Sep 2, 2020 | Governance, Marketing, Small business
How do you execute on that BEHAG?
How do you fulfil the vision?
How do you accomplish the mission?
These are all questions I get from time to time from people stumped at the point where the dream, whatever label you choose to put on it, has to be turned into some sort of activity.
A dream in the absence of the steps to achieve that dream is commonly called a fantasy.
The process that I help people through is what I call ‘Hindsight Planning’
It has four distinct steps.
Step 1. Understand the market dynamics.
There is no avoiding the necessity to understand the drivers in the markets you are seeking to leverage. The technologies, barriers to entry and exit, capital requirements, regulatory requirements, major competitive factors, and a host of others all play a role. In the absence of at least having some idea of the ‘Current state’ of the market, you risk that plan being just a shattered dream. Unless you understand what it is you want to change in order to grow, and what the probable drivers of that growth will be, it will remain a fantasy.
Step 2. Agree on the shape of the business down the track.
Planning horizons change from market to market. Technology markets are changing almost as we speak, some others have very long lead times, although it is often these that are disrupted by newcomers who throw the long held beliefs that have driven the market over the wall and change everything. Nevertheless, difficult choices need to be made. What you will do and how, but often more importantly, what you will not do and why.
Step 3. Plan backwards.
Having agreed the shape and size of the business in 1, 3, or 5 years, whatever horizon you have agreed on, the task now is to ‘put yourself there’. Imagine the outcome has been achieved, and then articulate the steps you have taken in that journey. This might seem just to be an exercise in words, and to some extent that is true, but importantly, it is also an exercise in perspective. Working backwards enables you to test ideas, assumptions and choices, against an outcome you have agreed has already occurred, albeit in your collective minds. In that way, a ‘reality filter’ of sorts has been applied.
Some of the obvious questions that need to be answered may be:
- Where did the revenue come from? Growth is not possible in the absence of revenue, so list the sources on a whiteboard. Current customers, new customers, channels, business models, products, technical achievements, geographies, and so on. However, do not just list them, articulate in some detail how it has happened. Again, that past perspective adds real ‘grunt’ to the conversations.
- Where did the capital come from? Growth is a veracious consumer of resources, particularly capital. How did you fund that growth? Reinvestment of retained earnings, capital raising from friends and family, or from the markets, public and private, debt finance considering the necessity for assets as collateral?
- What is the dominant business model? Are you a middleman, retailer, on line item sales, subscription sales, did you achieve a position to monetise arbitrage opportunities, and so on. Digital has delivered a host of new and emerging business models to us over the last decade, but one thing that has become clear, if it was not already, is that differing business models do not live comfortably in the same house. Therefore, if your revenue streams come from different business models, the structure of your resulting business needs to be decentralised by those differing business models.
- What is the ideal corporate structure? Have you remained private, are you publicly owned, a partnership, Joint venture, franchise system? There are many options, and as in the previous question, potential siblings rarely successfully live in the same house.
- What capabilities were required to succeed? This is a question in two parts. Firstly, what capabilities were required from individuals, technical, strategic, financial, and all the other factors that make human beings able to contribute? Secondly, what were the organisational, leadership and cultural factors that enabled the organization to leverage the capabilities the individuals brought in each morning as they turned up to work.
Step 4. Execution of the plan
As noted, a plan of any sort remains a fantasy in the absence of the means to execute, and deliver on the plan.
Executing on a plan to achieve an objective has a few wrinkles that must be accommodated:
- ‘No plan’, as George Patton said, ‘survives first contact with the enemy. This means that the plan must be sufficiently agile to accommodate the unexpected, while remaining focussed on the objective.
- All stakeholders, and most particularly those who are employed, must not only know the plan, but they must understand and ‘buy into’ the objective, while reacting tactically to the unplanned things that confront them. The means to achieve these usually mutually exclusive outcomes, is that they not only understand their role, and the part their role plays in the larger objective, but they must also be prepared to be more than just an unthinking functionary, doing as they are told, or at least as they understand they are being told. It is a process of critical thinking and feedback going up, down, and very importantly, across the management chain. Not an easy thing to achieve and one we normally just attribute to some natural ‘leader’ who emerges. However, everyone has the capacity to be a leader, simply by being a participant in the process and holding themselves accountable for the actions of others.
- Operationally deploying ‘Nested’ functional plans. Like the operations of a mechanical watch, to tell accurate time, each part of the mechanism must contribute in a defined way to every other part of the mechanism, while not being overtly connected. There are always a range of flywheels driving others of varying sizes that are doing different roles, that all add up to that accurate time. An organisation is just the same, and this diversity of role, timing, and relationships to other flywheels must all be kept in synch if the outcome is to be achieved. No easy task, which is why it so often fails. Successfully driving towards an objective, means that the various parts of the mechanism of the organisation must work be synchronised in ways that are able to accommodate the tactical opportunities and reverses that inevitably occur while not losing sight of the objective. This all requires what I call ‘operational nesting’
When you need an expert to help you think about these things, let me know.
Aug 31, 2020 | Change, Management, Marketing
We are in uncertain times, and under those circumstances, perhaps counter intuitively, there are many opportunities for all forms of M&A activity.
For many owners of SME’s, this Covid crisis is the last straw.
You have worked hard for years to build a business, survived and prospered as technology has changed the competitive landscape, avoided the trap of not managing your cash well enough to cover the unanticipated, and survived the various financial meltdowns that have occurred.
Now you are ready to sell, as there is no way the kids want to work as hard, and thanklessly as they have seen you work, and the current uncertainty makes an easier life seem very attractive.
Following are 10 of the traps I have seen over the years, which have resulted in a seller obtaining less than a business may have been worth to a buyer.
Never forget the role that psychology plays in the process.
There are many financial and strategic due diligence boxes that will need to be ticked over the course of a successful transaction. However, the psychological drivers on both sides of the transaction will have a profound and often unrecognised role. From beginning to end, it is an all in negotiation, where skill and experience will play a huge role. This is a double edged sword, and can be made to work for you by judicious planning and execution of the sale process.
Appearing too keen to sell.
Once you appear really keen to sell, that influences the context of negotiations. Nothing is as obvious to a buyer as the desperation of a seller.
Not marketing and managing the selling process.
Marketing plays a decisive role in setting the context for a transaction. How many buyers you can interest, how you go about identifying and generating that interest, how you communicate with interested parties, what information you provide, and when, and how you conduct yourself. It will consume a lot of time and effort when done well, done poorly; you will ‘get done over’. Selling a business is no different to selling a piece of capital equipment, or a tub of yogurt, it is a process to which there is more than one party, with ranges of interests, drivers, motivations and resources available. Pretty obviously, the more keen and genuine buyers the better.
Having unrealistic price expectations.
Few will see the business as you do, and most owners of SME’s consider their emotional commitment over the years has a value. It may do, so long as it is reflected in the financial and strategic value to a buyer, but in itself, it has no value to a buyer. The manner in which the price is structured can vary enormously, from a ‘cash on the barrel’ agreement to swaps of shares, delayed payments, and work-outs dependent on future earnings. Each has their own set of challenges which need to be anticipated and factored into the calculations in a realistic manner. However, going into the process with unrealistic expectations can sour the well.
Poor anticipatory Due Diligence.
Any serious buyer will undertake a DD process, the depth and investment in this will be driven by the size of the transaction more than anything else. Making it simple for the buyer will be appreciated, and add to the trust they have in the forecasts you may make. Anticipating questions that may emerge during the process, and answering them before they are asked defuses them as a potential issue. Removing potential negatives before they become objections is sales 101. Never forget the rules of sales apply, so leverage them.
Ignoring the qualitative elements.
Can you work with these people? Are you prepared to have them take over the business, and its relationships you have nurtured? Do the emerging conditions of purchase cause you to lose sleep?. It may be that none of these apply, so you do not care. However, I have seen transactions turn sour at the last moment after considerable effort, just on the basis of personality, so consider it early and avoid the pain.
Risk assessments.
Every transaction has risks, covering them in an anticipatory DD process so you have the answers before the question is asked, is extraordinarily useful. A buyer will make their own assessments, but the better yours are, the more likely that any difficulties in the negotiation will be papered over. Selling any business is based on the assumptions that a buyer will make of the value that business will add to them. I.e, it is all about revenue and margins over time. The temptation of the seller will always be to beef up the forecasts, which is usually a mistake. Be realistic, but break the revenues down into its components and make assumptions at the more granular level. For example, costumer margins, the trends over time and the influences that adverse events have had. Any comprehensive buyer DD will ask the questions, so have the answers in a robust defensible form.
Understand the strategic value to every potential buyer.
Every buyer will be different, understanding the drivers of each is critical to maximising the price. Make your own assessment of what strategic value your business can add to theirs. This analysis is always way more than just a calculation of future cash flows, although that will always be the starting point. Items such as an assessment of the value of your brand to a buyer, the rate of customer churn, longevity of customer relationships based on barriers to entry and exit, recurring revenue vs ad hoc sales, and many others, will all add to the strategic value to a buyer. Each potential buyer will value these items differently, so developing a nuanced understanding of their business is an essential element of the sale process.
Avoiding the cost of good advice.
Professional advice can be expensive, and for an SME owner keen to maximise the dollars in their pocket, a seemingly avoidable expense. The problem is that selling a business can be a complex exercise, and is always more complex than it first seems. Having good accounting, legal and strategic advice is like any investment, it is made to either make or save money. In the case of the sale of a business, the objective is to maximise the sale price, and minimise the risk to the seller. Experienced buyers will often overwhelm a potential seller with documentation, questions, and promises which conceal the gaps and traps into which the unwary and poorly advised can easily fall.
No plan B.
Selling a business can be a lengthy and difficult process. Many spend time on the process that would be better spent managing the business they are setting out to sell, optimising the value that someone might pay for it. As a flip side of the same coin, many invest themselves in the sale process in the absence of a plan B. When a sale falls through, not only to they have to get back the running the business, they have to deal with the unfulfilled expectations of customers, employees, and yourself.
As a final point, when you get the unsolicited offers, do not invest too much time in considering them in the absence of a real demonstration of the intent of the hopeful buyer. There are many reasons for an unsolicited approach, and none have anything to do with maximising the value for you, as the seller.
Aug 26, 2020 | Marketing, Social Media
The fundamental problem with ‘digital advertising’ is that there is little competition for ideas.
In the past, with limited availability of media, the competition happened before the public got to see anything, as those that controlled access to peoples eyeballs did the fact checking, curation, and idea vetting.
Now that is gone, and there is unlimited competition without the curation, the competition is for attention, then for head-space.
The competition for attention, now has infinite potential to consume the competition of ideas, hence we have the crap that just keeps coming at us in increasing volume.
There are some versions of curated content on line, where the ideas are curated and vetted as they were before, but they are struggling for survival in the sea of social sharks consuming everything around them of any value, and squirting out shark-shit.
And, that is all before the rampant fraud in the digital ad supply chain is considered.
Aug 17, 2020 | Analytics, Marketing
The implication of the word ‘research,’ is that you are setting out to understand something. All too often over the years, I have observed situations where that is not the case.
Market research can be a money trap, consuming resources with little or no payback. It can also be a huge capability to be leveraged for great benefit when done well.
The challenge is that it is a set of interrelated disciplines from statistics, psychology, behavioural economics, and science, and therefore requires a wide breadth of skill and acquired wisdom to be useful.
Doing commercially productive market research is a bit like learning to swim. No matter how much you read about it, study wise texts, and observe others, until you get into the pool, immerse yourself, you will never really understand it.
Some things are relatively easy to research. Usually they are adverse outcomes that have happened, and have been quantified. The research is aimed at understanding the drivers of those adverse outcomes. More challenging is research that seeks to put a shape around the future. If this happens, what then?
Most material published on the topic is about the techniques, the templates to use. They are very useful, but fail to accommodate the realities that intrude in real commercial situations, that impact on a research outcome.
Following are some of the hard won lessons from doing marketing and market research over the last 40 years. The tools have changed dramatically in the last decade, the principals remain unchanged.
Not understanding the ‘scientific method’.
Most are familiar with ‘the scientific method’. Identify a problem, form a hypothesis, test that hypothesis, adjust the hypothesis based on the results, rinse and repeat. However, most do not recognise the foundation of the scientific method is to set out to disprove an idea. This objective to disprove a proposition, ensures that all relevant information is made available. All contrary data, opinions and untested ideas are brought to the table for examination. It often happens that information that may be relevant is not considered. Ego, confirmation bias, existing standard procedures, and just lack of critical thinking clouds the process. Over the years I have seen piles of research that is setting out to prove a theory, and does so by, usually unconsciously, excluding data that might not confirm the proposition.
Failure to identify the problem/opportunity.
Useful research depends on providing answers to problems, or offering insight into the scale and location of opportunities. In the absence of clarity of the objective of the research, you cannot reasonably expect there to be any value delivered.
Asking poor questions.
Not all questions are created equal. Asking good questions implies that there has been enough work done to identify what is, and what is not, a good question. Also important is the manner in which the questions are asked. It is easy to generate different responses by seemingly subtle variations in the way questions are asked. Eg. ‘How big do you like the fruit pieces to be in your brand of yoghurt? This implies that the fruit in yogurt is in pieces, and ignores the possibility that the fruit may be added as a puree. Those who may prefer a homogeneous product using puree are thus precluded from giving an accurate response. Such a question would be relevant to the marketer of fruited yogurt seeking a point of differentiation, which would influence the product ingredients and choice of processing equipment.
Less than rigorous & neutral data collection & analysis.
We all know numbers can lie, we see it every day. Numbers can be used to support any proposition you choose, when managed to that end. The absence of rigor from research methodology and analysis, will lead to flawed conclusions every time.
Not knowing what you will do with the outcomes
In the absence of a clear use for the research, why do it? The answer to this is usually found amongst ego, seeking validation of a currently expressed position, or as a crutch to avoid making a decision. How often have we heard the phrase: ‘More research is required’
Selective use of results.
Selective use of research outcomes is standard practice in many places. Parts of the research that supports a proposition are used in the presentation of a position, and any parts that do not support the position are ignored. You see this all the time in the political discourse in this country. Politicians of differing parties, taking the same research reports and claiming opposite conclusions is common. Exactly the same process exists in corporate bureaucracies.
Lack of understanding of the techniques
You do not have to be a statistician to be able to understand the outcomes of data. However, you do need to understand what the terms mean, and the implications they carry. This applies from sampling techniques, to the tools of statistical analysis and results presentation. You must understand the principals sufficiently well to be able to ask informed questions, and recognise gobbledy gook when it comes back to you.
Not considering Anthropology & Context
Anthropology might seem a bit misplaced in market research, as it is the study of behaviour in varying cultural settings. However, consider how different the answer to a question about your work might be if asked while sitting at your desk absorbed by a task, to when asked the same question while on a holiday. Same question, different context.
These days we are often allocated to teams at work that are set up to solve problems, generate ideas, or just manage work flow. How different are our reactions inside those groups, to those to which we choose to belong outside the work context, and how differently do we behave?
Conducting research in the absence of such considerations can generate misleading outcomes. E.g. Conducting research on a new piece of packaging around a group discussion table will evoke responses, and a conclusion. How different might the reactions of those same people be when confronted by the new pack while shopping in a supermarket.
Failure to understand the drivers of Behaviour
Psychology plays a huge role in the development and reporting of research. Our brains are hard wired to reduce cognitive load, so can be easily tempted to accept a conclusion not supported by research. It is relatively easy to persuade others of the veracity of a conclusion, simply by the manner in which they are presented. E.g. Which milk is better for you: one that contains 3% fat, or one that is 97% fat free? They are identical products, but in research, a significant majority will answer ‘B’: 97% fat free.
Similarly in a qualitative group discussion, a proposition seemingly supported by most around the table can gather overwhelming support, irrespective of the accuracy of the proposition. This outcome has been repeated endlessly in first year psychology experiments, based on Solomon Asch’s 1951 experiment seeking to examine the power of a group to influence the expressed opinion of an individual.
What people say they do and what they actually do can be very different.
When you ask questions, they are answered from within the existing frame of reference of those being questioned. Their ‘mental Models’ dominate how they see things. Henry Ford was right when he quipped: ‘ He would not consult customers on what they wanted because he already knew, a faster horse. Steve Jobs expressed exactly the same opinion, in different words on several occasions, and was again proven correct.
Too much research is aimed at connecting the future dots to give a sense of certainty about the future, just to make people feel more comfortable. If we could tell the future accurately, we would all be at the local casino for a few nights until we got banned for winning too much.
Respecting the status quo too much
We humans are keen to retain the status quo, simply because it has been proven to work, and change involves risk. We are hard wired to avoid risk, a function of evolutionary psychology, when taking risks often meant you became breakfast for something nasty. The promise of a reward must be many times stronger than the downside of a behaviour before most of us are prepared to entertain the risk.
Presenting a research finding that is inconsistent with the well known view of the Managing Director is a risky undertaking that is often avoided. This is commonly called a HiPPO (Highest Paid Persons Opinion) and is pervasive. It is particularly challenging when the person concerned (often a bloke) is repeating the opinion of someone else. In consumer products, this is often his partner.
Poor presentation of results & Conclusions.
The errors I have seen in presentations are myriad. However, the worst are:
- Lack of clarity and simplicity in the conclusions, which limits useability.
- They do not answer the question. Generally this is because the question was ambiguous, unnecessary or stated a proposition someone wanted verified.
Every research project can be placed somewhere on the matrix in the header. The more right hand side and higher you go, the greater the degree of uncertainty is involved. In the bottom left quadrant, you are seeking answers that are quantifiable, things that have happened, that you are seeking to understand. Top right quadrant is the future, and contains things we do not know much, if anything, about. Often we do not even see them. Research that puts numbers against hypotheses that fall into this quadrant should not be believed. At best they are an estimate of a probability, at worst, just a WAG. (Wild Arsed Guess). What is important in these circumstances is that you understand the risks. Remember that old cliché, ‘plan for the worst, hope for the best’
Jul 29, 2020 | Customers, Marketing
It seems almost every business owner I meet claims to be customer centric, yet, ask their customers, and you get a different response.
Human nature is that we put priority on what is important to us, rather than looking at something from the other side of the equation. It is simply easier for us to compute, and in the short term, more satisfying, to think how well we are doing.
Go out to some customers, potential customers, and importantly, former customers, and ask them some simple questions:
- What is the most painful situation we might be able to help you with?
- How did we do last time solving it?
- How could we make it easier to do business with us?
- What would make us so compelling that price no longer mattered?
- How would you explain our value proposition to your neighbour?
- What would make you choose our competitor over us?
- How are we different to our competitors?
- What one thing would you change about the manner in which we service you?
- What words would you use to describe the relationship we have: supplier, partner, collaborator,
Rank yourself on these questions to gain a real picture of your customer centricity. If you are doing well, you are answering all the questions your customer may have, giving them the information they need to make decisions. The ultimate test is to be able to tell them that your product is not the ideal one for them, and recommend an alternative.
Do that, and they will trust you forever.
Jul 20, 2020 | Analytics, Marketing
Being a useful marketer has many foundations, most of them untouched in the course of a marketing degree.
One of the ‘must have’ but seemingly rare skills amongst most so called marketers I see, is a relationship with numbers.
In a seeming paradox, I do not like numbers, the piles of them I often see squeezed onto dense spreadsheets, with little thought or imagination beyond getting as much data as possible assembled in the one place. This drives me nuts.
On the other hand, I love numbers for what they can tell me. Once that data has been cleaned and organised in a way that enables smart, and curious questions to be asked, then answered. Data that moves towards knowledge, then to the source of insight is essential to success. It also clearly demonstrates the parameters of holes in the data, and your ability to address the challenges presented.
Analytical skill is a foundation of successful marketing.
Typically, marketing is seen as a creative exercise. I think this is why many marketers appear almost innumerate, and why the accountants and engineers who run many organisations have little time for those supposed to be running marketing. They love numbers, and assume anyone who does not is an idiot.
Well used, numbers tell a story, and marketing is all about stories. However, stories that do not have some sort of quantitative foundation are commonly called fairy tales. Children love fairy tales, but the accountant in the corner office making the resource allocation decisions, thinks they are for his grandchildren only.
Being analytical is way more than just having the numbers. It requires that they are turned from just the numbers into actionable insights, which generate further numbers to be understood and used to gain leverage for the investments being made. It does not matter if the investment is one on brand building, or buying a new machine, they are both investments, upon which a return should be expected.
We are not generally taught to have this sort of intimacy with numbers. We are not taught that they are key enablers of critical thinking, curiosity, and creativity.
A hypothesis without the means to test and validate it is at best, a nice idea.
I managed to pass (just) a reasonably high level of maths at the HSC, almost 50 years ago. I passed purely because I worked at remembering the formulas and circumstances where they worked. I never had the slightest idea of where this gobbledy-gook stuff might be useful, so by the time I had recovered from the post exam hangover I had forgotten everything. The absence of that key item, understanding, is why many of us shy away from numbers, we were never taught where and why they might be useful. We had formulas jammed down our young throats, and hated it, a dislike that coloured the rest of our lives.
Get over it, and allow numbers to speak to you, to help you understand the stories they are hiding.
- Look for, and identify the trends, and patterns in the data, and when there is an anomaly, be able to ask and find the answer to the simple question: Why?
- Find the gems of truth hidden amongst the averages we always seem to be fed.
- Understand what ‘normal’ looks like, so you can see the bits sticking out, and again find out the ‘why’
- Find the boundaries of an idea, circumstance, impact, and potential.
- Discover variances, and use the boundaries of those variances to improve performance over time. This is the core technique of continuous improvement in factories, engineers love it, and I have found it just as useful in many other circumstances.
- Numbers enable some sort of quantitative boundary to be thrown around uncertainty, particularly useful at the moment. By testing the numbers, then revising and retesting, you can progressively increase the level of certainty, reducing risk.
- Enable yourself to use perhaps the oldest and most useful tool in the marketers arsenal, the 80/20 rule, courtesy of Italian mathematician Vilfredo Pareto. In 45 years of commercial life, this simple technique has been used over, and over, and over again to uncover many ‘Why’s’
- Understanding the data enables you to be ‘numerically ambidextrous’. You can zoom out to see the whole picture, and then zoom in to see the details of anything that for one reason or another looks different, interesting, or just a hole in the data that might lead to an insight.
All these skills are just as useful to a marketer as they are to an accountant or engineer. When you have them, your credibility with those in the corner office will soar.
