Generation Blog recently wrote a post that ties in directly with our recent posts on this subject - Sales and marketing alignment: tips for getting it right with lead generation.

"According to the 2008 Miller Heiman Sales Best Practices Study, only 37% of respondents agreed that their sales and marketing organizations are aligned in what their customers want and need. I discussed this disconnect with Bill Golder in the February issue of Sales & Marketing Management. You can check out the interview online: Chronicles of a Sales Leader: The Lack of Sales and Marketing Alignment in Organizations Today."

Read Brian's article ...

Get some smart people to challenge you!

Business owner/CEOs can get so wrapped up in our own plans and worldviews that we miss our full potential, or worse we can be heading for a ditch without realizing it! Physicists call it a closed feedback loop. In lay terms, if we only talk to ourselves, we will only hear our own voices.

One of the essential roles of a board of directors or board of advisors is to challenge and vet the ideas and plans proposed by management. The end result should be that good plans are strengthened and poor plans are discarded or significantly re-worked.

My best investor relations meetings were the ones with the toughest analysts who asked the most difficult questions. They were experts at ferreting out the weak spots in our story, in effect telling us the areas we needed to work on going forward.

Customers and clients are often the best sources of real world feedback. Don’t fight them; embrace them. Your future may depend on it.

Balancing Marketing and Sales

Many companies are suffering from a significant imbalance between their marketing and sales efforts – skimpy marketing budgets with lots of expensive sales reps.

Business owner/CEOs justify this mix because it’s often hard to measure marketing results while a sales rep is either producing or he’s not. Such a tight bottom line orientation can be short sighted, especially when the sales reps’ production begins to decline and a remedy is not obvious.

There is a better way. The best marketing programs are ones that generate qualified leads for the sales organization to pursue. Here is an example.

A technology reseller uses product-based, solution-oriented seminars to develop interest among its customers and prospects.

1. The company produces monthly seminars in partnership with its vendor partners who supply the technical specialists to lead the seminars.
2. Email invitation lists are compiled from existing customers, prospect lists, and vendor mailing lists.
3. Marketing staff follows up to ensure that each seminar has at least 25 participants.
4. Sales reps are assigned to each attending company to build relationships, gather feedback, and follow up as appropriate.
5. The company tracks and measures the deal flow and sales results for every company attending each seminar.

Marketing activities are an integral part of the sales process. They should support and be linked to specific sales objectives.

The Facebook Business (Advertising) Model

Fascinating interview with Sheryl Sandberg, Facebook COO, in Business Week:

“We believe advertising needs to blend into the experience. … What we have are ads that act like our site.

“So, for example, on Valentine's Day, Honda gave a virtual gift, which was a little heart that said—I forget the exact language, but "Your heart is full, so your tank should be, too." It was a little Honda-branded gift. They paid for 750,000 of them to be given. So 750,000 people gave this heart to 750,000 other people. Then what that generated on the site was talk about Honda, talk about their cars, excitement about some of the things they're launching, and then more than 200 million impressions. So [those ads] didn't look like the huge ads you're used to seeing on other sites, but what they looked like were [Facebook’s] news-feed stories. So the advertising experience itself is very integrated into the Facebook experience.”

Read the interview …

Facebook is a classic example of jumping ahead to an entirely different variation on a business model. The model is still advertising but a very different kind of advertising – no banners, no search based text ads; call them “experience ads.”

The Question – how will advertisers measure impact? Banner and pay-per-click ads have become popular partly because real sales results could be tracked back to specific ads.