The single question every entrepreneur should ask themselves. Often.

The single question every entrepreneur should ask themselves. Often.

Sep 28, 2020 | Leadership, Management, Small business

 

Every business starts small. The biggest on the planet all started somewhere, in a garage, dorm room, lab, somewhere between the ears of the entrepreneur.

Most fail, or at best deliver a return that would have been dwarfed by the interest on the same investment in a bank account.

Some however, do succeed.

We all see the ones that do, they are shoved down our throats all the time as the heroes, the ones who made it, and we are asked the question, if they can, why can’t you?

There seems to me to be a pretty consistent sequence of growth, a sequence that holds true across all sorts of products and services, geographies, technologies, and circumstances.

Cheering.

This is the first stage, it seems to be all enthusiasm, cheering from the sidelines, jumping up and down, wishing for stuff to happen. What it is really about when you are in the midst of it all is hard grind, chaos, and cash.

At the beginning, you work your arse off, seemingly 24/7, with no letup. Everything that gets done depends on you doing it, you don’t do it, it does not get done. Simple. It is messy, usually chaotic, as pressures come from every direction, your attention is demanded by each, which is why the 24/7, and still there is little forward progress. Then there is cash. As you start, nothing is more important than cash. More start-ups go broke for lack of cash than every other reason combined. Managing your cash is simply the most important thing you must do.

Planning & doing.

Assuming you survive the cheering stage, you will have come to the point where you have a little more head time to be used considering: ‘what next’. You probably have a very small number of employees, and perhaps some outsourced services, like accounting and IT.

Answering the ‘what next’ question will be eating at your guts, as for sure, you do not want to continue as you have been. Your kids are growing up without you, your partner becoming a stranger, you have not had a weekend with your mates for ages, so you look forward to a different future. So, you stumble into some planning. It is never as easy as filling in some generic template, of which there are plenty making alluring promises, it is more about the graft of figuring out how to accumulate and allocate the resources necessary to grow. While the game is still about cash, it has also become about profit, what is left for reinvestment at the end of the month, quarter, and year.

You plan your products and services, the foundation stuff you need to get right, like the legal and regulatory things that must be done, understand the financial and strategic pressures that are present, and settle for the moment on a business model: the means by which you will turn your chaos into sustainable profitability.

However, a plan, no matter how good it may be at telling the future, envisioning new products, markets and customers, needs one further ingredient.

It needs to be implemented.

Plans that do not get implemented are usually called dreams. You will also recognise the reality of the muttering of generals throughout the ages that while planning is essential, nothing ever goes exactly to plan, so you must be ready to be agile tactically, while consistent strategically.

Building & growing.

The essential ingredients to building and growing an enterprise, on top of the financial resources that enable that growth are twofold.

You need people to do the work, and you need processes for them to follow, and over time, optimise.

The task of being the entrepreneur has changed from one of management, to one of leadership. You are no longer as engaged in tactical activity. Tactical implementation is being done by others in a manner that is transparent to overview, and with KPI’s based on outcomes. The task now is about the people doing the work, from the daily tactical stuff to the functional management. Your role is to lead all these people, and ensure that the processes being deployed deliver on the plan. It is all about the productivity of resources deployed, people and financial, delivered via the processes that evolve.

Anyone who thinks this is easy has never done it.

Anyone who stands on the sidelines and cheers for you might be a cheerleader, supporter, and beneficiary, but they are not a coach. A coach delivers the models and means by which the success is generated,  which is much more than  cheering, as it involves getting dirty from time to time, being challenging at all times, and ensuring you are looking beyond the tactical that threatens to consume you at all times.

At each point in this growth pattern, there is a single question that you can ask that will give you an answer to the question of growth potential contained in any tactical decision:

‘Does this scale?’

Many small business owners do not ask this question, so end up selling their time for money: and there is only a limited time in any day. Therefore, if you are about to invest in tactical activity of any type, ask that simple question: Does this scale?

If the answer is yes, fine. If it is no, think again.

 

When you are looking for a coach with the scars to prove experience, browse through the posts on the StrategyAudit site, and then you might want to give me a call.

 

 

 

For freelancers: How to think about the price.

For freelancers: How to think about the price.

Sep 10, 2020 | Customers, Small business

 

 

Regularly, I find myself in a discussion with those who sell their time and expertise rather than a physical product, talking about price.

How do you set it?

After 25 years of doing it for myself, you might think I have some tips?

Well, I have plenty of experience and some scars, but it remains a really tough question. It is especially tough when there is not much work around.

There are only two driving considerations:

  • How long the project will take me.
  • What is the value of the project to you.

These two factors combined with my standard rate will define a quote.

Generally my quotes are fixed, if I make an error in scoping in my favour, OK, if the error is in your favour, good luck to you.

I will not haggle, either the knowledge and experience I have is of value to you, or it is not.

However, there are a few mitigating factors that can influence the price.

  • Project scope. I am an expert in specific areas, not all. Often there is the opportunity for you to use others who may generate a better outcome more quickly. In that case, I will recommend a couple of people to you, people that I would trust were I in your shoes. In that case I will not clip the ticket in any way, unless you need me to project manage the ‘subbie’. This may reduce my price, as it no longer consumes my time.
  •  Timing. As I work on projects, there are times when I am up to the gills, and others when there is plenty left over. If your project is flexible in its timing, and I can get to it in those slower times, perhaps we can agree on some price flexibility as well. However, that is unusual, as what seems to be a ‘dry patch’ has the habit of suddenly turning into a downpour.
  • For some reason, the project we are discussing is more than just interesting to me, as those are the only ones I take, but compelling, addictive in its potential to make a difference. Again, rare.

I am a stand alone freelancer, an expert in a narrow but very deep field, trading my time, experience and knowledge for money. I know a lot about a wide range of other things, but do not claim expertise of any great depth. Generally, I do not do projects that require those skills, except as a catalyst and enabler of the areas of deep expertise.

The focus should be on the value that will be delivered, not the price.

Maybe that helps you to think about your own pricing strategy.

The essential template for hindsight planning

The essential template for hindsight planning

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.

 

How do retailers create irresistible ‘customer flypaper’?

Jan 28, 2020 | Customers, Marketing, Small business

 

As a very young kid, I remember my grandmother having flypaper stuck around her kitchen. From time to time she would smear something smelly on it, which doomed any flies in the neighbourhood.

Wouldn’t it be nice to have ‘Customer flypaper’ for your business?

Once attracted,  they will never leave, simply because they never want to.

A secondary but ideal characteristic of that customer flypaper would be that those customers who were just there tyre-kicking, shopping for the cheapest price, or were inclined to just waste the time of you and your staff, would be repelled.

Nice. I have seen such a metaphorical commercial flypaper at work.

My aging mother lives in a major regional centre, and has a range of pharmaceutical and ancillary needs. A local pharmacy has created a veritable moat of flypaper around his ever increasing customer base, my mother amongst them.

How has he done this?

  • Focus. He focusses his attention on his current customers, personalising their experiences and interactions with the pharmacy and its staff. This is done by a combination of digital record keeping software, and old fashioned humanity. If you want loyalty from your customers, you have to earn it, as it is rarely just given, and then never lightly.
  • Differentiation. Finding something that is challenging to replicate, and adds value to a cohort of customers creates a powerful attraction. In this case, the pharmacist is a compounding chemist, so is able to combine and mix the medications in such a manner, that instead of taking a pile of pills twice a day, my mother is able to take just one or two.
  • Rewards. Current customers are rewarded, not by money, discounts, or any of the other easy to replicate offers, he recognises and rewards their psychology, their instinctive need to be a part of some sort of community. In the early 50’s, psychologist F. Skinner did a series of experiments, using rats and pigeons as subjects, since validated widely in labs, and obvious any time you walk into a location with poker machines. The psychological power of an intermittent reward can be compelling, for some, irresistible. This pharmacist uses intermittent rewards that confirm he cares about his customers. A vase of flowers sent when one is in hospital, a handwritten birthday card, remembering a grandchild’s success at school, all sorts of things that just demonstrate he, and his staff, care.
  • Service. Older people sometimes find it hard to get out and go to the pharmacy. So, there is a free delivery service, for your compounded few pills, all sorted into the times you must take them, packed in a daily and, morning/afternoon blister pack that even someone with advanced arthritis can open. This is all run on an account, so not only can you get the pills delivered, you can also ring up and get other items stocked delivered at the same time, paid for in one simple monthly transaction. Being cynical, I compared the prices of a number of the ‘grocery’  items my mother had bought in this manner to other retailers. While it was not the discount promotional price sometimes available in woolies, they were by no means capitalising on an opportunity to gouge.
  • Overheads. This pharmacy is located in a suburban shop, next door to a butcher, baker, and physiotherapist, with generous and easy parking outside the door. Not only is this convenient, it would be a cheaper place to have a store than in a location with heavy passing foot traffic, and leaves a bit more in the kitty for doing the things that really matter to customers.
  • Collaboration. There is considerable collaboration between the co-located shops. The pharmacist also collaborates closely with a number of the local GP’s and specialists to ensure that their patients receive the best possible care, and medications. Mums GP from time to time, varies the dosage of some of the things she takes, and communicates that change directly to the pharmacist. This ensures that the information is clearly communicated and understood, and adding a layer of added professional scrutiny to the mix of medications she takes.
  • The ‘original’ social media. Word of mouth is the original social media, and still by a country mile, the best. My sister who lives in the town, and helps Mum, often picks up bits and pieces in the pharmacy for herself, as well as Mum. The level of service and care evident, and the simple fact that the staff also know her, and her family, means not only would she not go anywhere else, but she will not allow any of her friends or acquaintances to go anywhere else.

All this adds up to very powerful ‘commercial flypaper’.

It is not easy to build, takes time, effort, and investment ,as well as a very clear strategy within which to build the tactics that act as the flypaper.

 

 

 

How to avoid being misled: Measure the drivers, before results.

Oct 9, 2019 | Management, Small business

 

The old cliché that you get what you measure, is right. You want more of something, make it a KPI, measure for it, and the chances you will get it are dramatically improved. The corollary is that you need to ensure that what it is that you are measuring is really what you want.

This obvious cause and effect is sometimes called The Lucas Critique, after the economist Robert Lucas, who in a 1976 paper, articulated the obvious fact that economic policy when implemented, drives changes in the  outcomes that were inconsistent with the assumptions made when the policy models were developed. This is because the assumptions remain fixed, insensitive to the changes in the behaviour the policy drove.

It put a mathematical framework around the better known Goodhart’s law, which simply stated is: ‘When a measure becomes a target, it ceases to be a good measure’ 

Therefore, choosing measures is a task of vital importance. You have to adopt measures that calibrate the drivers of outcomes, not the outcomes themselves, or you risk getting a lot of something you do not want, or need.

As a young product manager, I worked for a business that had sales volumes as the driving KPI for the sales force. Not unusual, and pretty well balanced, as the marketing function set the prices and therefore had nominal control over gross margin. However, sales personnel had control over promotional expenditure, which was budgeted as a percentage of sales.

Towards the end of the financial year when volumes were behind budget, an additional incentive was put in place. If sales budgets were achieved, the annual sales and marketing conference would be moved from the usual haunt just down the road in a dingy hotel, to a resort in the Whitsundays, and partners were to be invited.

The sales force went all out, and in the last 2 months of the year significantly over-achieved the sales budget, and we all went to a terrific location and had a holiday. However, the holiday came to a shuddering halt as the sales for the first few months of the following year came in. The sales force had achieved volume targets by stacking the retailers warehouses with product in the last two months of the previous year, boosting booked sales revenue, but delaying the timing of promotional expenditure to the new year. There was never a chance of catching up and achieving either the volume or net profit budgets in the following year. However, we did have a great time at the ‘conference’ .

You will get what you measure, just make sure it is what you want.

 

The often fatal flaw of the Family business

Oct 3, 2019 | Governance, Management, Small business

Family businesses have many advantages over publicly owned entities, largely around the pressures that apply to investment decisions.  They can, and often are, made with timeframes that would be unacceptable to a publicly listed company.

They also often contain the seeds of their own destruction.

On top of all the usual human pressures that exist in every enterprise, ambition, envy, personal gain, and all the rest, you also have the dynamics of family, and often multiple families, overlaid on the more usual pressures.

The mixture can be toxic.

It takes considerable leadership skill to address these added pressures, usually driven by the sense of entitlement that comes from: ‘it is our business, therefore we can do what we like’.  

There is no easy fix I have ever seen, but recognising a problem, catching it early and creating an environment where merit, and not bloodlines is rewarded, is a good first step.

This statement assumes two things: that there is a performance management system that is unbiased towards anything other than merit, and that there is a cultural understanding that bloodlines come second to performance.

A very unusual combination in my experience that requires rare leadership qualities, and extended self -awareness.

I have trouble thinking of a more challenging situation than having to fire your child, for whom you have built and nurtured an enterprise, because they are not the right person for the role they covet. The downside is if you do not, the non family members who are the backbone of the place will leave very quickly, or at best, tread water while it suits them, adding little real value in the meantime.  

Often an antidote is to have an outside advisory board of some sort that acts as a sounding board, advisor, performance manager, and sometimes executioner.

 

Header photo credit: Amar Chauhan via Flikr.