Category Archives: Family Businesses

Trends to Watch in Small Biz For 2013

In mid-December, small business owners are thinking about year end numbers and whether their companies will meet the annual goal(s). Advisers to small business owners are thinking about tax liabilities, the expiration of certain programs favorable to their clients, and whether the upcoming year will be better for their own businesses. What is little discussed but super important is what the future holds. In preparing to answer that very significant question, the small business leadership team is thinking proactively about strategy, innovation, and how to turn today’s customers and competitive advantages into a plan for sustainable success.

American Express publishes a blog under the OPEN Forum brand. One of its leading bloggers is John Jantsch of Duct Tape Marketing. A few weeks ago, he identified the following top 5 trends in business for 2013:Futuristic conference room

1. “Crowdsolving” becomes a hot innovation trend. Some of the greatest challenges we face in the world..are being tackled in unique ways. Instead of relying on the existing machines and organizations to address problems, innovative organizations such as the X Prize Foundation are creating competitions that reward disparate groups of individuals to collaborate and create innovative solutions in ways that had not previously been possible..This form of what is being called “crowdsolving” will make its way into the mainstream of business innovation. Asking our customers, vendors and employees to act as a community think tank will become one of next year’s hottest innovation trends.

2. Technology evolves to assist human contact. ..Instead of a world lacking human connections, these.. innovations have actually made it easier for some to create real human contact—one-to-one. For example, medical-monitoring devices provide the opportunity to create better doctor patient relationships and care; new scheduling and meeting services make it easier to connect in real life; and sharing ideas in virtual space leads to a greater desire to connect offline in social settings.

3. Content-filtering becomes a significant marketing practice. ..Moving forward valuable content must include insight, and filtering should be a central practice in order to help people and prospects get what they need when they need it. Service providers will be chosen based on their ability to find and share the good stuff in addition to making sense of the changing stuff.

4. Visual simplicity becomes the desired communication method. From a design standpoint you don’t need to look beyond sites and services such as Pinterest, Pinvolve and The Fancy to see that people want visual content. The current trend in Web design takes a cue from this desire for visual scanning and marries it with the need for simplicity and white space. 

5. Tablet optimization becomes the mobile standard. ..The new generation of mini tablets are going to impact responsive design and what we’ve been calling mobile devices. Tablets and mini tablets will see a tremendous jump in server logs and become the de facto design standard for mobile content. That doesn’t mean mobile phone size browsers aren’t important, it means there will eventually need to be a divide in how we address tablets vs. phones.

How you apply these trends to your own business is a big decision. Let’s take the trends in reverse order. If you have a website, it is simply inexcusable any more to not have it prepared to be read on multiple platforms/types of devices. Secondly, please take a look at your website and consider how to make it more simple, visually appealing, and written with the mindset of the user in mind. Everyone has content available–come up with a strategy of how you are going to share it with others professionally, opportunistically and systematically. Work with your leadership team to use technology to make your business more personable. When you encounter problems that need solving or innovation that needs to occur, outsource the brainstorming to others related to your business–they will be glad you thought to involve them and your ideas will be stronger as a result!

 

 

 

Artisan Opportunists Make Great Entrepreneurs

Having served entrepreneurs for years, I tell my consulting clients that I have worked in almost every industry niche possible. Until my recent involvement with an incubator in Raleigh, North Carolina that is serving artisan entrepreneurs, however, I had not worked with many artistic types in a business setting. A group of Baylor University scholars wrote Small Business Management: An Entrepreneurial Emphasis a few years ago in an effort to define what small businesses need in terms of critical success factors. The authors borrowed some thoughts from a forerunner of management thought, Norman R. Smith. Smith held that there are 2 styles of the entrepreneur; the craftsman (artisan) entrepreneur and the opportunistic entrepreneur. He developed a 14 characteristic scoring system to classify entrepreneurs into one of the two categories, including qualities such ranging from breadth of education to employee relations.

Artisans were observed to possess a skill or talent that drives their initiative to open a business (vs. the tendency of an opportunistic entrepreneur to amass resources needed to respond to a market need.) Many grew up in an environment that values tasks and hard work, often as a result of exposure to the work world very early in life. With a preference for mastering the mechanics of machinery, they tend to become production-oriented early in their work lives. Many have become frustrated with management or unions and take the start-up route only after some critical event occurs.

Other key distinctions include a reluctance to delegate authority and a preference to develop customers by personal contacts only. Often, growth plans are hard to identify in the way they conduct business. This entrepreneur has a paternalistic attitude and tends to think of employees as part of the family. Accordingly, operations are focused inwardly with little engagement of the community around the artisan. With concerns about losing control over a “good” situation, artisan entrepreneurs have been known to resist involving others in key management decisions and shun interaction with outsiders. Traditional forms of financing and marketing are the rule here.

As I think about the artisans whom we serve at Kindred Boutique (the incubator in Raleigh), I see many of these factors at work. While many characterizations are stereotypical, there are enough patterns to validate the mindset of artisan entrepreneurs whom we encounter as being very similar to what is described. We work with the artisans to establish better cooperation–the boutique itself is intended to show the benefits of collective marketing and “product” testing. Often, an artisan entrepreneur has chosen this new career because of frustration with his prior one. Non-traditional forms of marketing and funding their ideas are not well received.Opportunist

What is desirable is to help the artisan think more opportunistically. (This line of thought is not meant to denigrate artisans in favor of non-artisans, who often need to think more creatively and divergently.) Smith found  that opportunistic entrepreneurs come from a background of predominately middle- to upper-economic status; their fathers are typically skilled and professional workers and own small or family businesses. As a result of the household income, these entrepreneurs have been groomed for success through formal education and exposure to other cultures through travel and attending fine arts events. This type of entrepreneur is observed to have significantly more marketing, selling, general administration, and merchandising skills.

Having watched their fathers in the business world run organizations, this group understands and appreciates management practices like delegation, advanced segment marketing techniques, and the value of strategic planning. As a rule, this group enjoys competitive situations, and may be more likely to burn their bridges. There is no critical event that decides when they should go into business. instead of competing on price and personal reputation, the opportunist relies on product development and strategy. 

Artisans can benefit from the experiences of opportunists and vice versa. Take a moment to think about which group represents your basic worldview. Modify the way you start and run your business to incorporate an approach that your counterpart from the other group may employ. You will be more successful in life and business as a result.

Iterate Instead of Analyze for Innovation Success

Intrapreneurship is needed in large companies.  Commonly, these companies tend to have plenty of data that has been collected to document market dynamics. Whether it is corporate strategy or corporate development, larger businesses have departments that constantly evaluate opportunities for growth–be they organic or inorganic.  Encouraging innovation and breakthroughs can be hard. The main reason big business becomes stagnant is that the mindset required for disruptive advances is very different than the risk management and mitigation approach of many market leaders.

Kevin McFarthing, who leads the Innovation Fixer consulting firm, suggests in a recent blog that “These companies also have a very rational approach to the assessment of investment opportunities. Of course, they find that the expenditure line has a much higher level of confidence than either the timeline or the scale of revenue. For that reason large companies want to increase the level of confidence in the income stream. Various techniques are used; for example, many consumer goods companies will undertake a fairly standard sequential program of qualitative and quantitative market research. This will relate to a database of similar products launched in the past. So, as long as you do the market research correctly, you can reduce your uncertainty and proceed.”

As is pointed out above, the traditional analytical tools used to evaluate comparable opportunities are somewhat like the comparables sought out when buying a new residence: intended to estimate what already exists instead of what has never been built. Relying on historical information rather than anticipating future demand is like driving down the road only looking in the rear view mirror!

On the opposite end of the spectrum, small businesses being run by visionary entrepreneurs tend to rely far less on the projection techniques of their larger counterparts. These start-ups rely on gut instinct, passion, and drive rather than systems. Instead of evaluating a market based on dozens of data points, the executive teams of thriving young businesses gather market information, develop a proof of concept, test it on a limited basis, revise the offering, and are nimble in their adjustments to feedback so that they can quickly bring something new to the marketplace. 

leap of faith

Large companies find what is done in the entrepreneurial space to be akin to a leap of faith. It’s very hard for a corporate type to operate from a place of judgment rather than logic. The willingness to produce something that is not perfect is much less in an organization with extensive quality initiatives.  The whole concept of try…try…try again that is the mantra of an entrepreneur is eschewed in favor of taking calculated risks. While it sounds stereotypical, it is not at all uncommon for the large company approach to be one that avoids undertaking projects without tons of documentation and extensive project and/or product planning down to minute details.  This predictable approach has severe shortcomings in an environment where responsiveness can make the difference between producing an offering that resonates versus one that is a “me too” alternative.

Instead of performing market and buyer research that resembles a canned, rote methodology, what is needed is flexibility, customization, and the ability to constantly iterate. Instead of sequence and a step-wise stage gate process, truly innovative organizations are far more willing to engage in trial and error.

McFarthing says that many large organizations lack the right mindset to explore potential. Changes he advocates that they make to become more innovative include: 

–   Rely much more on judgment to move projects ahead rapidly;

–   Don’t apply the same criteria to incremental and radical innovation;

–   Use a fast and iterative sequence of prototyping and market testing to learn and reduce uncertainty;

–   Go to market as soon as you can, don’t wait for all the facts.

Follow these suggestions and you will change your culture to become more intrapreneurial!

 

 

 

Sell Your Business Even if Others Can’t

In reading about the issues facing small businesses in the United States since the recession began in late 2007, I have heard about many sectors that have fallen behind historical performance levels. One that I hadn’t considered very much until this week is what is called the “business-for-sale” sector, which has seen a huge drop-off in comparison to all metrics known prior to the recession. While many have spoken about the large amount of private equity not in circulation, many of the reasons it is being withheld translate to other types of business buyers.

Whether you are representing an equity firm or your own personal business interests, it is likely that you have been trying to figure out when the economy may turn around. In classic business theory, it would be ideal to buy at a deflated price right before the economy picked up so that your investment could piggyback onto the general trend of successful recovery. Such market timing could make your investment produce very high–perhaps unprecedented–returns.

Since the economy appears to have stabilized, though not surged forward in a demonstrable way, what are these people who would otherwise be buying small businesses thinking? Observers of the business-for-sale sector wonder when they will see a positive change. They are anxious to see more acquisition activity.Buy sell dice

Hindrances to Business Sales

Whether you listen to political pundits, talk show hosts, or economists, all would concur (at least publicly) that small business is key to the overall recovery. Yet, if small businesses are not churning ownership, it is hard for them to obtain the necessary working capital to fund growth and operations. BizBuySell.com conducted a survey of 260 business brokers from around the country to attempt to determine whether market conditions were improving. A whopping 70 percent indicated that financing for business acquisitions has not improved since 2011. These findings and percentages are consistent with survey results from last year, showing a trend of stagnation.

With commercial loans harder to come by (according to the survey), many buyers can’t get the financing they need to do deals.  Business brokers say that banks have made the loan process even more difficult in 2012, decreasing the chances thereby that buyers will begin investing in businesses for sale. Mike Handelsman, group general manager for BizBuySell.com and BizQuest.com, reports that borrowing is particularly difficult for new or young entrepreneurs. Since banks and similar entities have taken the position that a track record of success is one of the top determinants of future success, newcomers to the small business arena–either startups or acquirers–are handcuffed. 

Handelsman cited other factors of concern to business brokers from the survey. Concerns about the U.S. national debt,  political deadlock (re: the fiscal cliff), long-term unemployment and small business/personal tax rates (14%) also appear to diminish buyer confidence. However, he did offer some tips for sellers:

Seller financing is not necessarily the right strategy for all business succession scenarios. But under the right circumstances, a seller’s willingness to finance a portion of the sale can dramatically increase the number of potential buyers and create more advantageous sales terms (e.g. a higher sale price). Sellers also need to plan for the sale, and make their businesses as attractive as possible to buyers.

Here are a few ways to plan for the sale and make your business attractive–

  • Install an outside board of directors, with positions filled by non-competing entrepreneurs rather than the typical CPA, attorney, banker, and family friend.
  • Stop paying executive perks out of business accounts–clear separation will help show your commitment to professional management.
  • Document the tasks and procedures performed by the executive team. When it has been documented, the business is worth far more money because it is no longer dependent on the personalities.
  • Have a CPA review your financial statements–audit if you can afford it–especially if you have never had it done before.
  • Work with a transactions attorney to advise on deal structure and terms so that you can think through tax implications that may cause you to accept certain types of offers.

Chin up! If you follow these best practices, you will be one of the first ones to sell your business, regardless of whether many others sell theirs at the same time.

 

 

Find Ways to Improve Manufacturing Company Profits

In trying to understand business issues, case studies can serve as a useful tool to show us what we may not see at first glance in our own businesses. When I was doing the research that led to the founding of the Turnaround Management Association a number of years ago, I had the “opportunity” to compile, read, and review over 900 case studies on attempted turnarounds. As I read about companies from a variety of industries, geographies, and backgrounds, I was able to decipher certain trends and best practices. While I obviously don’t have the space (or your attention span) to delve into that level of detail in a blog post, I wanted to recount a case study and point out some lessons to be learned.

better resultsA $100+ million company lost 25% of its revenue during the period 2005 – 2010. Simultaneously, EBIT declined by 91%, dropping to 0.9% of  2010 sales numbers. A turnaround firm was retained to restore revenues and achieve at least 10% EBIT by the end of 2012. The results of the project were that 2011 revenue improved by 20.20% over 2010 and 2011 EBIT was 5.5% of 2011 revenue, an increase of 470% over that of 2010.

How the Results Were Achieved

Strategic Alignment

By analyzing the markets served, rates of growth, and trends, the turnaround firm was able to highlight the very best opportunities for high growth. Historical analysis yielded insights into top customers and products, with breakout information by plant location. As insights were gleaned from the data, brainstorming sessions were held with the executive team to modify strategic and tactical plans.

Product Pricing

As with many companies who suffered a decline in fortunes, this company had begun to compete on price rather than more strategic competitive advantages. As their products and services became commoditized, considerable price variability had snuck into the company based on local market conditions. With considerable (40%+) market share in its primary markets, the company in crisis had very few price comparables available from competitive intelligence by which new pricing could be developed. The consultants helped the company do the following:

  1. Make product groups by cost and technical specs,
  2. (For each product group) establish minimum, mean, and max prices,
  3. Determine products that were priced outside of guideline rages, and
  4. Identify customers who were not profitable to serve.

Margins were terrible, so the company implemented the following procedures recommended by the turnaround firm: 

  • Pricing for non-strategic customers was immediately increased,
  • Held meetings with strategic customers to explain the fair price increases, and
  • Future price increases were planned in unison with strategic customers.

Product Costing & Standardization

The old product costing model was jettisoned in favor of a more accurate, easier to maintain one. Product Standardization was accomplished by analyzing SKUs across key product groupings. A small list of products were designated as standard offerings. Everything else was labeled “custom,” with appropriate cost and pricing decisions.

Operations Improvement

Process improvements were instituted after plant visits. Highlighted items included:

  • Supply chain improvements through TQM and JIT were achieved
  • Minimum order quantity guidelines streamlined production runs and enhanced scheduling efficiency
  • Setup and preventive maintenance routines were sharpened
  • Paperwork and scrap reduction and recycling were instituted

The culmination of 2011 efforts was that higher contribution margin at the plant level. Production scheduling and materials requirement procedures were highlighted as areas for additional improvement. 

When an outside team is brought in to focus on profitability and the executive team cooperates fully, great things can happen in a turnaround. Clear communications, improved decision-making, unified focus all lead to enhanced morale and the profitability becomes an outgrowth of good management.