Wayne Wilson on Companies in Transition

The Success Process – exactly what are you planning to do?

There are plans and there are plans. [1] There are great plans, which took months to develop and now sit on a shelf gathering dust. And there are once great plans now rendered irrelevant by changing circumstances. Ineffective plans come in all flavors, shapes, and sizes; the common denominator is that they will not help you reach your goals.

Effective plans should be:

• Targeted – directed toward accomplishing specific objectives
• Practical – the required actions can be accomplished with available resources
• Flexible – easily modified when circumstances change
• Short – capture only the essential actions, participants, resources and time frames

Rather than craft a rigid operating plan, develop a plan template, which can be continuously updated and modified on a periodic basis.

• An entrepreneur, launching a new service business, sketched out his business development plan in a notebook including 1) target customers and lead sources, 2) proposed services, methods and pricing, and 3) marketing messages, activities, and required materials. Each week, the entrepreneur logged his activities, tallied leads and results, and modified the plan as necessary.

• A telemarketing company facing rapidly expanding market demand for its products scrambled to expand its sales force. To capture the sales opportunity, the management team quickly 1) ramped up sales recruiting activities, 2) streamlined the basic sales training program, and 3) rented cheap additional call center space. Plans were reviewed and adjusted weekly as the market evolved.

A plan is only as good as the results it produces.

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[1] This is the second article in a series illustrating the principles of The Success Process.

The Success Process – Are you thinking accurately?

You’ve probably heard the old maxim that success breeds success. [1] And yet the world is full of what the music business calls one-hit wonders – artists who had one hit record and nary a second. Why is that? Some possibilities:

• Good timing – they were just lucky.
• They changed the formula and the new one didn’t work.
• They were not as good as they thought they were.
• The world changed and they did not.

Each possibility involves a failure to understand why they had been successful the first time. Desire, belief and optimism while essential to success must be tempered with accurate thinking.

• A wildly successful technology reseller failed to invest in the next round of growth (middle management and information systems) and rapidly fell behind new competitors.

• An investment banking company followed competitors into a new field without understanding the risks and almost collapsed.

• A custom software consultancy shifted into the software product business without understanding the investments required to support customer installations.

Accurate thinking requires that you know the truth – the good, the bad and the ugly – and act on the basis of that knowledge. Anything less is merely playing roulette.

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[1] This is the first article in a series illustrating the principles of The Success Process.

Strategy is about saying No

Strategy is about saying no according to noted consultant and former Harvard Business School professor, David Maister. [1] What does Maister mean?

You probably think of strategy as the list of means by which you intend to accomplish your business goals. But for every strategy you choose, numerous other options and opportunities are essentially foreclosed because:

• No one can focus on more than a few priorities at once.

• Resources are scarce and must be carefully allocated to key priorities

• Diversion and digression are the enemies of success

According to Maister, the real problem occurs when you don’t follow those rules:

• Choose strategies without giving adequate thought to the foregone options and your decisions may not be optimal.

• Changing strategies repeatedly will likely waste resources.

• Distraction is costly and your success depends on a laser focus on clear goals and well thought out strategies.

Just say no to everything else.

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[1] Maister’s most recent book is Strategy and the Fat Smoker: Doing What’s Obvious but Not Easy

Pay me now or pay me later

In a recent article, [1] John Zayac,[2] offered some pithy advice for owner/CEOs contemplating the eventual sale of their business.

• Build middle management. Buyers don’t want to purchase a business dependent on one or a few people.

• Commission an environmental assessment. If real estate will be involved in the deal, buyers will demand one whether you utilize toxic chemicals or not.

• Identify and document valuable intangible assets such as computer databases, contracts, copyrights, other intellectual property or proprietary technology.

• Convert financial statements to full accrual accounting, commission an audit and eliminate two more obstacles to a deal.

• Document in writing all policies, procedures, and processes so that the business could be run without you.

• Consider implementing employment agreements with non-disclosure and non-compete clauses for all key employees.

Zayac’s advice all falls in the category of pay me now or pay me later.

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[1] Advance Preparation, Mergers & Acquisitions: The Dealmaker’s Journal, November 2008, p. 79

[2] John Zayac is president of IBG Business Services

Managing Business Risks

Unfortunately, many owner/CEOs and other business executives manage risk as if they were Siegfried & Roy in the lions’ cage. The situation looks controlled, safe and predictable. But every once in a while, one of the lions may try to bite your head off!

Prudent risk-taking based on a creative business strategy is central to success in our capitalistic free enterprise system, but the emphasis must be on prudent. Risk-taking, which explicitly or implicitly involves betting the ranch, should only be undertaken in the direst of circumstances or with the full knowledge and consent of the owners of the business.

The current credit markets meltdown is a prime example of what a lion can do.

Taking control of your own destiny - Part 2

The October issue of our periodic email newsletter to clients and friends has been posted to our website at Companies in Transition – October 2008. This issue continues the theme taking control of your own destiny focusing on the success process and includes the following articles:

• The Success Process - Preparation for success alone will not bring you the success you desire; you must ACT on your dreams. And your actions must be part of an orderly and systematic process. What does this process consist of?

• Surviving the Credit Crisis – The current credit crisis is a reminder of the importance of having a sound financial plan to navigate through turbulent times. What can you do to respond to the current credit crisis?
  

• Doing What Matters – Many companies in transition suffer from several real maladies at once. What are some of these problems and what can you do about them?

In coming posts, we will illustrate some of the precepts of the success process for taking control of your own destiny.

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Crisis is inevitable – only the timing is in doubt

One of the great lessons of the current financial crisis is how many supposedly well-managed companies have been overwhelmed – forced into distress sales, bankruptcy, or highly dilutive capital raising – by their poor ability to foresee, plan for, and respond to events in financial markets.

As a result, risk management is a hot topic for publicly traded companies right now, but owner/CEOs of closely held companies are at risk as well in these volatile markets. What to do?

1. Make risk management a higher priority – think consciously and proactively, not just reactively
2. Conduct a vulnerability assessment – where are your risks? What could happen that would cripple your business?
3. Assume a problem will be bigger than it first appears – the iceberg theory at work (only the tip of the problem is visible)
4. Plan for multiple problems at once – when things start to go bad, they invariably come in sets of three or four, not one
5. Organize your response team now – key managers, as well as outside advisors

Surviving the Current Credit Crisis

The current credit crisis is a reminder of the importance of having a sound financial plan to navigate through turbulent times.

In a letter to clients and friends we offered some suggestions to help you assess your current financial condition and begin re-thinking your business plan in response to current economic challenges.

1. Don't panic. It's difficult to make sound decisions if you do.
2. Take a fresh look at your monthly income and expenses. Have you been meeting your budgeted projections? How much of a drop in revenues can your business withstand and for how long? Analyze your expenses and determine which ones can be reduced.
3. Reduce your reliance on credit by disciplining your spending. What are your cash-flow needs? Do you have sufficient cash reserves?

Continue reading our letter

Preparing for success – where are all the masterminds?

Andrew Carnegie’s mastermind alliance [1] is a universal principle – it applies to individuals as well as business owners. [2] Mastermind alliances are sometimes formal (boards of directors) and sometimes informal (President Andrew Jackson’s kitchen cabinet). Anyone who consults with others before making significant decisions is applying the mastermind principle.

How can you benefit from a mastermind alliance?

• Access to knowledge beyond your own
• Identification of unseen issues and alternative solutions
• Stress testing your plans through challenge and debate

Who makes a good mastermind alliance participant?

• Someone with broad knowledge and experience,
• With whom you have a relationship based on trust, and
• Who is willing to tell you what you need to hear, not what you want to hear.

Consciously and regularly applying the mastermind principle can significantly improve the quality of your decision-making.

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[1] Napoleon Hill, Think and Grow Rich
[2] This is the fifth article in a series illustrating the principles of Preparing for Success.

Capital trumps credit

The common element among struggling businesses, under-water homeowners, stressed-out banks and investors overcome by margin loans is too much credit and not enough capital. For some strange reason, everyone seems to have equated cheap, easy credit with capital. They are not the same.

Capital cannot be borrowed; it must be earned and saved. Credit comes and goes depending on the whims of lenders – it is neither stable nor permanent.

Capital is both plentiful and scarce at the same time. Owners of capital will only invest if they perceive an opportunity for above average returns. If your business focuses on unmet customer needs with a product or service offering above-average value and potential for profits, the necessary capital will be available.

Preparing for success – how big are your dreams?

"All successful people men and women are big dreamers. They imagine what their future could be, ideal in every respect, and then they work every day toward their distant vision, that goal or purpose." – Brian Tracy

Before there can be real success, there must be a dream. [1] Dreams are like rainbows in the sky after the rain – they are the promise of better times to come. Where would we be if:

• Henry Ford had not dreamed of automobiles for the masses?

• Steve Jobs had not dreamed of a commercially successful personal computer?

• Larry Page and Sergey Brin had not dreamed up the Google search engine to organize the web?

I am a firm believer in big hairy audacious goals. Big dreams and big goals: they are prerequisites for out sized success. How big are your dreams?

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[1] This is the fourth article in a series illustrating the principles of Preparing for Success.

Preparing for success – is your head on straight?

People often say they want to succeed and that they truly believe that they can and should succeed but they fail to properly train and deploy their greatest asset – their minds. [1]

The mental preparation and training required for success is similar to the physical (and mental) training undertaken by all serious athletes. Such training requires:

1. Structure – What actions / activities are most likely to lead to the desired results? Write them down; commit them to memory.
2. Regimen – A proper regimen of diet, physical conditioning, and rest ensure mental as well as physical peak performance. Physical and mental training re-enforce each other.
3. Diet – Limit you mental diet to the proper foods (positive, re-enforcing messages and stories about how others have achieved success) and avoid foods that do not support your training plan (negativism, stories of failure, the downward tug of friends and relatives).
4. Practice – With a strong conditioning plan in place, focus your energy on practicing the specific mental (and physical) skills necessary to achieve success in your chosen field.
5. Discipline – None of these plans and programs will be effective unless you adhere to them rigorously.

Your mind operates like an unruly child. Left to its on devices, it will wander all over the place. But train your mind properly and it will serve you well. [2]

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[1] This is the third article in a series illustrating the principles of Preparing for Success.
[2] Proverbs 22:6 – “Train up a child in the way he should go, and when he is old he will not depart from it.”

ARIAD Appoints Radaelli and Wilson to its Board of Directors

Ariad Pharmaceuticals Inc., an oncology-focused drug developer, has added two new members to its board of directors: Massimo Radaelli, president and CEO of pharmaceutical firm Dompé International SA, and Wayne Wilson, an independent business advisor and certified public accountant who will serve as chairman of the audit committee.

Read the Press Release.

Harnessing Innovation

Continuous innovation is the foundation of long-term business growth and profitability but few companies have mastered the innovation process. Scott Anthony, et al, [1] suggest a three-part path through the innovation maze.

1. Planning for innovation involves:

• Gaining control over your core business –  where are you now?
• Developing an innovation strategy – where do you want to be in 3 to 5 years?
• Allocating appropriate resources based on a gap analysis of your current business versus your business goals

2. Building growth businesses involves:

• Identifying opportunities – consider tight markets with high prices and / or under served customers
• Developing high-potential ideas – what product or service changes would radically re-align these markets?
• Pursuing the ideas iteratively – test, test, and test. Don’t commit large sums of money until you are sure you are on the right track.

3. Establishing repeatable innovation processes requires:

• Market insight processes, which regularly include customers
• Human resource practices that recognize failure as part of the innovation process
• Measurement and tracking systems that do not lump innovation programs in with existing operations

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[1] Scott D. Anthony, et al, “Driving Growth Through Innovation,” Financial Executive, October 2008.

Profit Improvement Opportunities Abound

Current economic reports indicate that we are heading into a recession, and that credit will continue to tighten, especially for less credit worthy borrowers. For owner/CEOs of companies with conservative financial postures and stable credit relationships, this environment represents a significant profit improvement opportunity.

So, where are these opportunities?

1. Products – rigorous product profitability analyses based on facts, not anecdotes, will likely contain some surprises about which products are profitable and which are not.
2. Customers – a customer profitability analysis should be conducted in conjunction with the product analysis. Consider pricing based on profitability.
3. Staffing – Rather than across the board reductions, think about associates in three categories: leaders – invest in them for the future; workers – they are the backbone of your organization; all others. While this approach requires more work, the payback should be much greater with lower risk to the organization’s effectiveness.
4. Sales strategies – shift sales incentives away from top-line growth to profitability at the gross margin line or customer profitability level.
5. Sacred cows – all organizations have sacred cows in spending, programs and people. A dispassionate review could yield some significant opportunities for cost savings. Choose your battles carefully.

Finally, begin the review process now. Don’t wait for business conditions to get worse before you act.

The Governance Committee: Driving Board Excellence

Wayne will be a panelist for the National Association of Corporate Directors - New England Chapter (NACD-NE)'s director education seminar on the Governance Committee's role in driving board performance. This half-day seminar will be held at The Conference Center at Waltham Woods, 860 Winter Street, Waltham, Massachusetts beginning at 7:30 am on October 30, 2008.

Click here for more information or to register for the seminar.

Nothing Lasts Forever

One of the things that never ceases to amaze me is how smart, well-educated people get caught up in waves of prosperity and consciously or unconsciously assume that the good times will roll on forever. Nothing lasts forever. Even the sun will eventually burn out and the earth will become a darkened ice ball.

The head of A.I.G.’s Financial Products Group [1] was once quoted as saying:

“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.” [2]

That was before the government’s $85 billion bailout.

I am a firm believer in Andy Grove’s famous maxim that “only the paranoid survive.” As soon as you think you are completely safe, some peril is about to overtake you. And while no one can anticipate every danger, thinking about what might happen should enable you to be better prepared than if you did nothing.

Ken Fisher’s [3] advice for minimizing the risks of bad investment decisions should be taken to heart by all owner/CEOs and senior managers:

Shun pride and accumulate regret. [4]

Pride goeth before the fall [5] – pride causes us to think that our success is due solely to our own efforts rather than the efforts of many others, that we are smarter than we really are. Avoid pride at all costs.

Our regrets should be many – while I am not one for looking back and crying about the past, I do greatly value the exercise of thinking about what went wrong – why various things did not work out as I had expected.

Our lives and businesses are littered with mistakes – that’s how we learn. If we fail to learn from our mistakes and those of others, we do so at our own peril.

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[1] The unit which originated the credit default swaps on mortgage securities that have now crippled the insurance giant.
[2] Behind Insurer’s Crisis, Blind Eye to a Web of Risk, NY Times, 9/27/08
[3] CEO of Fisher Investments, a $30 billion money management firm
[4] The Only Three Questions That Count: Investing by Knowing What Others Don’t
[5] Proverbs 16:18 - Pride goes before destruction, and a haughty spirit before a fall.

Jack Welch – Advice for companies in difficult times

Owner/CEOs and senior managers of companies large and small are now starting to worry about the likely spill over to Main Street businesses of the financial gridlock currently afflicting Wall Street banks and other financial institutions.

And while the collective effect of individual businesses tightening their belts may result in a self-fulfilling prophecy (a recession), no owner/CEO wants his company to be a victim of the stampede.

In a recent speech, [1] Jack Welch [2] offered some timeless advice for business leaders during difficult economic times. Here are my thoughts on Jack’s key points:

• Focus on your cost structure – every organization spends money on activities that are neither essential today nor contributing to tomorrow’s success. It’s time to trim the sails.
• Reduce debt – businesses, consumers and the economy in general are all over-leveraged. As that leverage inevitably unwinds, you want to be in front of the curve, not behind it.
• Take care of your best people – even in product-based businesses, the knowledge, skills and experience of key employees are usually a company’s biggest assets. Make sure they are properly tucked in.
• Continually communicate your vision – if you are not continually reminding everyone of where your organization is headed and why, they will fill the void with rumors and other false information.
• Take advantage of investment opportunities as they arise – volatility creates opportunity. But such opportunities come in unpredictable shapes and sizes, and you must be ready to seize them quickly from the platform of a tightly run company.

The strong will get stronger and the weak will disappear.

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[1] Jack Welch says U.S. faces “deep downturn”
[2] Former Chairman and CEO of General Electric

Deep in the Rabbit Hole

“We’re deep into Alice in Wonderland’s [1] rabbit hole.” – Alan Blinder [2]

Financial crises come in all shapes and sizes – some foreseeable and some not. Some crises are amenable to resolution by taking specific actions and others are like hurricanes – there is nothing you can do but ride out the storm and then clean up the resulting mess.

The current mortgage-related financial crisis is a hurricane composed of two interrelated but separate phenomenon:

1. A relatively short-term financial panic caused by fear and a loss of confidence in the safe and smooth functioning of financial markets, and
2. The painful longer-term unwinding of excessive leverage in housing and financial markets

Some response similar to the plan proposed by the Treasury to buy up banks’ bad debts is essential to quell the current financial panic and get the markets moving again.

But the larger challenge of de-leveraging housing, Wall Street and the economy will take much longer and will be much more painful than most people are prepared to acknowledge.

Owner/CEOs need to think about:

• The growing probability of a recession in the real economy
• Tightening credit restrictions for some time to come
• Greater angst and less appetite for risk-taking among investors and business partners

If you have not already done so, it’s time to batten down the hatches while focusing on core long-term business objectives. Peripheral activities and spending need to be pitched overboard.

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[1] Alice’s Adventures in Wonderland
[2] Princeton economist and a former vice chairman of the board of governors at the Federal Reserve quoted in the New York Times, “A $700 Billion Rescue Plan for Wall St., but Will It Work?” 9/20/08

Black Boxes Sometimes Cast Long Shadows

In an earlier post, we discussed the profit potential of black box pricing. The opportunity for profit to the seller derives from two mutually reinforcing factors:

1. The product or service offered appears to provide large value to the buyer at reasonable cost but
2. The lack of transparency prevents buyers from analyzing and understanding how the seller makes money and therefore whether the deal is fair or makes sense.

For any business relationship or investment, it’s critical to understand how the other side makes money – what do they do, how do they get paid, what generates their profit.

AIG’s credit-default swaps (cds) are a good example. Investors sought insurance against loss for purchases of complex financial instruments, and AIG was happy to oblige. As long as the financial instruments performed well, AIG made large profits because there were few losses. When the debt markets seized up, AIG faced a problem akin to Galveston in the face of Hurricane Ike - a massive storm surge and no where to go.

And because the cds marketplace is also a black box without regulation or even a central clearinghouse, nobody knows where the risk is concentrated or how to lay it off. Investors bought products they did not understand and then covered their first bet by buying insurance they did not fully understand either.

The old maxim still holds – if it sounds too good to be true, it probably isn’t.

Capitalism, Science and the African Savannah

A conversation this week with the chief scientific officer of a young pharmaceutical company and an editorial in the Wall Street Journal [1] brought home to me the common dual essence of capitalism, science and nature:

1. the competition for resources and
2. the survival of the fittest ideas and organisms.

On the African savannah, the hyenas feed on the weakest wildebeest allowing the strong animals to flee and survive. For scientists the competition to secure research funding and achieve novel discoveries animate their days and ultimately drive overall scientific progress. For businesses, capital is both scarce and essential.

What can owner/CEOs of companies in transition learn here?

• Neither success or survival are guaranteed despite Herculean effort

• Progress will be messy and erratic even for the successful survivors

• The survival and success of the few will be built on the failures of the many

In business, science and nature, only the strong survive.

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[1] Lehman’s Fate, WSJ, 9/12/08, p. A16

Preparing for success – do you really believe in it?

Belief is a complicated, even messy, concept about which there are many theories yet little agreement. [1] Belief has been described as everything from:

 

• a state of mind to
• a wrong-headed but useful strategy to
• a psychological disturbance (a delusion). [2]

And yet belief is central to everything we do including our ability to accomplish anything of value. Belief motivates and empowers action. People do not exert great effort to accomplish some goal unless they first believe that:

1. the goal is worthwhile and that
2. the goal can be achieved if only they keep trying.

Beliefs drive behavior. To be effective as a motivator and platform for action, your beliefs must be intensely examined, analyzed, and tested in the crucible of your mind and your experience. Assumed or inherited beliefs do not motivate until you take personal and complete ownership of them.

Eli Manning and the New York Giants could not have defeated the Patriots in last year’s Super Bowl unless they had first believed that it was possible to defeat the New England juggernaut. That belief powered their preparation, their risk-taking, their ACTION.

“Fake it ‘til you make it!” is a time-honored maxim of professional sales. Before you can be successful in sales, you must look like and act like a successful sales person. Customers only want to do business with successful people and adopting the persona of success helps instills that belief in you and your customer and creates the expectations essential to closing the sale.

The mind can achieve only what it first believes. [3]

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[1] This is the second article in a series illustrating the 5 principles of Preparing for Success.
[2] See Belief at http://en.wikipedia.org/wiki/Belief
[3] Napoleon Hill, Think and Grow Rich.

Keeping Innovation Alive

Most business executives would agree that innovation is very important to the health and success of their organizations. But how do you keep innovation alive, well and producing tangible benefits?

Here are some tips from Philip Newbold, a hospital CEO in his 21^st year at the helm: [1]

• Visit inventive companies on a regular basis – learn from others; success comes from the cumulative effects of aggregated knowledge.

• Conduct stand-up brainstorming sessions – standing creates a sense of urgency as well as helping associates learn to think on their feet.

• Make innovation fun – games and contests create excitement and alleviate pressure.

• Give prizes for “good tries” – generating ideas is one of the areas where effort should be rewarded in addition to results because you never know where the next great idea will come from.

• Put an innovation line item in the budget – a budget line item says this innovation stuff is for real. It also causes you to think about and decide on a specific level of investment that seems appropriate for your organization.

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[1] Joann Lublin, A CEO’s Recipe for Fresh Ideas, WSJ, 9/2/08, p. D4.

Preparing for Success – How much do you really want it?

The 2008 Summer Olympics should be required viewing for all aspiring business owners and entrepreneurs. [1] The shear willpower exhibited by the athletes as they stretched themselves beyond belief was awe-inspiring.

Michael Phelps, with a new record 8 Gold Medals in a single Olympics, was the epitome of an athlete driven to win as he broke Mark Spitz 1972 record of 7. Competing in his third Summer Olympics, Phelps broke three individual world records and participated in breaking three team world records. At age 23, Phelps has been swimming competitively for 16 years.

In business, Thomas Edison remains one of the great examples of the desire to succeed. By his own account, he tested over 10,000 different materials and combinations before finally hitting upon the formula for the incandescent light bulb.

Phelps and Edison are both great examples of the burning desire necessary to achieve great success.

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[1] This is the first in a series of articles illustrating the 5 principles of Preparing for Success.

6 Common Financial Mistakes

A recent article [1] in Channel Insider highlighted several common financial mistakes frequently made by owner/CEOs in the early stages of building their businesses:

1. Not saving money outside the business
2. Using personal credit instead of business loans
3. Having no exit strategy
4. Failure to plan for tomorrow
5. Not providing for their families should the unexpected occur
6. Not carrying personal health or life insurance

Starting a business is demanding and often requires every ounce of available resources, but failing to address these mistakes may well cost you the success you had set out to achieve.

Read the complete article.

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[1] Howard Milove, quoted in 6 Money Mistakes Most Solution Providers Make, eweek channel insider

The Power of Simple Ideas

If you look in your kitchen cabinets, you probably own some Tupperware, or Tupperware-inspired food containers. You know – the kind that seal themselves when you press down on the lid.

Tupperware containers were invented by Earl Tupper in the 1940’s. Sales did not take off, however, until Brownie Wise began selling them through Tupperware parties where the products could be demonstrated (no one had ever seen them before) to small groups of women in private homes. (I remember my mother hosting Tupperware parties!)

What can we learn here?

• Success is often collaborative

• Simple ideas or changes can bring great power and value

• Nothing happens until someone sells something

How much CASH is there and where is it?

Companies – small, medium, and large – get into trouble when they do not understand how their cash works and suddenly one day, there isn’t enough of it. Owner/CEOs of smaller companies tend to focus on their checkbooks while public companies too often believe their GAAP [1] financial statements.

Neither the checkbook nor the GAAP financials will tell you when you’re about to run out of cash.

Deborah Hicks Midanek, President of Salon Group, Inc. and an experienced turnaround specialist, offers a quick, common sense look at this problem for both owners and board members in Understand the Cash, recently published in Directors & Boards.

Read Deborah’s article.

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[1] Generally accepted accounting principles.

Satisfying Unhappy Customers

Obtaining new clients or customers is really hard work. Once you have them, don’t let them get away because of poor service or lack of attention. All relationships hit rough patches when things don’t go as you had planned.

The goodwill you have (hopefully) built up before hand can carry you through to better days IF you react positively and on a timely basis to correct mistakes and deal with problems.

Andrew Sobel, a leading authority on building and sustaining client / customer relationships, offers these principles for overcoming relationship difficulties:

1. Respond promptly
2. Listen without being defensive
3. Say you are sorry
4. Collaborate on the solution
5. Offer amends
6. Avoid excuses
7. Anticipate crises
8. Get things out in the open

Read Andrew’s complete article.

Abilene and other wrong way detours

Companies dealing with transitions eventually must get down to a core issue – it’s all about revenue: how to grow revenues, sustain revenues, or re-gain revenues becomes the central question. And this is often a difficult, time-consuming issue to resolve.

The quick solution tends to be “we need a new marketing plan.” But the only marketing plan worse than no marketing plan is an ill conceived and poorly executed plan which costs a lot of money and yet does not achieve appreciable results.

Mike Schultz of the Wellesley Hills Group recently published a to do list of some things that will insure that your new marketing plan is a failure: 6 Keys to a Terrible Professional Services Marketing Strategy.

The lessons, while drawn from professional services, are applicable to many other types of businesses as well.

Read Mike's article.

Zigging and Zagging

There are a lot of people in the marketplace (including us) offering advice to executives and owner/CEOs about how to run their businesses better. Usually we try to stick to the fundamentals of effective business management – the things that have worked successfully for other owners and managers in the past.

But in addition to those fundamentals, there is one overarching rule – everything changes, sooner or later. Every new management technique (be it process re-engineering or lean manufacturing) will ultimately lose its effectiveness, and something else will arise to take its place.

The challenge for owner/CEOs and other executives running businesses is two-fold:

• Distinguishing between winning fundamentals that have worked in the past and temporary tactics with a limited shelf life, and

• Looking for what will work next

The ultimate skill to which every leader and manager aspires is the ability to see around corners – to be able to anticipate what will happen, what technique will work next, to see the future.

While no one (to my knowledge) can see the future, we can train ourselves to think differently from the crowd – to zig when everyone else is zagging – to seek out the opportunities where no one else appears to be looking.

Taking control of your own destiny - Part 1

The July issue of our periodic email newsletter to clients and friends has been posted to our website at Companies in Transition – July 2008. The theme of this issue is taking control of your own destiny and includes the following articles:

• Preparing for Success - Many owner/CEOs start their own businesses because they want to control their own destiny. An instinctive grasp of some key principles drives their achievements. What are some of these universal success principles and how do they work?

• “Hope” is not a strategy – Hope becomes the mantra when you have failed to put in place the necessary plans, programs, and investments to ensure that your goals can be attained. How can you avoid failing back on hope?

• “Do you believe in magic?” – It truly is magical when a team comes together and executes flawlessly and seemingly without effort. How do they do that?

In coming posts, we will begin a series illustrating with case examples some of the techniques for taking control of your own destiny.

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It’s all in your head!

I first heard about the three schools of thought regarding the benefits of diet and exercise for longevity from a board certified internist.

• The vigilantes – they really do believe that diet and exercise are the keys to a long and healthy life.

• The fatalists – they think it’s all in your genes. Short of being hit by a bus, you’re going to live however long you have been programmed to live.

• The head people – they think it’s all in your head; your mental attitude and outlook on life will be the primary determinant of how long you live.

And where did my doctor come down in this argument? “Somewhere between the fatalists and the head people.”

For owner/CEOs of companies struggling with transitions and turnarounds, this story suggests three principles:

• Start with what you have – your company has a set of cultural and organizational DNA, which will constrain if not determine your company’s ability to succeed. Develop and communicate an explicit understanding of the positive parts of your DNA so that you are leading from a position of strength.

• Develop a winning attitude – a strong, positive mental commitment to success is a necessary (although not sufficient) element of any great success. On the other hand, a negative attitude can become the boat anchor dragging you down. Create a mental vision of what success will look like and then share it with your organization.

• DO something – a great attitude represents potential, but results come only from attitude coupled with ACTION. Your success depends on your taking affirmative actions to move your organization in the direction of your vision. Wishing without action will not make it so.

Your head game is the connecting glue in this process. Every company has opportunities, despite its DNA, and there are always actions you can take to realize those opportunities. The difference between success and failure is all in your head.

Delay is a chronic disease

For owner/CEOs of companies in need of transformation, delay can become a chronic disease. Delay comes in many forms including these:

• You believe the sales decline is temporary.
• You can make the losses up with volume
• You decide to wait until tomorrow / next month to make changes
• You’re afraid you will make the wrong changes
• Changes might upset customers / employees / vendors

The therapy is straightforward, though not easy. Start by:

1. Acknowledging reality
2. Doing something about it NOW
3. Seeking help from others – advisors, associates, trade groups, etc.
4. Recognizing and correcting mistakes as you go

Left untreated chronic delay leads to chronic under performance and, in the extreme, business failure.

Is your business a Growth Business?

• Everyone is looking for growth!

• “The stock market awards the highest multiples to accelerating growth stories.”

Revenue and profit growth or the lack thereof is the nemesis of every owner/CEO of a business in transition. While everyone wants a growth business, the law of averages says that most businesses are not growth businesses since by definition a growth business is growing faster than the average.

So the first question to ask becomes, “Is your business a growth business?” There are three possible answers, each leading in a different strategy direction.

1. If the answer is yes, the strategy revolves around how to make the business grow at a competitive rate. What are competitors doing that you are not? How can you gain competitive advantage?
2. If the answer is no, can you shift to a growth segment? Here, the strategy must address the transformation to a growth business, as well as all of the issues faced in the first scenario. How do you find the right segment? How do you orchestrate and finance the transition?
3. If the answer is no, and conversion to a growth segment is not realistic, the question becomes how can you maximize what you have? Should you narrow your focus? Is there an opportunity to dramatically reduce costs and raise profitability?

Regardless of your goal, the first step is to understand who and where you are.

Guess and guess again

One of the difficult tasks of management is identifying when a strategy needs to change. While managements use brainstorming and other techniques, which rely on the wisdom of crowds (the notion that two or more heads are better than one), in strategy development, they often fail to regularly re-assess the various underlying economic and market assumptions on which the strategy was based.

The assumptions underlying a strategy are guesses about what market and competitive conditions will be during the relevant period. Assumptions about current actual conditions can be improved through market and competitive research, but future conditions cannot be known in advance and therefore assumptions about them are in reality guesses.

Recent research, reported on by The Economist, suggests that the wisdom-of-crowds notion may also work at the individual level. The average of two guesses made by an individual at two different times was more accurate than either of their separate guesses, although not as accurate as the average of guesses made by multiple individuals. [i] Multiple people making multiple guesses over time might also improve the accuracy of their composite guesses.

How can owner/CEOs employ these concepts to improve their business performance?

• Conduct more frequent reviews of the key assumptions underlying strategies
• Expand the set of associates who participate in the development of key assumptions
• Document and average the arrays of estimates underlying key assumptions at each review and over time
• Adopt a rolling forecasting and strategy tweaking process versus the traditional fixed annual operating plan

The objective of this process is to detect likely market changes more quickly and accurately and therefore improve the organization’s ability to respond to those changes on a timely basis.

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[i] “[The research] suggests that the brain is constantly creating hypotheses about the world and checking them against reality.” The crowd within, The Economist, June 28, 2008, p. 89.

Innovate; don’t just renovate!

A recent news story about the renovation of Home Depot highlights the difference between renovation and innovation. While Home Depot’s stores probably could use some fixing up, no amount of renovation is likely to return Home Depot’s stock price to its former lofty heights.

The stock market loves accelerating growth stories, but when a retail concept reaches market saturation, it inevitably gives way to the next big thing and no amount of tweaking is likely to change that outcome.

Clearly distinguishing between renovation and true innovation may be critical to success for owner/CEOs of companies in transition.

Innovation involves:

• Radical change
• Creating something significantly new and different
• Dramatically reducing the cost of a product or service

Renovation is more about:

• Re-enforcing sagging structures,
• Face lifts, and
• Other cosmetic changes

A business can only capture value for its shareholders when it creates real value for its customers. Renovation may well improve market value marginally, but true value creation lies in innovation – meeting an unmet need or solving an old problem in a new and more elegant fashion.