Who sets the direction for your business? Without direction and a charted course, your business is akin to a rudderless boat, just floating along aimlessly. While “floating along aimlessly” sounds like a great vacation, it is most definitely not a strategy for your business.
Direction is set by the leadership team within the business. Big or small, any business without solid leadership, visionary decisive leadership, will find it very difficult to achieve its full potential.
This is why great leaders are well known, highly regarded, and abundantly compensated.
This reality crosses into all aspects of life, not just business. Sports, politics, religion, even in households, the same can be said. Every organization, even volunteer advocacy and/or charity groups have a designated leader…someone who sets the direction for the organization, or in the case where there is a board of directors (or something similar) the leader is accountable for the execution of the strategy and direction for the organization.
Nowhere is the accountability of the leader more public than in professional team sports. Anyone who is fan of any team sport can think of a time where their favorite team, or another team in the league, has went through the turmoil of having a talent laden roster of athletes that habitually fails to succeed. Often, all it takes is a change in leadership, the head coach or general manager for example, and the team begins to win. The leadership can also be identified in the locker room among the players; adding a player with tremendous leadership attributes can be as beneficial as cutting a player who brings a toxicity to the locker room. As fans, we all witness these personnel transactions and then complain or celebrate accordingly (depending on our own view of the matter) but it is a test of the team’s leadership to make the decisions to essentially “fire” a coach or player who may be popular from the outside looking in, but is a detriment from the inside looking out.
This example applies to your business as well. While it may be hard to justify letting go of a star member of your team, if that individual is not conducive to team harmony and progress it falls on the leader to make, or not make, the hard decision. Either way, the leader has provided a clear message to the entire team through their (in)action.
What is even harder is when the person that needs to be let go it the leader himself! Are you holding your team back from achieving their full potential? How would you even know if you are? Could you handle hearing that the problem is you, or would pride get in the way? It is a wise and humble leader who recognizes that the best move for the organization might be to fire herself.
Whether you believe that leaders are born or leaders are made, an organization without a leader is an organization without direction. Without direction, a business lacks purpose. Without purpose, a business lacks the ability to make progress. Without progress, a business becomes redundant. Look no further than Kodak or Blockbuster Video for real life examples.
As the leader of my own business, I hold the accountability for decisions (good or bad,) results (good or bad,) and overall direction & strategy. As the leader, it is up to me to adapt when things change because, as they say, “The only constant is business is ‘change’.”
]]>If your business isn’t recession proof, here are a few tips to help you mitigate the effects of a recession and survive the downturn…maybe even thrive during it.
Bullet Proof Your Balance Sheet
A strong balance sheet is your best weapon in fighting the effects of a recession. This also means keeping balance in the balance sheet, specifically top vs bottom, not just (left side and right side) assets vs liabilities. Top vs bottom means focusing on current assets and current liabilities (I.E. your working capital -the top half of the balance sheet), and not just accumulating assets and equity (the bottom half of the balance sheet.) Too often, I’ve seen businesses punish their working capital in a race to retire long term debt. While creating that equity by reducing debt is great, if it costs you your strength in working capital, it isn’t making your balance sheet bullet proof. Bullet proof is strong equity AND abundant working capital.
“Bullet proof your balance sheet during the good times, so you can catapult ahead of your competitors during the bad times.
If you get greedy during the good times, you’ll likely be on your knees in the bad times.”
– Moe Russell
Trim the Fat
Where in your business have things gotten a little complacent? Where is your business over-equipped? What can be identified in your business as “nice to have” instead of “need to have”?
When business is good it becomes easy to let things slide, to acquire equipment that helps things along but isn’t necessary overall, to treat oneself in ways that weren’t affordable before. It’s human nature, it happens, but it’s not sustainable in business that faces recession.
It is the business owner’s/manager’s obligation to scrutinize assets and processes for opportunities to get lean. And getting lean BEFORE the recession, before the business is forced to make reductions, is far easier than when the situation has become dire.
Is making a change to diet and exercise easier and more beneficial before a heart attack (I.E. prevention) or after (I.E. recovery)?
Be Responsive
We’ve all heard it before, and have probably said it a time or two ourselves: things will get better, they’ll turn around, just give it time.
Famous last words?
No one can accurately and consistently predict how long the market cycles will last. Many think they can, but they can’t. So if your business generates results that do not meet expectations, doing nothing about it is sure to repeat the same results. How long can your business not meet expectations during a recession? If we knew how long the recession would last, we could answer that question confidently, but we already acknowledged our inability to prognosticate market cycle duration. The solution then becomes, “do something about it.”
If revenue was below target, find out why.
If profit missed expectations, find out why.
If your best employees have resigned unexpectedly, find out why.
Waiting for divine intervention to “turn things around” is rarely a successful plan.
The advice above does not only apply to preparing for an economic or market recession; it applies to big picture planning in your business as well. Because it doesn’t take macroeconomic factors to have an impact on your business, putting these actions in play anytime will prepare you and your business for the unforeseen hazards that can throw your best laid plans into the ditch.
If you want to “Be Better™” is starts with “being ready.”
]]>But who has ever heard of “Growth Kills”?
I have written about it in this commentary and spoken about it at industry events: business can grow itself to death.
When a business pursues expansion at a pace that exceeds:
…we have an entity that has likely grown itself to bankruptcy, or the very brink of bankruptcy.
We’ve all seen it. A couple years of back to back successes, and owners feel invincible! The next thing you know, there is new equipment and buildings being added to the operation, fancy vacations being planned, and new personal expenditures (like houses, RV’s, and vehicles) being made like the lotto has just been won. Everyone who sees this opulence must surely believe that this business is very successful.
If owners (managers) are ill-equipped for the rapid success they’ve enjoyed, there is a likelihood that less-than-ideal decisions will be made in the future. As Marshall Goldsmith titled his bestselling book, What Got Your Here Won’t Get You There. Management has to keep up with the change that sustainable growth requires. This could include new knowledge/strategy/execution in areas like cash management, human resources, marketing, etc. Growth kills when management’s ability is stagnant in the face of growing complexity in business.
As sales grow, there is a need for more investment in the business (Eg. property/plant/equipment; labor; technology, etc.) to support the demand. That investment requires capital. Whether the capital is borrowed or sourced from within the business (usually taken out of working capital) has a major effect on the sustainability of the investment. Growth kills when, without a “home-run” or two, investment is pursued to the point that financing is maxed out and working capital is depleted.
What happens when more product is produced than the market can consume? A shift is made, and what once may have been a specialty item is now offered at a lower and lower price until supply has been consumed (see the “model year blowout” and virtually every car dealership every year.) A business that has enjoyed significant growth may decide to increase production based on past sales growth. Such a decision usually requires investment in the business (see the previous paragraph) and investment in inventory. Whether that inventory is raw material, or finished product remaining unsold, it is tying up working capital. How long can a business hold inventory before it converts that inventory to cash? If working capital is been reduced (see paragraph above) the answer is: not long.
Maybe the business is in a service industry. While there likely isn’t any inventory to have to manage, ramping up capacity (hiring & training staff, acquiring tools & equipment for staff, etc.) requires investment. These investments also carry an overhead expense (salaries & wages, utilities, depreciation, etc.) which becomes harder to pay for when market uptake is satiated. Growth kills when we assume the market will sustain our rapid growth for us.
What led to the recent success in business? Was it deliberate, planned, and executed…was it intentional growth? We recently discussed the ramifications of unintentional growth. Maybe this article should be titled (Unintentional) Growth Kills, but that probably would not have captured enough attention for you to even read it.
Growth Kills when the growth was unintentional and leads the ownership/management group to ignore the reality that (almost) all industries are cyclical. To say timing is everything does not give credit to important factors like strategy and execution, however an adequate strategy will give consideration to timing (to implement the growth strategy.)
It’s all connected. There is no magic bullet; one thing alone does not make success, and if it does, it’s “luck” and it’s short term because luck isn’t sustainable.
]]>This statement applies to so much in our world. From interest rates to fashion trends, from climate to markets, so much of what we see, hear, do, say, and feel is cyclical.
In meeting with commercial bankers recently, here are some of the points I took special note of in the conversation:
The first bullet above led to a longer portion of the total conversation. The banker who made this statement went on to describe how the boom years we have recently enjoyed led many people (entrepreneurs and employed folks alike) to create some bad habits, such as not preserving cash (working capital) and increasing their debt. When things slowed down and business got tight, the debt payments still need to be made, as does payroll, and utility bills. Somehow, the elevated lifestyle expenditures that cycled up during times of easy prosperity did not cycle back down when profitability and cash flow did.
A similar sentiment was gleaned from an ag banker (who asked to remain nameless while granting me permission to include the response below) serving North West Saskatchewan and North East Alberta. When I asked about what the trend has been in that part of the province for farm land prices and rent rates, the response included the following:
“Profitability and cashflow has been squeezed the past 3 years, due to a combination of the weather anomalies (in most cases, more moisture than needed), increase in production costs, and financing needs (and in some cases may be “wants” vs actual “needs”). Those producers/files with the stronger balance sheets and working capital positions, have fared better through this, compared to some others.”
For any of you who think that your business (or industry) is the only one to have to manage cycles, please understand that cycles are industry agnostic. The market does not care what you’ve been through, what your plans are, or what your name is. Your business plan needs to include M.O.C. – Management of Cycles.
Long time readers of my commentaries know that I have referenced Moe Russell of Panora, IA on more than one occasion. It was from Moe that I first heard the term M.O.C. – Management of Cycles. Moe tells the story of how he picked it up during a chance conversation in an airport with Matthias Grundler, the then Head of Procurement for Daimler. When asked, Grundler admitted that M.O.C. (management of cycles) was his greatest concern.
What cycle are we headed into right now? If we knew, if anyone truly knew, business would be so much easier! The risk, of course, is that we tend to get caught up in recency bias:
Recency bias occurs when people more prominently recall and emphasize recent events and observations than those in the near or distant past.
Trying to fight against the market cycles (or industry cycles as it may be) is like trying to fight gravity. Like it or not, it will affect you. Cycles have been happening for a lot longer than you’ve been in business, and will continue to occur long after you are gone!
“Bullet proof your balance sheet during the good times, so you can catapult ahead of your competitors during the bad times.
If you get greedy during the good times, you’ll likely be on your knees in the bad times.”Moe Russell
President, Russell Consulting Group
Look back to the response above from my ag banker colleague; those (businesses) with the stronger balance sheets and working capital…have fared better through this…” The businesses that built a balance sheet to protect them during a down cycle are the businesses that are ready, and as such will take advantage of the opportunities presented by a down cycle. Those opportunities range from additional labor (that may have been laid off from a financially weaker competitor), picking up assets (land, equipment, or buildings) that may have been relinquished during the down cycle (and are likely far cheaper now,) or possibly even buying out a competitor who has been left in a weakened state by the market cycle.
“Market cycles will hurt some, but offer opportunity to others.
The difference between who suffers and who prospers is…Who’s Ready.”– Kim Gerencser (March 2013)
Which side of that line do you want to be?
While I disagree emphatically with any win-lose proposition in business, the heart of the message shines through: intention wins the day!
What type of growth has your business experienced over the last 5 years? Was it intentional, or did it just happen? We have stated in recent commentaries that accidental growth is not sustainable, and the reason it is not sustainable is because more often than not the credit for the success is misplaced.
My friend, Tom Stimson from Dallas, TX, works exclusively with audio-visual companies and writes a newsletter he has titled Intentional Success®.
“Does your business grow or decline seemingly outside of your control?
Do you wonder whether there will be any profit left at the end of the year?
Is success something you hope for, or are you actually doing the things that cause success to happen?”
-Tom Stimson, owner of The Stimson Group
Prophetic words.
So, to decipher whether the growth your business has recently enjoyed has stemmed from intentionality or luck, one must do a post-mortem.
A project post-mortem is a process, usually performed at the conclusion of a project, to determine and analyze elements of the project that were successful or unsuccessful.
This definition assumes that there was a specific project involved, which would have had goals, objectives, parameters, and timelines all clearly defined. Such a project would illustrate clear intentionality. In the absence of such a project with its defined benchmarks, how do you conduct a post-mortem?
(HINT: It is pretty tough to find what you don’t know you’re looking for.)
Suffice it to say that if we don’t know what to look for to conduct an accurate post-mortem, then our growth was most likely unintentional.
My big questions regarding unintentional growth are:
This circles back around to the most simplistic of questions that many entrepreneurs have difficulty answering: Why are you in business? What do you want your business to accomplish?
These two questions are foundational in my work with privately held businesses. Without the clarity these questions provide, setting direction and establishing growth goals, is quite difficult.
Intentional growth requires a number factors to be present:
To satisfy these factors, simply have a vision to establish goals, build a business plan describing what you’ll do to achieve those goals, and maintain a system to compile information along the way so that you can measure your progress.
In the absence of those factors, growth is, at best, accidental.
]]>As an entrepreneur, there are numerous issues clamoring for your attention. Which ones get your time and focus?
If your business is a vehicle hurtling down the highway, where are you sitting in the vehicle and where are you looking?
Whether you sit in the driver’s seat or the passenger’s seat, you have the best perspective to see what is ahead. Discuss the observation and decide how to respond. (Vision/Strategy)
There is a reason the rear view mirror is a fraction of the size of the windshield. Use each of them accordingly. (Progress)
Build yourself a dashboard that allows you to quickly and easily monitor the most critical functions at a glance. This dashboard information is only useful if current and accurate. (Monitor & Control)
Where are you looking?
]]>The analogy ends there. A tree can only grow one way: bigger. Our business must grow many ways.
“Better is better before bigger is better.”
-Danny Klinefelter, Professor and Extension Economist, Texas A&M University
Over my nearly 15 years as a lender and business adviser, I have seen dozens of examples of businesses that grew in only one way. These businesses are not industry specific, they are quite agnostic actually. From construction to farming, from trucking to consulting, many businesses drive themselves straight into the arms of failure simply because they overlooked getting better before they rushed out to get bigger.
The graphic represents a snippet of the numerous facets that drive growth. All have a significant effect on the success of growth aspirations. This graphic is certainly not exhaustive; we are merely dipping our toes in the water. However, each spoke in that wheel has numerous sub-topics, and like a diamond, the many facets have varying purposes, importance, and brilliance.
RE: Customers – How can you grow your customer base? What do your customer like about you? What do they dislike? How do customers find you? How do you find them?
RE: Product/Service – What is your product or service? Is demand growing or shrinking? Which is your link in the value chain (IE. do you manufacture the raw product or do you retail to the final user, or somewhere in between?)
RE: Finance/Cash Flow – Are you financially strong enough to support and sustain the growth you desire? Will the growth you desire help or hinder your cash flow? Can you access the financing you need?
RE: Human Capital – Have you built a team of highly valuable people who drive results in your business? Will your business operate just fine in your absence? Do you people have the ability and desire for more responsibility?
RE: Information Management – Do you have systems in place to provide you with current and accurate information readily available anytime, specific to working capital, accounts receivable & payable, inventory, days to cash, etc?
RE: Management Capacity – Do you, as the manager, have the capacity to literally handle the growth you desire? What skills do you have that are better used in another part of the business? What skills are you lacking in your current role?
Seventeen questions related to six facets of growth; if you were to answer them with brutal honesty, is there room to improve on any of them? Is there opportunity “to grow”? If it is true that better is better before bigger is better (HINT: it IS true) then we’ve just provided you with six major factors in your business where growth can occur. There are more, but if you’ve looked after these first 6, the results will amaze you.
Growth is not a result or a destination.
It is a process.
It is a mindset.
It is a culture.
It is complex.
It is difficult.
It is worth it.
It shouldn’t have gotten done.
But the thought of missing a Tuesday for the first time in 172 consecutive Tuesdays has me doing something I probably shouldn’t be doing. I should still be in bed. I’m very weak.
Actually, I should be in Boston to attend a conference I’ve been looking forward to for a year. But, illness can have a way a derailing all of our best laid plans.
Over the last week-and-a-half, both of my children have been affected by a different iteration of the virus that is currently going around. My oldest took the least of it; my youngest was nearly hospitalized. I managed to dodge it, until I didn’t. It caught up to me on Sunday, the day that was all planned out: tidy up work before my trip and, of course, pack for the 5 day venture. As my condition worsened, I made the call at 5pm to cancel my travel plans. By 8pm, I was headed for emergency.
This has been the first time I haven’t gotten out of bed in 2 whole days since, well, that story is a little personal.
I have heard a disappointing number of business owners over the years express how they need to hold on to the reigns and keep control; their justification is that they need to be needed. They feel that their purpose is to control the business. How unfortunate.
What happens to the business of an owner with that mindset who suddenly took ill? Does the business stop? What should be told to customers, employees, suppliers?
If you are a business owner, ask yourself the following to gain some insight into your business continuity plan:
As a solo-preneur, I am my business. If I’m not working it, my business stops. So for the last few days, things have stopped. Can your business afford to stop?
There are few guarantees in life, and yet it happens too often that we don’t plan for that which is guaranteed. Maybe us weak humans have difficulty facing our own mortality? Maybe it’s something more narcissistic? No matter what it is, we’re all going to get sick now and again (whether it’s a minor illness from which we recover or something more serious) and we are all going to die…someday. If we aren’t prepared for the inevitable, the people left behind are the ones who will be hurt the most.
Take some of that (perceived) unpleasantness onto yourself and do this hard work so that you can save your loved ones, your employees, and your legacy the pain of trying to keep things afloat while you’re out of the picture.
]]>What is it you are trying to achieve in business? Why are you in business? As Michael Gerber wrote in The E-Myth Revisited, “the problem is not that the owners of small businesses don’t work; the problem is that they’re doing the wrong work.” Gerber has built a career and a successful enterprise on breaking down why most small businesses fail. In my opinion, it is summed up nicely in what Gerber calls the Fatal Assumption.
The Fatal Assumption is: if you understand the technical work of a business, you understand the business that does the technical work. And the reason it’s fatal is it just isn’t true. The technical work of a business and a business that does that technical work are two totally different things!
Michael Gerber – The E-Myth Revisited, page 13
So, if the reason you’re in business is because you are an expert at the technical work being done in your business, you may be wondering why your dreams and aspirations of growth, wealth, and freedom haven’t transpired as imagined when you took the leap.
Business is complex. There are many facets to successful business, far more than simply “doing the work.”
Understanding that is the first step.
Asking for help is the second step.
Because if you are an expert at the technical work of your business, then is it likely you’ve struggled managing the business which does that technical work.
And growth has possibly eluded you…
Or, at least the potential for growth that your industry may present?
As a former bank lender, and having had several conversations with current bankers over the last half-dozen years since I left banking, the sentiments are the same. One banker was recently describing a client, who was a good client but could be so much better, by saying, “He builds a helluva road, but can’t manage his cash to save his life.”
Change the character to either he or she, and change the activity to almost any technical work. She/He:
…the list can go on and on.
Just doing the work will grow your business to a point, but that point is reached when you, as the owner/manager, run out of capacity.
Dr. David Kohl spoke recently in southern Saskatchewan. He described how success requires alignment of your expertise, your capacity, and your market.
Clearly, you have expertise or you would likely not be in business.
If you operate in a market that is hungry for your product or service, then growth is ready for the taking.
Is your capacity is sufficient in ALL areas that need to be covered in order to sustain growth: management, finance, reporting, staffing, logistics, facilities & equipment, etc?
(**Did you notice that facilities & equipment was found at the END of that list? That is symbolic.)
All too often, the “technician” owners put emphasis on the facilities & equipment because that’s where their expertise is found. It’s why the “technician” owners are more apt to fail. Getting additional equipment is the easy part; managing the cash flow, bankers, and staff is the hard part.
So in this Introduction to the “Avenues to Growth”, we have described that:
Over the coming weeks, we will be exploring the Avenues to Growth in greater detail. The explicit certainty in any growth plan is that growth must be intentional. Accidental growth or fortuitous growth is not sustainable unless the owners & management team conduct a postmortem on how and why the growth occured so that lessons can be learned, mistakes not repeated, and good decisions leveraged further in the future.
The other explicit certainty to growth: there are many avenues to get there, none are a straight line, and there is no “Easy Street.”
**The featured image is a screen shot from a Google street-view of Fort Wayne, Indiana. In a weird twist of irony, Growth Avenue in Fort Wayne is a dead end street.
]]>But, emotion can also cloud our judgement. It can lead us to act irrationally, and even in ways we would not normally behave.
Light, however, provides perspective. By illuminating more than what is right in front of our nose, we are able to recognize more options than emotion alone would have permitted us to see.
Light is awareness. Awareness allows us to think.
Heat with no light is raw, unbridled, emotionally charged nonsense.
Light with no heat is cold, calculating, and rigid to the point of inaction.
“Logic makes us think, emotion makes us act.”
– Alan Weiss
Like everything in life, too much of anything is not a good thing. Your business needs a balance of heat and light.
You, as the business owner, no doubt, have an abundance of heat. Where do you source your light?
I, as a management adviser, am hired to provide light. That light is awareness to options and strategies that can benefit your business.
But without your heat, no amount of light will make a difference.
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