Wayne Wilson on Companies in Transition

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.

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.

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.

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.

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

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.

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 ...