What Should I Be Doing Now? Advice to Business Owners Who have Survived this Long

What should I being doing now? This is a question I have been fielding a lot lately by the “survivors” - the business owners who had sufficient cash and made the necessary adjustments to their business practices to survive the current recession thus far. Though folks in Washington, DC want you to believe the recession is officially over, it will be some time before a true recovery is felt by business owners and consumers alike. So, what you should be doing now is position your company for that recovery. Here is some of the advice I have been giving my clients:

1. Plan and prepare for the new economy. This recession has rocked both businesses and consumers in a significant way. It will be a long while before they return to old spending habits. The businesses that will thrive in the new economy will have recognized this and adjusted their product offering and business practices accordingly. Strategic planning here is crucial. Identifying your business’s strength and weaknesses, and the external opportunities and threats (SWOT analysis) is an essential element to crafting your plan. As one would never fathom making a movie without a script, transforming your business for this new economy without a plan is equally absurd. I would caution this is not something you do on your own as it requires someone to challenge your assumptions to make certain you are not drinking your own bathwater by building a strategy around a company strength that really isn’t. There are too many examples of companies who have made this mistake and expeditiously and efficiently strategic planned themselves right over a cliff.

2. Continue to be conservative with cash. I recommend labeling all cash expenditures in one of three categories, (a) Value-added, (b) Non-value-added but necessary, (c) Non-value-added - scrutinizing the latter two more closely. Value-added expenses are those that directly contribute to the value and/or quality of the product or service (skilled employee, machining tools, raw material). Your customer would not hesitate to pay this line item if he/she saw it on an invoice. Non-value-added but necessary are expenses required to do business and thus cannot be eliminated (business license, tax preparation fees, business planning). Your customer will acknowledge and recognize these very limited expenditures as the cost of doing business. Non-valued-added are all cash expenditures which do not contribute to the quality or value of the product in the eyes of the customer (office furniture, company cars, copy paper, Blackberry). I am not suggesting you do not spend the cash - regardless of the label, but that you make a conscious decision about each expenditure knowing it burdens the cost of the product and/or the profitability of the company.

3. Resist the temptation to return to old habits and practices. These fundamental changes in spending habits by businesses and consumers are here to stay - at least for the foreseeable future. Personal savings and retirement accounts have been hit hard by this recession. Any extra money that is made as we emerge from this economic downturn will be used to re-supply those accounts not only to the levels they were but with additional padding. Having an actionable plan and holding yourself and employees accountable to that plan is the single biggest deterrent to returning to the less disciplined approach of running your business. The plan - especially when shared with all the employees - will also help set the new tone for the company both in the way of personal expectations and instilling confidence in the future.

What Venture Capitalists Look for in a CEO - a Model for Any Business Owner

I attended The 2009 TAG/GRA Business Launch Competition Finals, hosted by IBM, where three high-tech start-up companies were competing for $100,000 in funding and another $200,000 in professional services. Prior to the finalists’ presentations, the audience had an opportunity to address questions to the judges’ panel made up of leaders of nationally recognized venture capital firms. One of the most interesting answers was in response to the question, “What characteristics do you look for in a start-up CEO?” It was no surprise the attributes they identified for the CEO of a start-up company are exactly the same as those for an owner of an established business. Take a look at these characteristics and see how you compare.

Ability to focus - In the day-to-day life of a business owner, it is easy to get distracted by the internal fire drills of the day, external market forces, and actions by your competitors, suppliers or customers. Before you know it, three, six, nine months go by, and you have failed to do any of the strategic actions you cited were necessary to keep your company on a growth path. The business owner’s ability to stay focused on those critical actions is paramount to any growing company.

Be disciplined with capital - Cash flow is the life-blood of any business. The tone for how cash is spent in a company starts with the business owner. Do you know where your cash is going? One test for fiscal discipline is to evaluate spending as a defendable direct charge to your customer. You may be amazed by the amount of money spent on non-value added activities and items.

Connect “outside” with “inside” - The ideal CEO is one who is able to connect internal developments and activities with the outside marketplace. They accomplish this by responsibly delegating internal roles so they have sufficient time to stay connected with their market and customers. It is all about balance.

Ability to recognize when additional management talent is needed - In the words of one veteran venture capitalist, “CEO’s are the biggest impediment to growth by failing to build out the right management team.” In these cases, the CEO either fails to acknowledge he needs help, or he makes bad hiring decisions. Failing to meet specific goals is one clear indicator that help is necessary. The latter can be addressed by having a well-written job description with specific performance expectations and qualifications.

Be coachable - As the business evolves, so must the leaders - especially the CEO. The first step here is to acknowledge you don’t have to be the expert in all fields; and second, there are folks out there with the experience and knowledge to advise you on new business processes and approaches for growing your business. How receptive are you to these two facts?

Transparency - no surprises - Garnering the confidence of investors, banks, board of directors and employees alike is critical to the long-term growth of a company. This confidence comes from backing your words with specific actions, ideally those consistent with a written plan, and disclosing early when critical milestones won’t be met with a plan for how you intend to recover. Surprising your employees or investors is a certain path for losing the essential support needed for growth.

Be nimble - Don’t be so caught up in your business model that you are unwilling to deviate from the plan when market forces are telling you that you should. History if full of examples where business owners insist the market will eventually come around to buying their product or service.

The Threat in S. W. O. T.

I was given the privilege of being the Chairman of this year’s Selection Committee for the next recipient of Metro-Atlanta’s Small Business Person of the Year Award. It was quite an experience as there were several outstanding candidates. The announcement of the top five finalists and winner will occur at the Metro Atlanta Chamber on May 21st during an event-filled Small Business Day.

What was interesting to discover in this process of selecting the winner was the variety of answers we received to the first of three, and the only business related question asked during the personal interviews. The question was: “We know the importance of strategic planning in facilitating the long term growth of a company…. the basis for building a strategic plan rests with a thorough SWOT analysis....and one element of the SWOT is Threats. Other than the economy, what is the single biggest threat to your company’s future growth?”

We asked this question to get a sense of how well these small business owners truly understood their business and did they, in fact, have a plan for growing their company.

Before reading further, what would your answer be to this question? Write it down.

Now read on.

Here is a quick recap about SWOT. SWOT is the acronym for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis is usually done as a prelude to building a Strategic Plan. It drives you to look at your business both internally (Strengths and Weaknesses) and externally (Opportunities and Threats). With this analysis completed, you have the material necessary to craft a Strategic Plan - a plan that should address how you intend to enhance your strengths, minimize or correct your weaknesses, exploit the market opportunities and counter the threats.

Though this may sound simple enough, surprisingly very few small and mid-sized companies undergo this assessment. Worse yet is they perform this appraisal but fall into the trap of drinking their own bathwater by believing, for example, something is a Strength when in reality it is simply a minimum customer expectation. “Our people” or “our customer services” are the most common Strengths I hear from business owners that fit this - bathwater - category. You have to have some highly credentialed (PhDs...) staff or be constantly providing ultra-extraordinary customer service experiences to make either of these legitimate business strengths.

So what are legitimate Threats to a business and why is it important to identify them? First, as far as a SWOT analysis is concerned, a Threat is an external force - never internal. Second, accept the fact every business has real Threats which should be acknowledged and guarded against. Third, failure to identify these Threats and take action to counter them can bring a business to its knees.

There are numerous case studies of businesses large and small that either failed to acknowledge a Threat (“we have no threats”), or failed to change course to counter a threat. Imagine being that company producing tube televisions because you didn’t think LCD - flat panel technology - was legitimate or the mighty internet company (Yahoo) who produced the first marketable online search engine yet failed to believe anyone could make a better product (Google).

As a business owner you should clearly understand the threats to your future growth. Whether it is technology that makes your product or services obsolete (digital camera vs. film), a new trend (Facebook) which renders your product (MySpace) passé, or a competitor who is marketing a better “mousetrap” (iPod), it is incumbent on you to not only be aware of these Threats, but have a strategy in place on how you are going to thrive despite them.

"Business Growth Expert Chosen to Chair Selection Committee for The 23rd Annual Small Business Person of the Year Award - | TechLINKS | Linking IT Needs, Knowledge & Solutions"

Downsizing the Right Way

Well, it was just a matter of time before this topic came up. Even the best run companies - those that plan well, hold their people accountable, and make prudent investment decisions - may still have to resort to “downsizing” as a means to stave off unbearable financial losses. Though most state and federal laws allow an owner/CEO to make these decisions without prejudice it may be prudent to seek some professional HR guidance beforehand. The topic I would like to discuss here is how best to reallocate tasks and responsibilities to those who remain.

I know of two Fortune 500 companies who, because of slumping sales were forced to lay-off a number of their sales team. They told those who remained they were expected to service not only their original clients but a portion of the clients previously serviced by those who were let go. No expectations were changed with regard to the quality of work, number of sales calls or internal reporting, and no pay adjustments were given to these remaining salespeople. Does this sound familiar? It is by far the most common approach taken my most CEO’s and, in my opinion, one of the worst.

Let’s analyze this.

I start with the assumption that prior to the downturn each and every salesperson was gainfully employed with challenging goals defined, clear written expectations set, qualifications identified and fair compensation for their services agreed upon. That is afterall how successful companies operate. There was no slack in the workforce, no dead wood, no one not pulling his or her weight; because if there were, you, as the CEO, would have dealt with it immediately.

Then the economy slows. As a result, demands on your sales force increases exponentially as it takes that much more creative effort to reach deal closure. These increased demands likely include internal reporting, more frequent status meetings, miscellaneous administrative duties (expense reports, etc...) and the need for more frequent customer calls. If anything, under these conditions, a well managed sales force is working harder than ever. Their plate is full.

Then the lay-off occurs. And, without any change in expectations or compensation you pile the workload from those laid-off onto those few who remain. Sounds kind of silly when you read it in print doesn’t it? How well do you think your clients will be served under these conditions? What impact will this approach have on your remaining talented workforce?

Here is how some owners/CEO’s explain away this action.

“Hey, you don’t understand, the work still has to get done.”

Or, “you don’t understand, they should be grateful they still have a job.”

Or, “you don’t understand, everyone has to make sacrifices.”

Though I fully understand things still must get done in tough times, I challenge whether sufficient effort was made to examine all tasks and determine which fall into the “critical must” category versus the “not as important”. Secondly, I will never agree with the notion of being “grateful for a job” - as if a job is some sort of charity. This is demeaning and insulting. A job is a business contract between an employer and employee trading compensation and benefits for an agreed upon service and performance expectation. Which leads me to the matter of “sacrifice”. Yes, sacrifice is and should be reasonably expected from everyone equally for an agreed upon period of time. It is when this “sacrifice” becomes the expected norm that the term exploitation comes to mind.

So what is the “right way”?

Have a plan and communicate it. Be honest with your workforce. Let them know the real story and share with them your plan for survival and recovery. Your employees are more perceptive than you think and are more likely to embrace your request for sacrifice if they know you have a plan. By doing this you instill confidence as their leader but more importantly you set the finish line or timetable for when things return to “normal”. Like distance runners who understand the importance of pacing and the timing of their “kick” to the finish line, your remaining employee’s can and will increase their pace as long as they know where that finish line is.

Be respectful and realistic. It is neither respectful nor realistic to tell someone he must fulfill his 40-hour assignment and that of the laid-off employee(s) with no adjustments to expectations or duties. Prior to any lay-off, take the time to analyze work expectations and decide what tasks are “must have” versus “nice to have”. Eliminate those you can so the remaining employees will concentrate on the important duties. Better yet is to bring the employee into the discussion. By doing so you may discover tasks you have imposed that have a much larger impact on their time than anticipated.

Finally, acknowledge their “sacrifice”. Let them know how much you appreciate them stepping up to the plate to take on the additional work (typically with no additional pay or benefits). Encourage them (and be sincere about this) to come to you if the burden gets to difficult. This will assure you have the opportunity to move work assignments around or take other measures to adjust workload before your customers or the internal operation is under-serviced.

Business Mistake #17: The “Possum” Strategy

News that home foreclosures are continuing to rise has put a wet blanket on consumer spending. The banking bailouts have not only shaken the confidence in one of America’s most conservative business institutions but it has also made precious credit for growth even more difficult to come by. And, on top of all of this, we have a new President about to take office with practically a one party Congress.

How is a business owner suppose to plan in this environment? If you are like most, you will freeze and resign yourselves and your company to whatever fate bestows upon you - hoping for hopes sake you can react quickly enough to limit the damage from the new market forces.

In psychological terms the act of “freezing” in the face of anxiety or danger is known as tonic immobility. It is a natural state of paralysis that animals enter, in most cases when presented with a threat. Though often proven beneficial in the natural environment, in the world of business, where time can be a costly enemy, this in-action can have grave consequences.

A quick calculation can show you the cost of a one month delay in reacting to a downturn in the economy. Let’s assume that market forces drove you to the difficult conclusion to reduce your workforce by ten employees. If these employees were making an average base salary of $60,000, then a one month delay in making this decision would cost you roughly $150,000. Two months, $300,000 in cash.

So, what is a business owner to do when faced with an unknown horizon. I have found from working with numerous companies that the unknown is really not that big of a mystery. The toughest task is usually finding the time for you and your leadership team to get away from the day-to-day chaos and really think about this. A facilitator may be helpful here as they are equipped with a wealth of information gathering and processing tools and can keep you focused on the task at hand. The goal is to identify the most likely scenarios you may be facing. Most, who complete this exercise, end up with a “good” scenario and then a “worst case” scenario. The rest are just variations in between.

The way to prepare for this exercise is to talk with others - your customers, suppliers, or clients and see what they think about the future. But try to be as specific as you can. Ask leading questions that will garner answers you can work with. It is one thing to hear from you customer that they are forecasting fewer sales next year. It is significantly more helpful to learn they are forecasting a 30% reduction in sales. Also, read your industry magazines and see what the editors are saying about the horizon. You’ll be amazed at what you can learn from all of these sources.

By writing these different scenarios down you will have taken the first step in establishing control over your company’s destiny by eliminating some of the mystery about the future. But writing this down is not enough. Creating a strategic plan for each scenario will provide you additional piece of mind - a script for each play. Defining the “indicators” that will help you judge which scenario is actually occurring and then watching for these signs will also further empower you.

Playing possum may work in the wild kingdom. In a good economy this in-action may result in your missing a business opportunity or two. But tonic immobility in a demanding and challenging economy, where every bad decision has exponential consequences, can be catastrophic.

Auburn Football - A "Change" Lesson for Business Owners

“Life will teach you the lessons, it is up to you to learn them.”

A lesson about implementing transformational “change” in your organization.

Two weeks ago Auburn’s head football coach (CEO) Tommy Tuberville fired his offensive coordinator (VP)Tony Franklin in a dramatic mid-season move most will argue was done to save his own job. The firing followed what could only be described as a dismal year for Auburn football where they started the season ranked 9th in the nation and after losses to LSU, Vanderbilt and Arkansas no longer show up in the polls.

For those who don’t follow Auburn football it is important to know that historically they have run a conservative offense relying heavily on running up the middle and the use of the option. The CEO (Head Coach) felt this offense hasn’t been producing the results needed to achieve the goal his Board of Directors (Auburn Trustees) or shareholders (fans) expect - a national title. As a result, the CEO made the bold decision to adopt an entirely new offensive strategy called “the Spread”. Considered by most to be a very dynamic and complex - no huddle/shotgun - offense this style is a vast departure from anything the Auburn “company” has done before.

Like any good CEO introducing “change”, Tommy Tuberville researched and hired one of the guru’s of “the Spread” offense, Tony Franklin, and named him his new Offensive Coordinator (Vice President). He would not let Tony Franklin hire his own assistance but was told instead to use existing assistants - loyal to the CEO.

So what went wrong?

An insightful radio interview with Tony Franklin revealed classic mistakes made by the CEO in implementing change in his organization. The VP stated there was little communication between him and the CEO after he was hired. There was no social contact whatsoever. The VP also stated there was little if any attempt by the CEO’s assistant (long standing employees and managers) to befriend him let alone embrace the new guy. Though the CEO would speak publicly of his support and commitment to this new offense, even when things were not going well, the interview left one with the distinct impression he did little else in the way of actions to make this transformation successful. And on game days, the CEO would not hesitate to make public (over the headphones) critical observations of his new VP’s play calling.

Let’s explore how the CEO’s action or lack thereof undermined and in fact directly contributed towards the failure of this transformation. First, he believed that simply communicating his intention to change was all that was necessary to have his employees and leaders embrace the change. What he failed to understand is from an employees perspective, the kind of communication that impacts behavior is 10 percent “traditional” vehicles (speeches, email, etc...), 45 percent organizational structure (whatever punishes or rewards) and 45 percent management behavior. The last 45 percent includes “off the record remarks”, and daily activities. In the words of Sue Swenson, CEO of Cricket Communications, “What you do in the hallway is more powerful than any thing you say in the meeting room.”

Secondly, he mistakenly believed that you can manage a transformation strategy in the same manner as you would an incremental changes and past success will assure future success with this venture. Incremental change - continuous improvement - is linear, predictable and logical. Transformational change, on the other hand, is a redefinition of who we are and what we do. It is often unpredictable (responding to unforeseen circumstances, challenges and opportunities), and illogical (demanding people and organizations change when they are the most successful). Most importantly, past success is not a valid indicator of future success. In fact, past success may be the greatest obstacle.

In closing, organizations don’t change. People do - or they don’t. If they don’t trust leadership, don’t share the organization’s vision, don’t buy into the reason for change, and aren’t included in the planning - there will be no successful change - regardless of how brilliant the strategy.

Tony Franklin was indeed correct in stating who was responsible for this failure - he and judging from what was shared in the interview, the CEO, Tommy Tuberville.

* Italicized text taken from The Biggest Mistakes in Managing Change by Carol Kinsey Goman, Ph.D.