Plan for Business Success

How many of you have prepared formal business and/or strategic plans?  Possibly, you have prepared business plans when you were seeking financing for their start-up, growth, or an acquisition.  Some of you may have developed a business plan as a road map to follow, and measure their results against it.  But generally, surveys indicate that, unless it is done to acquire financing, business plans are not done.

Business plans are generally prepared for a three-to-five year period.  The scope will define the start-up, expansion, or acquisition costs.  Specific markets, products, marketing plans and organization for the company will be outlined.  An implementation process will be outlined with dates and assigned responsibilities (milestones).  Sales projections are absolutely necessary, and will be the basis for the financial forecast which will include balance sheet and cash flow forecasts as well as the profit and loss forecast.  Those financing the company will want to see how they are going to get paid back; investors will want to see what their return will be.

Your city/state economic development departments, SCORE (Service Corps of Retired Executives), the banks, and various resources on the web can give you formats that you can use to develop your business plan.  While business plan development can be done internally, I generally recommend using outside help.  They will ask the tougher questions and will do a much more through job of market analysis because they have no “insider” bias.

Strategic plans are significantly different than business plans, and I doubt very many companies have even attempted one.  Strategic plans are much broader in scope, as they start with defining the vision and goals of the company and can be developed for as long as 20 years, with adjustments being made as often as necessary as the business environment changes.  Strategic plans are much more visionary and are focused on ongoing improvements and building market share.  Plans may be modified, but the vision should never change.  Goals are always established before the company takes any action steps.

Strategic planning does yield success.  Studies have proven that companies with plans are 12% more profitable, and 64% state that they do a better job of meeting their short term goals because these goals are fully aligned with the company vision.  Generally, annual budgets (if you do these) are too short term and are focused on the current situation, not the future vision.  Approximately 80% of all INC 500 companies actively use strategic planning.

While there are many examples of business plans on the internet, there are not as many examples for strategic plans.  The formats vary significantly, but the approaches are generally consistent.  They can be anywhere from a one page plan to a complete document.  Generally, there are no financial schedules.  Specific financial targets are important, but strategic plans are much broader in scope and are more sales or market focused.

One of the most critical steps in developing a strategic plan is the SWOT analysis (strengths, weaknesses, opportunities, and threats).  Once that is done, keep it close by and refer to it often.  Update it as conditions change.  Next develop your core values; these should never change as long as the company exists.  The core value defines the company’s purpose – why it is in business – the heart of the company. Then define the actions that must be taken to comply with these values.  The next, and most important step, is to develop your BHAG (big hairy audacious goal) – the “why” of the company for the long term.

Once these longer term goals are established, the next step is to define the intermediate targets that will be required to meet those goals.  These intermediate targets should cover three to five years and should use key performance indicators (KPI’s) to measure progress on achieving the goals.  The intermediate goals are further broken down into more specifically-focused annual goals and measurements.  The next step is to define quarterly goals and measurements.  And keep the number of goals limited.  KPI’s should be measured routinely to insure that the company is achieving its goals.

The focus of strategic planning is to develop the base values and goals of the company.  These are the foundation of the company, and should never change.  All additional goals and KPI’s will be developed to define the shorter term steps that will support this base.  The process is designed so that the quarterly and annual goals can be updated as the company progresses, and to adjust for environmental changes (which will happen).  The strategic planning process is a well-defined building block process that will result in a better focused and more profitable company.

Keep Good Employees-You’ll Need Them

Right now, this is probably not a problem for many businesses. But business conditions will get better, and as business improves it will be critical that we keep our better employees. Do not ignore your stars. If you ignore them too long they will go somewhere else where they will be appreciated.

Many business owners think that money is the primary motivator. Surprisingly, in the list of reasons for working for a business, money ranks number seven. Of course, if you are paying much below the market rate for your industry and area, money will be the primary issue.

There are many factors besides money that have to do with the “quality of the job.”
Some of the important factors are a solid promotion path, the ability to be promoted, and being appreciated for their contribution to the company. There are many other important factors that also influence your employee’s satisfaction with your workplace.

First, make them a part of the organization. Make absolutely sure that they know the goals of your company and make your company’s goals a part of their goals. Let them know what is going on. You will be surprised how much they already know from just observing and listening to comments made by you and your close associates. While you may not want to give them all the details of your finances, give them general information about your financial condition. Let them know about sales opportunities and/or new products. We live in a very “small world” and your employees may have contacts you would never have imagined. If you foresee challenges or opportunities, let them know about these. They may have ideas that can help. Ask them for suggestions.

Afford them training to improve their knowledge and usefulness to the company. There are many inexpensive courses for the PC, sales training, or managerial development. Sending your people to training tells them “you are important to the organization.” Training plays a huge role in employee development and satisfaction. If you never train, you are capping their career. Your most ambitious employees will figure this out and leave, and you will be left with your weaker employees. Do not just promise training: at the beginning of each year, plan and budget for training.

Give your employees reasonable working conditions and the tools to do their job. Keep the workplace clean, be sure supplies are available, and reduce the noise level whenever possible. Make sure that the employee’s equipment (computer, fax, printer, or other equipment) is adequate for the employee to work efficiently and effectively. If the equipment is not adequate, do what you can to replace it. A poor work environment is a true demotivator

Develop some simple reward systems for the well-performing employees. You may not be able to afford a pay increase at this time, but you can still give them an extra day off or a gift certificate for a movie or dinner with their spouse or friend. Even if you cannot give these rewards, be sure to compliment him or her verbally when others can hear it. Everyone likes praise and wants to know they are appreciated.

Get to know your employees. It is amazing the results you will get from finding out a little something about their family and outside activities.

Let them hear from their external and internal customers. Let outside customers speak with employees about their satisfaction with the company; share complimentary letters with the employee. Encourage your employees to thank each other for their efforts.

A true story: Melissa had been working very hard to find a very talented employee who could help her take her company to the next level. She was elated that she was able to hire George by out-recruiting a much larger firm. George mentioned during the interview and after getting hired that he needed to improve his computer skills. Melissa was not comfortable training George on computers nor did she want to spend the money for outside training, so she totally ignored the request. In addition, while Melissa was very pleased with George’s performance, she never gave him any positive feed back. Eventually George quit, citing a variety of reasons. He felt that he was losing the opportunity to take on additional responsibility because of the lack of computer training. Also, the lack of feedback was quite disappointing. By investing in a few computer courses and some management development and giving George the positive feedback he was due, Melissa could have avoided this very costly error.

Remember: satisfied and appreciated employees are productive employees.

A Guide for Appraising Employees

The end of the year seems to be the normal time for many companies to prepare performance appraisals for their employees.  All companies should have a formal employee appraisal system.

Most well run organizations recognize the importance of having a good appraisal system.  Not only should you review performance and discuss problems, but you should also set goals for the next period and discuss career advancement.  Employees receive feedback, input, direction and motivation.  And the company benefits by having a formal development system, a motivation system, a specified feedback system, as well as documentation and legal protection. Hopefully you will never be involved with complaints of illegal termination or discrimination; documented appraisals can offer legal protection in addition to serving as a preventive measure.

A good appraisal system will include performance expectations and measurement tools.  These tools should be well defined and understood.  Many systems use a numerical rating system from one to five, others may use the grading system we remember from schools (A-F) and a few just use textual designations.  Be sure that the numerical or alphabetic measurements are well defined.  The mid-point measurement should be defined as meeting the standards for the job.  The two upper levels should be generally defined as exceeding standards for the job and well above the standards for the jobs.  The lower levels should indicate a need for slight improvements to meet the standards for the job, or be well below standards.   Do not ever use the term average: most people do not want to be considered average.

Some companies may use a “management by objective” system, where employees are measured on how well they met specific goals that have been defined to them in advance.  These could be specific performance measurements, such as the number of new customers added by a salesperson.  There could also be measurement of other specific job-related behaviors, such as attendance. 

All of these measurement systems must be specific, clear, useful, fair, and consistent.  When discussing either strong or weak performance actions, use specific examples if possible.

A corporate or departmental tally should be kept with the results of each performance review.  Calculations should be made to determine the percentage of employees in each level, to ensure that there is not a tendency to over-rate employees.  It is much more comfortable for a manager to rate a person higher than their true performance than to be totally honest.  Approximately two thirds of your employees should be at the “meeting standards” category.  “Exceeding standards” should comprise about 17-20%, “well above” should be about 3-5%, and about the 5-8% in the two “below standards” categories.  If you have any employees at the lowest level, plans should be underway to terminate this employee after they are given a reasonable and documented chance to correct their deficiencies.

The appraisals must be designed so they are totally objective, accurate and complete.  Be sure that all employees are appraised in approximately the same, regular time frame.  When setting the goals for the next appraisal, be sure that they are measureable, realistic, observable and based on the job requirements.  These goals should be challenging and must be prioritized through mutual discussions.

If at all possible, determine a schedule for the individual appraisals so that the appraisal date does not coincide with the timing of pay increases.  While a portion of most salary or wage increase systems should be based on performance, it is much easier to conduct an honest appraisal when the employee knows that there will not be a pay discussion at the end of the meeting.  

Be sure that the employee fully participates in the discussion.  They must be active in the goal-setting process and the development of the action plans to meet these goals.  It is usually quite helpful to get them to discuss their perception of their own strengths and weaknesses.  Often this can be an opportunity for the employee to discuss his/her opinion of the company and/or you as their manager. The more you can involve the employee in the process, the more involved they will be in designing their new goals, and the appraisal mechanisms used to measure their attainment of those goals.

Finally, at the end of the meeting, be sure the individual understands how their performance meshes with the company’s goals, and how their success will help the company meet its objectives.  Be absolutely sure that they understand the points discussed in the meeting.  After ensuring this, ask them to sign the appraisal and offer an opportunity for them to respond with written comments.

Too Busy Doing the Work

In today’s tough economy, we all focus too much on just getting the daily work done.  This is also an easy mistake to make even when business is good.  ”The work” is the daily activities of our business.  We are all trying to reduce expenses as much as possible or increase tomorrow’s sales, but by concentrating only on these daily activities, we will be making a mistake that will haunt us in the future.  We must be taking time to plan on the continued development and improvement of our business.

We often make the mistake of thinking “What would I do if I do not do the work?”  Or another, “I can’t afford to delegate the work.”  Your business will not grow much if you are doing all the work.  You become the bottleneck to your growth.  Does Donald Trump deal cards at the blackjack table?  You must be responsible for the “big stuff,” not the “little stuff.”

In 1985 Michael Gerber wrote the book, The E-Myth, which has become one of the most popular business books in the last 25 years.  He published an update to it, The E-Myth

Revisited, in 1995.  The primary premise in both books is that all owners have three different roles in their businesses.

1. The entrepreneur.  This role is probably the most fun , but also the most challenging.  You are creating the vision and the direction for your business.  During this time the owner is thinking about the start-up of his company.  He is developing his strategy, and meeting potential clients and employees.  He is meeting with banks, attorneys, insurance agents and possibly investors.  He is telling his story to all these people and probably others.  While there are many challenges, the company is starting up, sales are being made.  This is an exciting time–adrenalin is flowing.  This is the time when you are the dreamer/creator.  You are looking towards the future and your plans are based on your future goals.
2. The manager.  The manager function is defined by a transition from doing the day-to-day work that produces revenue to organizing and supervising others who will do the day-to-day work.  You now become the pragmatist, planner, and organizer. As the company grows the owner/manger determines that he needs more people to help him run his business and he starts hiring.  Along with the hiring comes the need for employee procedures and an employee handbook. He may develop a procedure manual to help with the running of the business. He will have to decide on what responsibilities to delegate to others and he will start to develop the organization.  This can be enjoyable, but we find that most people really do not like having to develop the procedures and manage people on a daily basis.  This can be frustrating, because very few employees will do the work as well or as efficiently as the business owner.
3. The technician or the doer.  Now you are representing the tactical view of the business, not the strategic view.  You are looking at just what needs to be done each day to get the product out or satisfy the demands of your customer.  If your employees cannot do what needs to be done, you just do it yourself because you can do it better.  You become your own gerbil–just running on that treadmill.  You are no longer building value for your business or working to move the business forward.  You no longer own the business: the business owns you as you become just another employee.  Remember that the technician does little to move the business forward or to create value.As a business grows, you as the owner/manager will have to fulfill all of these roles at certain times.  But under the daily pressure to produce, most owners become too much the technician.  Their total focus becomes the daily task list.  They do not take the time to step back and plan for the future, or to evaluate existing problems and correct them.  The business growth is limited to what you can accomplish by yourself. 

Studies have determined that most small business owners function 10% as entrepreneur, 20% as manager, and 70% as technician.  There is no universal answer, as the optimal percentage will vary based on the maturity of your business.  But spending only 10%  of your time in the entrepreneur function is not sufficient.

Where are you?  Remember that the entrepreneur is obsessed with building a business that works without them.  The entrepreneur prepares himself/herself and their company for growth by building a foundation and structure that can carry the weight imposed by growth.

Marketing with Strong Value Propositions

In the world of effective marketing, most of us have heard of the Unique Selling Proposition, which is the statement about what makes your company different from your competitors.

This is now being taken to a higher level of understanding and purpose. In the book written a couple of years ago by Jill Konrath, Selling to Big Companies, she instructs the selling organization to always approach the customer from the customer’s point of view. “What is in it for me?” In this approach, the customer must understand the tangible results he/she gets from using your products and services. It defines to the customer the value of your product and/or service in financial terms.

You must totally understand your market, and your customers’ market. Value propositions are financially oriented and speak to the critical issues your customer is facing in his/her market. Communicate tangible, measurable results. This is difficult and takes time, but it is well worth the time you invest in the process.

This is especially difficult for service businesses, as it may be more difficult to quantify your offerings. As a result, your value proposition must be stated in exciting and interesting business terms.

To clarify your value proposition, it must be expressed in numbers and/or percentages. Based on your understanding of your customer’s business, you should be able to predict the amount of cost reduction your service or product will contribute to their organization. Or it could be additional margin from features you can provide that your competitors can not. You must indicate to the customer that you understand their business. In addition, you should try to include the intangible value gains for the customer. An additional step would be to define the opportunity costs to the customer if they do not purchase your product or service. Opportunity costs are the losses in profits for NOT taking some action.

If at all possible, you must work directly with the customer so that you understand their perspective. This will strengthen your value proposition, as well as strengthen your relationship. Work with others you know in the industry to gain more knowledge and use industry statistics to help quantify your work.

You will come to realize that strong value propositions are the best tool for getting appointments with buyers, as you can identify to the buyer tangible outcomes and measureable results.

Your value proposition could be somewhat different for each customer. How do you determine the value proposition for a specific customer? Look at the customer(s) from the viewpoint of their current operations: if they are not currently using your product or service, how are they doing things today? What problems will your offering solve? What opportunities will your offering create? Then determine if is there is a “ripple effect.” What other areas could be impacted by your service? This could actually be a new problem or gap. When you are able to indentify these and offer solutions, you will become much more valuable to your customer. In the end, you must be able to identify the pay-off to the customer for purchasing your product and/or service.

This sounds very difficult, but it will be very rewarding. The implementation of your value proposition will result in significant improvements in your company and in your customers’ companies as well.

Saving Your Way to Success

How many times have you heard or read that a company has initiated cost savings plans as the way to achieve a turnaround and to restore the level of profitability and success they previously had? We all have countless memories of these activities and unfortunately many of us have been caught in “cost reductions”.

The analyses of costs in all business are very important and benefits are to be achieved through these analyses. Large organizations should always be reviewing costs and looking for reductions. And even small organizations should engage in that activity every three or so years.

There have been quite a few studies made on activities that result in profitability improvements. Most of the studies came up with basically four approaches.
1. Costing cutting. Review all cost elements of the past few years, analyze and initiate reductions where necessary.
2. Increase sales to existing customers. Put much effort into contacting existing customers and determining what additional current products or services you can sell them.
3. Increase sales to existing customers by adding value to your service or products. This can encompass many activities. You can simply “supersize”: sell more of the same thing. You can upgrade your product or services. Add new products or services. Or just increase pricing.
4. Find new customers.

Where is the real money? Cost cutting is the easiest, but will probably have limited success on the bottom line. The hardest is finding new customers, but that activity will definitely yield the most significant long range improvements. If you do not constantly seek new customers, you will lose ground. Everyone has attrition with their customer base.

What should you do? Your emphasis must be on the top line and getting new customers. Consider giving your sales staff an extra incentive to attract new customers at acceptable pricing. Give your sales staff a targeted number of prospecting contacts to visit each week. All of the above approaches work, but the attraction of new customers will result in the best bottom line. Entrepreneurs must place priority on the top line, not the bottom.

Dealing with the Current Downturn

Princeton University did a study a while back to determine the best way to increase profits and/or minimize losses in a downturn.  They came up with four approaches:  cut costs, increase sales to existing customers, up sell to existing customers (product improvements or enhancements), or get new customers.  Of all of these, it was determined that cost cutting was the easiest.  Unfortunately, it was also the least effective in maximizing overall financial performance.  Getting new customers was the most effective approach, but the hardest strategy to implement.

 

Your effectiveness in getting new customers is often directly related to your investment in marketing efforts.  Unfortunately, this is one of the expenses that many companies eliminate or cut back severely during downturns.  Jay Conrad Levinson, the father of Guerilla Marketing, states that it takes five “touches” of marketing efforts to attract the interest of a new customer.  This is not five contacts within one marketing effort–it must be a mix of various efforts.  So to attract new customers, multiple marketing efforts must be utilized. 

 

The company must be judicious in deciding what marketing efforts to use.  You should have some type of measurement to determine which efforts yield the best return.  The most effective way to do this is to record the information gained by asking every potential customer who contacts your business how they heard about your company.  This information should be summarized, so that you can compare the cost of each marketing effort with the number of customers gained, and, if possible,  the approximate profit per customer.  If the estimated profit per customer over a certain time period, multiplied by the number of customers, yields a positive return over the same time period, this is an indication that this marketing effort is of value.  If the cost is higher than the return, this marketing effort should be revised, replaced, or discontinued completely.

 

Generally, the success rate of getting customers from referrals is the highest of any marketing effort.  Ask your customers for referrals to their friends and associates.  Talk with your networking associates and ask for customer referrals.  Especially in today’s tough economic climate, most people are willing to give you some help, especially if it could mean referrals back to them from you or your staff.

 

Spend more time with your existing customers.  Listen for their problems.  Be sure you understand their needs.  Don’t just try to sell what you have: you could find that some slight modifications in your product or service could better serve their needs, and possibly better serve other customers as well.  When you can solve their problems, their loyalty to you will increase.  If you do not have a product or service that could help them, refer them to someone else you know and trust.  That referral could bring you other customers from that source.

                                                                                                                                                                                                                                                                                                                                                                                                                               

Consider upgrades to your services or products that could improve the benefits that your customers receive.  Often, you can price your upgraded services/products to give you a higher margin.  Just think about “supersizing” in the fast food world:  how much of that price increase goes to the bottom line?

 

Carefully review your product or service offerings;  if possible, analyze them to determine which ones bring the highest profit.  Once you have determined this, emphasize the sale of these products or services.  Sometimes it is a good move to cut a product or service from your sales offerings if it does not give you a satisfactory return.

 

Cost reductions must also be part of your targeted approach for survival in any tough market. Compare on a percent to sales basis your expenses for the past period against prior periods.   Studies have been shown that over the past four year period most expenses have gradually increased, often for no specific reason.  It was easy to overlook those gradual increases; now is the time to pay attention to them. 

 

It’s easy to cut the “nice-to-have-but-not-absolutely-necessary” expenditures.  This could be a new vehicle, logo shirts or hats for all employees, meals at expensive restaurants, etc.  It’s harder to cut staffing, or to reduce the hours of full-time employees.  All expense cuts must be subject to a cost/benefit analysis.

 

As you have seen, increasing your bottom line can be done by increasing sales as well as by decreasing expenses.  It is up to you to determine the approaches that are most effective for your business.