Mar 27, 2023 | Management, Small business
A start-up funded with a cash stake from family, friends, and fools, supplemented by available savings has in its future one of only three options.
- It runs out of cash before the end of the ‘runway’. Crash and burn.
- It extends the runway by finding more cash, usually from equity injections. This generally requires that an MVP (Minimum Viable Product) has been produced. MVP is a term usually associated with a tech start-up, but is just as applicable to a local accountant or plumber hanging out their shingle.
- It achieves ‘lift-off’ before the end of the cash runway. This makes it easier to attract the necessary second round funding to scale from further equity or loan funds based on the expected cash flow from the expanded enterprise.
Assuming the start-up succeeds at option three, it is no longer a ‘start-up’, it has become a business.
These are very different beasts.
The start-up by necessity is acting to attract further investment. This is available from funding institutions of various kinds, and from those very early adopters of a new product or service who value the buzz of being early adopters, the risk takers. Those running ‘start-ups’ need to be highly ambidextrous, as they must work on the ‘product-market fit’ as well as continually chasing the next round of finance.
Once it has become a business, ‘lift-off’ has been achieved, the focus must be wholly on serving the chosen customer set, or the pack of cards will fall, eventually.
Jan 5, 2023 | Customers, Management, Sales
In almost every situation I have ever seen, ‘Sales’ includes all sales, and salespeople are often rewarded via commissions on the total of all those sales.
In many categories of B2B sales, the only time a person does a ‘Sales’ job is to gain that first transaction, after which it is all about retention, a different set of skills.
Assuming the first transaction goes well, the product was delivered on time, in specification, and did the job promised, the chances of a repeat at the appropriate interval is higher, and may not require the ‘sales’ skills of the original salesperson. Rather, it requires the interaction of operational and logistics personnel to manage the relationship, and the transactions that occur within that relationship.
If that is the case, why do we habitually reward salespeople on the total of all sales?
Salespeople are as different as any other group of people. The archetypal ‘Always be Closing’ salesman of the past has now almost disappeared, replaced by a range of people covering differing tasks. This reflects the changed role of sales with the move of information from the hands of the seller to those of the buyer.
Almost every salesperson also sees customers as ‘their’ customers.
Again, if the hypothesis is that they are only necessary for the first transaction holds, this is a mistake.
The logistics and operations people should hold the relationship, assisted by an internal ‘customer service’ person, while the salesperson goes off ‘hunting’ for the next new customer, or indeed, sales in an adjacent product or market area of a current customer not currently serviced. This would be a far better use of the time available to a salesperson than running around at the factory trying to wrangle a preferred spot in the production schedule.
A business I ran as a contractor some years ago had a specialist sales force made up of highly trained technologists. When tracking their activity, it became obvious that most of their time was consumed by tasks other than ‘sales’. These involved interaction with the customers technologists, their operational, marketing and planning personnel. Significant time was also spent at their desks dealing with the complexity of our planning and operational processes in order to meet sometimes impossible delivery promises made under pressure from customers.
This blurred the line between the tasks best undertaken by a specialist technical salesperson, dealing directly with generating more sales, and the tasks that were better done by internal customer service people. The ambiguity of responsibility for specific tasks, and our very malleable processes was hamstringing the productivity of the investment in sales.
The communication tools we have today really mean that we are now able to direct the activities of sales personnel towards where their value lies, identifying and solving customer problems. They do not have to be in the office apart from training and progress sessions. The logistics of providing the products are best managed by those who are hands on in the factory, warehouse and admin functions.
After some changes, sales went up significantly, as did the margins, as the salespeople had more time to spend identifying and solving difficult challenges that naturally brought higher margins.
As you consider the structures necessary for success as the new year opens, you might give some thought to the priorities set for the salespeople, and their support functions in your business.
Header credit: Scott Adams via Dilbert
Dec 5, 2022 | Leadership, Management, Strategy
The current ‘argy-bargy’ around wages policy makes the mistake of assuming it is a binary equation. Pay a dollar more/hour for labour and profit is reduced by the equivalent amount.
This assumes that people working for you are only doing so for the money, and money is directly proportional to output.
We all know this is crap.
While it is clear that many, mostly female dominated jobs, are underpaid compared to the costs of living, and simple value equivalence with other jobs. It is also true that people are not rational, they make decisions on many dimensions, of which price is only one.
Price. Key word.
Why don’t we consider the cost of labour as just the price of it, and consider our labour strategies in the same way we apply pricing strategy for our products to the marketplace?
When we do this properly, which too few do, price is only one factor in the equation. Depending on the context, it can often play only a minor part in the strategies we deploy.
Price is rarely a binary choice, just take it or leave it with no other options. It is also rarely considered how unfair it is to pay people whose performance is unequal, the same amount. We usually address this with piecework pay, which often has a detrimental impact on value delivery to customers. Just look at what is happening to Qantas currently in the handling of baggage for the evidence. It is a fine line between paying for customer value delivered, and piecework payment.
What would you rather have?
Better paid people who care about quality, DIFOT performance, productive time, and all the other things that lead to superior value delivery to a customer, leading to financial performance, or more lower paid people who do not care about any of those things?
Thinking in a binary manner will deliver the latter, never the former.
In these unusual times of inflation coupled with a flat economy, you need to find the most productive people you have, and model their behaviour to others, and compensate them appropriately. You may end up with less, but better paid and more productive people.
Trends in labour cost equations can be an extremely sensitive lead indicator of performance. Labour cost/dollar of revenue or gross margin can tell you a lot about future performance. By contrast, labour cost as an absolute can tell you nothing beyond how much you spend.
The question management needs to ask itself, is not how much labour costs, but how can we make labour a driver of performance.
Header cartoon credit: My thanks again to Hugh McLeod at gapingvoid.com for putting it so accurately
Oct 4, 2022 | Analytics, Management, Operations
Too often KPI’s are all about the result, rather than the drivers that will deliver the result. When you are measuring just the outcomes, you have missed the opportunity to improve and optimise the actions that will lead to change the outcome being delivered.
Take for example the Cash Conversion Cycle (CCC) time. This measure is a fundamental tool in the improvement toolkit.
By improving the rate at which the cash outlaid to generate a customer service or product is turned back into cash by the payment of invoices, you reduce the amount of working capital required to keep the doors open.
The real benefit is to be found in the active management of the drivers of the CCC. The days taken to complete the cycle is just tracking the result of a set of actions that take place elsewhere, Manage the inputs, and the days will reduce.
For example, detailed examination of the debtors ledger will tell you which customers are slow to pay, thereby decreasing the speed of the cycle. It then becomes an item of potential improvement. Perhaps the salesperson responsible is not diligent enough, perhaps your collection processes are not explicit, you lack follow up, or clarity on your terms. In the end, perhaps you can decide that that a specific customer should be handed over to one of your competitors, weakening their cash position.
The same analysis becomes second nature around the inventory numbers: raw materials, WIP and finished goods. Improving those numbers without hurting the levels of customer service can dramatically improve the productivity of the investments made in the enterprise. As an added benefit, customers will thank you and give you more business.
As with anything, the absence of the information that details the drivers of an outcome, makes it hard to make improvements.
Another example. Sales personnel are often compensated by commissions on their total sales. If you want your salespeople to be out hunting for the next customer, rather than glad-handing existing ones, paying a commission on all sales is a poor strategy. It discourages the more time consuming and riskier task of finding and converting new customers. Existing customers in most cases can be professionally managed by an internal customer service function. The better use of commissions might be to encourage business development.
When you spend time identifying and managing the drivers of outcomes, the dollars will follow.
Sep 23, 2022 | Branding, Communication, Management, Marketing, Small business
In 1960, E. Jerome McCarthy published his idea of the four foundations of marketing. Price, Promotion, Product, and Place. The world has changed in the intervening 62 years, so you must wonder if this idea is still relevant, let alone a foundation.
To my mind, they are not only relevant, but retain their place as a seminal part of the marketing process, it is just that the context in which we think about marketing has changed radically, so the role the 4 P’s plays has also evolved.
This used to be simple, there was a product, and there was a price. Whether it was a consumer product, or one sold to another business, it was simple, and uncongested with notions of service.
Life, and the environment in which we compete has completely changed. Let’s see.
Product.
The idea of ‘product’ has changed along with everything else. We used to buy a car, increasingly, we are now buying the means to get from point A to point B, and discovering new ways to pay for it beyond the options of cash, or some sort of loan from a bank.
Product rather than being a singular physical product or service delivered has become a system that delivers value. The scope of ‘produc’t has also changed from the immediate geography to global, and the channels by which this is achieved look nothing like those available 62 years ago.
Price.
The exchange of money is how the economy goes round; money is the fuel. However, the articulation of the ‘Price’ of a product/service bundle has changed as much as everything else. Along with the product and delivery options now available are the pricing options. There are now many ways to be paid, only a few of which were available 62 years ago.
In all developed economies to differing degrees, the taxi industry has been regulated over time. Nothing changed from 1962 when the ‘Four P’s were articulated until along came Uber and disrupted the cosy taxi environment. Uber eliminated the uncertainty of how long you had to wait for a ride, creating great psychological value, and introduced surge pricing that would entice more supply into the system at times of high demand.
Surge and subscription pricing have changed the face of commerce globally. Amazon uses both in their operations, adding the willingness of a buyer to pay higher prices based on their browsing and purchase history.
Place.
We used to buy products at a defined place, in a defined manner. No longer. The notion of ‘Place’ has been replaced by one of ‘How’ you buy rather than ‘where you buy’.
The old model of a set of mechanically driven distribution channels has been replaced by a melange of ‘omni channels’ that deliver value in a wide variety of ways.
Control of the channels, formerly in the hands of the sellers has moved into the hands of the buyers, who demand and are given in increasing amounts of transparency backwards into the supply chain. All this is enabled by the explosive growth of digital technology.
Promotion.
If the other factors have changed radically, there are no words to describe the magnitude of the change to the ways promotional activity has evolved.
It used to mean the way we gained attention of potential customers via a limited number of options, engaged them, then sold product through whichever stable distribution channel was available. While the core process is unchanged, how we promote out products has exploded.
This brings us back to the question posed: are the for ‘P’s’ of marketing still relevant.
My answer is ‘Yes’, but the clothes they wear have changed radically and therefore the way we think about then must change.
My response to the change necessary is to look at the marketing process more from the perspective of the customer. This brings me to the view that both customer and supplier can look at the process from within the framework of Objectives, Value proposition, Ideal customer, and the Current state. Each party to a transaction sees these four parameters differently, but they are all relevant to the way the transection and relationship proceeds.
Sep 14, 2022 | Change, Management, Strategy
Scaling is the objective of every SME I have ever dealt with; they all want to get bigger. In every case they have the same three challenges.
Which activities do they Eliminate?
Which ones do they Delegate?
Which ones do they Automate?
EDA: the challenge of every SME.
The common challenge in them all is that they require change, and human beings, particularly busy ones, avoid change. This is the case even when they recognise that in the longer term, the change is necessary. The problem is finding the time to invest in figuring out what that the change must be, as that is an investment of time that is at a premium, without an immediate return. Besides, change makes us all uncomfortable.
Elimination.
This should be easy, but is often hard. The test is to define the value of the action, and if it is less than the cost, eliminate it. Before desktops, managers relied on regular printouts from mainframes to give us the information needed. Those under fifty may not remember the big dot matrix printed files that emerged in continuous sheets, often for further analysis by hand. These reports tended to multiply like rabbits on heat. One report responding to a once off information request resulted in that report being produced every time the report cycle ran, weather it was needed or not. In an effort to reduce this tree killing activity, I once put a line through most of the list of reports produced weekly for my department, not telling anyone, waiting for the screams. They did not come, nobody noticed. Eliminated. A simple example of what often needs to be done.
Delegation.
If it cannot be eliminated, can it be delegated? Someone who costs 150/hour doing a task that can be done by someone costing $50 is simply a non-productive use of resources. Again, delegating is easy to say but often hard to do. Everyone has established routines and delegating requires trust and change.
Automation.
When a task is necessary, cannot be delegated, and is done more than once or twice, it should be automated. The opportunity for automating tasks is limited only by imagination, the determination to do it, the time to specify it, and usually a modest investment of time and money. Automation of what used to come to me in huge printed blocks from a mainframe has been done by the advent of personal devices and ‘apps’. Information can easily be consolidated and tailored for the specific needs for which it is required. While the goalposts are continually moving as to what can be done, there is no task in an SME I have seen that cannot be at least partially automated.
EDA should be a standard item on every management improvement agenda.
