When Less Polish is Better

 

The week before last, I stopped by one of my satellite offices to visit with my team mates. Unfortunately, none of them were there as all had outside appointments. What I did encounter, however, was a leftover Christmas gift. A referral partner of mine had dropped an envelope off for me and I hadn’t been by since he did. Inside the envelope was a book and a very kind note. The book’s title, Getting Naked, caught me off guard, but the contents were a very pleasant surprise.

The author is Patrick Lencioni, famous for his previous work, The Five Dysfunctions of a Team. Lencioni is well known for teamwork, leadership, and organizational health expertise on the speaking circuit. The book is told as a type of fable, with narrative mixed in with didactic lessons. First person narrative is used to show a change of heart from a traditional approach to client service to one that is very vulnerable, transparent, and self effacing. Excerpts from the book are provided below to give you an overview of its themes and principles.Young consultants

Lencioni writes that most service providers are susceptible to three fears that prevent them from building trust and loyalty with clients:

1. Fear of Losing the Business

No service provider wants to lose clients, business opportunities, or revenue. Ironically, though, this fear of losing the business actually hurts our ability to keep and increase business, because it causes us to avoid doing the difficult things that engender greater loyalty and trust with the people we’re trying to serve.

2. Fear of Being Embarrassed

No one likes making mistakes in public and having to endure the scrutiny of spectators, especially when those spectators are paying us for advice or counsel. And yet, like a fifth-grader, we know that the only thing worse than raising our hand and having the wrong answer is failing to put our hand up at all (and realizing that more often than not, we did indeed have the right answer). This fear, then, is rooted in pride, and it is ultimately about avoiding the appearance of ignorance, wanting to be seen as smart or competent.

3. Fear of Feeling Inferior

Like the previous fear, this one has its roots in ego, but there is an important difference between the two. Fear of feeling inferior is not about our intellectual pride, but rather about preserving our sense of importance and social standing relative to a client. 

Lencioni makes several great points.  It is so easy in a client facing role to withhold information that we sense the client may perceive to be bad news. There is almost a subconscious thought that the client will think less of us because we can’t control the outcome. Instead, we are exhorted to be frank and sincere because in so doing we will win confidence and trust. In the long run, we are more believable for having let our guard down–not less! In addition to being willing to say tough things, the thought of asking crazy questions without worry about how we will be perceived is very freeing. When a service provider is not afraid to make the client look good at her own expense, she has the right view of how the relationship should be structured. We ar to be there for the client’s needs–not the reverse.

 

 

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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.

 

Are You Doing it “To” or “For” a Prospect?

Many who aspire to increase the top line (revenues) of a business know that sales can seemingly cure a multitude of other problems. With enough money to spread around for paying bills and employees, plus some for marketing, customer service or maintenance, your company can improve morale and your ability to retain top talent as well as existing customers. However, in an effort to develop new business, our sales teams often do a very poor job. Conversion rates are low, so more leads are needed than would otherwise be necessary. In turn, more time is required, more overhead expenses thereby generated, and profits eroded. If we were able to improve the way we secure new clients, our organizations would be vastly more successful!

The biggest challenge a sales (interchangeable with “business development” or “client development” in settings wherein the word is anathema) professional faces is the distrust of the person on the other side of the table. Buyers are often afraid that something is being done to them, and dig in their heels or tune out their minds. Against this type of resistance, it can be extremely difficult to secure new accounts. The conversation must, therefore, disarm the buyer (in a genuine, sincere way) so that the perception changes to one of feeling like the salesperson is doing (well) for the buyer or her organization.

With the  combination of easily accessible information via the Internet and increased competition via globalization, it is incumbent on sales teams to keep their products and services from becoming commodities whereby the only means of competition is price. This objective can best be accomplished through consultative conversations. One of the leading minds on the topic of consultative selling is Mahan Khalsa, author of Let’s Get Real or Let’s Not Play (aka Helping Clients Succeed.) Helping (prospective) clients succeed should be the goal of every sales effort, but rarely is. In fact, hard line sales methods don’t seem to to take the client success into consideration as all, so long as the selling organization’s goals are met. 

Khalsa writes often about two key concepts: “getting real,” and developing an “exact solution.” To be real is to be authentic, truthful, expressing clear intent, and speaking from values. It is a paradigm wherein the seller doesn’t accept the first response without asking clarifying questions–the purpose is to break down false pretenses, move past fears, and to get to core issues as comfortably as possible for all parties concerned. While no solution is perfect unto itself, the goal of creating an exact one is to have a strong urge to leave few stones unturned in order to reduce ambiguity and partner on both identifying problems and the methods of resolving them.

With the right mindset, a salesperson can overcome the following (* taken from Let’s Get Real, chapter entitled “We Both Want the Same Thing”)  inhibitors of client success:

Our issues:

  • we don’t listen
  • we make assumptions
  • we have preconceived solutions
  • we need to make the sale
  • it takes too much time
  • we don’t understand their business
  • we know what they need better than they do, and
  • we don’t talk to the right people.

Client issues:

  • they don’t know what they need
  • the can’t articulate what they need
  • they don’t agree on what they need
  • they won’t give us good information
  • they don’t let us talk to the right people
  • they are unrealistic about time, money, and people needed
  • politics count more than business sense
  • they procrastinate, and
  • they can’t make decisions.

Taking time up front to either determine (jointly with client) that a solution does not exist or create a solid business case is critical for better sales success. When we match client expectations to those of our organization with regards to the people, time, and money needed to achieve success with regards to a given opportunity, we demonstrate shared interests and feasibility. Knowing how decisions are made, by whom, and the timetable removes guesswork and allows us to offer a solution that exactly meets the client’s needs.

Qualifications of a Turnaround Adviser

An effective turnaround adviser must be uniquely qualified to deal with crises and prepared to assume responsibility for the company’s success. The three most important background credentials for an adviser are as follows:

  • an identification with the needs of declining companies
  • specific industry expertise in your industry or a related one, and
  • a track record of overcoming adversity and making the most of poor situations

General Requirements

When evaluating possible advisers, teams should look for someone with both practical, hands-on capabilities and an educational or research-based knowledge of the issues at hand. Make sure you do not have a novice attempting on-the-job training at your expense. It would be wise to find someone who has performed at least a dozen turnarounds individually and who has access to other personnel with the same or greater levels of experience. Furthermore, familiarity with research and educational publications within your industry that highlight concepts of turnaround practice gives an adviser a more objective view of workable solutions to difficult problems.

Industry Expertise

A background in your industry prepares an adviser to face the peculiar, industry-specific dilemmas that invariably arise. Previous work with companies of various sizes and in various markets furnishes the adviser with extensive–and beneficial–exposure to your industry. A proven ability to learn new markets overnight and employ existing operating resources effectively will result in quicker turnarounds. Examine the methods the adviser used with prior clients and determine whether similar programs would make a comfortable fit for your business. “Sanitized” copies of turnaround plans produced for other clients may even be requested.

Success Rate

A turnaround adviser’s success rate with previous clients is an important statistic. Much as a baseball team manager would hesitate to hire a pinch hitter who batted below .200, the executive team must exercise caution in selecting someone to captain the turnaround team. Most advisers who have been in business for more than five years can claim a one out of two (50 percent) or greater rate of success. To reduce risk, the team should look for an adviser who can claim–and substantiate–an 80 percent or better success rate. Once a successful adviser has been located, the team shout contact references and ask what made the effort a success.

Crisis Management

Effective turnaround advisers must possess certain qualities and characteristics that uniquely prepare them to deal with crises. The first such quality is “multilevel simultaneous thinking”–the ability to solve problems on several different levels at the same time. This is a skill gained over time through both education and experience. The ability to interact with numerous employees to resolve multiple dilemmas and relate to each in an appropriate manner is also essential.

Negotiating with Opponents

A turnaround adviser’s ability to search for all the important details, address issues with a penchant for opportunism, and follow through on commitments will also further the turnaround process. Note that “opponents” emerge in turnarounds virtually overnight; they tend to be former allies such as lenders and vendors. Being able to decipher an opponent’s true bottom line and make an offer that more than covers his or her threshold yet preserves the company’s position will save the company precious time during the turnaround. Indeed, many of these opponents in negotiations will return once again as allies when the business emerges from its decline. In completing a cycle of commitments to stakeholders, the turnaround adviser should ensure that every promise made can be carried out to the letter. Such consistency in following through on promises will enhance the builder’s credibility and image in the community.

Often employing little more than intuition, a crisis-oriented adviser can anticipate pitfalls and plan around them before trouble occurs. Being able to foresee a turn of events is a rare quality to begin with, but is especially valuable when coupled with the creativity that allows the adviser to adapt the flexible strategic plan to the changing demands of the situation. This ability to adapt to change is a necessary elastic band in the adviser’s armor, without which all other tactical weapons would be useless.