Tag Archives: sales

Owner as Entrepreneur vs Manager: Jekyll and Hyde

At the center of every small business management team is the owner, whose primary long-term responsibility is to manage the company effectively. While some companies have several people who function in this capacity, this discussion will assume that an on-site entrepreneur/owner runs the business. Traditionally, this individual oversees the entire operation and personally looks over most company work, both in the office and in the field/plant. Furthermore, the owner is commonly a jack-of-all-trades, wearing the hats of many different employee roles.

The “Jekyll & Hyde” Theory

It is often asserted that the individual who single-handedly runs a company has a certain, identifiable “Jekyll and Hyde” personality. In demeanor and approach to problem-solving, the typical owner ranges from brilliant to tyrannical. An effective strategic plan must therefor encourage brilliance while keeping the owner away from problems that transform him or her into an ineffective manager. The same qualities that have enabled the owner to gain insight into many facets of the business operations are the exact ones that force him or her to be involved in every decision, major or minor. Such overt  care and concern for the company is to be anticipated and applauded. When it results in ineffective management, however, a remedy must be devised.

Entrepreneur or Manager?

Efficient businesses require in-house management. Unfortunately, the skills that make an owner a successful entrepreneur can be at odds with those that make one an effective manager. Excellent entrepreneurs have great sensitivity to market changes. However, when they leave the daily operations to become managers, two things happen: 1) they stop using their innate skills, and 2) they manage ineffectively.

Though the owner may experience periods of fear or apprehension, as a group owners are generally optimistic and opportunistic. Good owners emanate confidence, motivating those around them. For example, by spotting a mismatch between market demand and supply, a good one can inspire employees to work towards meeting that demand. Uniquely able among executive team members  to downplay the importance of minor setbacks, savvy owners emphasize the company’s forward movement in a vision casting mode.

Finally, first-hand knowledge of company history sets the owner apart. Having founded the company, the owner as entrepreneur is an indispensable part of the management team. When questions arise concerning company history or past performance, as they frequently do during times of tension, who better to turn to than the individual who has owned or managed the company all the while?

The Owner’s Vision

In providing vision for the company, the owner is expected to identify opportunities to pioneer new markets and expand the company’s presence in existing markets. Thorough identification of precise product offerings and internal procedures to make the products is a large part of every owner’s job description. The interaction between market research (including trends, buying patterns, and demand) and company vision is a relationship that the effective entrepreneur manages on a regular basis.

The entrepreneur can help the management team by maintaining personal relationships  with key parties such as sales people and lenders. If links have been formed based on good rapport with these parties, it is only fitting that these relationships continue  when they cannot be successfully turned over to another manager. This scenario rings particularly true with regard to negotiations with suppliers. The owner’s involvement in handling these parties is essential to reinforcing profitability.

 

Sizing Up the Competition

Whether you are in turnaround mode, wildly profitable operations, or somewhere in between, it is imperative to know as much as you can about your competition. Competitive threats–present or forthcoming–should be well understood and strategies developed to address them.

Assessing the Competition

To assess buyer potential, knowledge of competing products is essential. Any advantage an executive team may hold over the competition needs to be studied with an eye toward exploiting that advantage fully. By developing this competitive advantage, the business creates non-financial barriers can prove difficult for the competition to overcome; financial barriers (for example, price discounts) are often more easily met.

Threats from competitors are a daily occurrence. Therefore, the competition should be monitored and key information compiled and categorized, either manually or electronically, and updated regularly. The most common forms of threat to watch are as follows:

  • the unanticipated entry of competition with extensive resources or new product offerings into the local market
  • the diversification of existing companies into new product offerings
  • the introduction of  a technology (such as a software as a service trendsetter) that exceeds currently available prototypes
  • efficiency improvements that create cost advantages not easily matched

Any slight advantage in cost savings others can gain presents a viable threat to the operation of every other participant in that niche. For example, if a company can source inputs cheaper, that competitor can control the market through pricing. While price reductions can be matched, cost efficiencies cannot. With reduced cost structures, the business could offer higher quality products for the same or cheaper prices to the same group of buyers another business is trying to attract. Some may strike lucrative deals with their vendors, who are in effect “held captive” by their need for the contract work. Streamlining staff or other reductions in overhead can also contribute directly to the bottom line and clear the way for improved price competition.

Gathering Information on the Competition

Given the possible threats, every company should study and know its competitors inside and out–not just figuratively, but objectively, analyzing competitive products in the field and the team(s) that produce them. If a competitor suddenly pulls out of a channel or wholeheartedly pursues another, the executive team should wonder and try to determine the reason. If you are playing in the same space, detailed information on the features, marketing and expected pricing of the offerings of others can be extremely valuable. More difficult to collect, but perhaps even more valuable, is information on a competitor’s cost structure. Knowledge in these areas prepares your team to position its offering in any given situation. This information can and should shape planning.

Information can be gathered from websites, especially press releases, industry publications and organizations, and word of mouth. Suppliers, services firms, and buyers are valuable sources of competitor information. Of course, such information must be considered in light of the motives of the person providing it. Proactive research in terms of surveys and interviews can also supply good background data. Most important–and easiest to obtain–is information from marketing agencies and sales organizations that serve multiple clients.

Gaining a Competitive Advantage

Companies gain an advantage when a known, unique asset is translated into a more competitive offering. Therefore, the executive team should carefully note opportunities to gain an edge throughout the information-gathering process. Capitalizing on company strengths–and opportunities to serve the market thereby–will instill the confidence necessary to withstand outside threats. Addressing buyer concerns in a positive manner, funneling their input into a constructive, sales-closing process, will enable the business  to make the most of both strengths and weaknesses. For example, by offering option packages and upgrades based on buyer demand, the company can secure more contracts. Meeting delivery schedules is also critical to enhancing competitive advantage. 

Customer service is another important area to scrutinize. Satisfied customers are a great source of new, repeat, and referral business. By carefully pre-screening potential buyers and collecting selection information, more targeted sales efforts can be made. Teams should expect prospects to respond to customer service before and after the sale as though the sale depended on it.

 

Why You Can’t Turn the Company Around

Yesterday, we briefly touched on three different types of turnarounds–strategic, operational, and financial. The point was also made that many successful turnarounds are a combination of more than one type. If you have never had experience determining which type fits a given situation, chances are high that you will make some mistakes than could prevent the company’s successful recovery. There are at least two other reasons the desired recovery may never be seen–procrastination and delusion. We aim to explore both of these mindsets, but first want to dive deeper into our definitions of turnaround types. 

  • Strategic – the changing of markets and products, for instance going after new segments of the market.To do so would require new strategies and tactics with regards to promotions, pricing, design features that would need to be scheduled in the turnaround plan to guide management through the remarketing of the company.
  • Operational – transforms the cost structure of the operations. Unloading aged inventory and increasing sales efforts are two examples of use of this method. The operations section of a turnaround plan discusses schedules, budgets, estimating, purchase orders, direct costs, work in process, customer service, and time and dollars to get profitable work out the door.
  • Financial – this section of the turnaround plan ordinarily addresses debt structure, debt payment, accounts payable aging, accounts receivable strategy,  cash flow, inventory turns, revenue projections, and general and administrative cost structures (among other things). The costs recorded are actual, rather than accrual or standard, due to the time constraints of a crisis situation. 

The Danger of Procrastination

Too many companies decide to “ride it out” -like a foolish person in a coastal area with a category 5 hurricane approaching. Staying in the bad situation and only wringing one’s hands about lurking danger is NOT a solution! Management paralysis extends into business operations in the form of delayed strategic decisions. Those who refuse to admit that a problem actually exists do themselves, their employees, creditors, and customer a huge disservice. 

The business continues to lose credibility and money, and the loss of credibility can incapacitate a  leader’s ability to pursue many options. Teams must, therefore, avoid any procrastination and make the decisions necessary to initiate immediate action. Any delay simply makes the turnaround that much more difficult to accomplish.

The Investor Delusion

At this point, another common delusion is that a “white knight” investor exists who will swoop in and save the company with a cash infusion. Turnaround funds are only available when a credible turnaround exists, a plan that, not surprisingly, must include a substantial return for the turnaround investor. A desirable return normally includes the following:

  1. Origination fees for fund placements: 2 to 10 percent
  2. Management fees for recovery oversight: 5 percent
  3. Equity positions (transfer of ownership via stock): 25 percent or more
  4. Redemption based on retained earnings: 3 to 4 times retained earnings

As one can see…seeking the outside investor can make an imbalanced balance sheet much worse in a hurry. Instead, it’s wiser to work with existing stakeholders: vendors, lenders, (employees) and stockholders. Focus on management–not miracles!

Facing the Problem

When the executive team owns the fact that they must find a new, viable solution and they are willing to do “whatever it takes,” a new course of action must be chosen. Three distinct options should be considered:

  • A complete and comprehensive change in modus operandi–and the implementation of accountability and controls. This almost always is a shift to more team involvement in making decisions to counteract traditional one-man rule.
  • Pursuit of a bankruptcy procedure, led by attorneys, accountants, and others to protect the company assets and try to buy time. The turnaround plan is drafted in legal and accounting language and creditors are put at bay temporarily. Everything then hinges, however, on profitable growth moving forward.
  • Retaining a turnaround advisor who has significant experience in crisis situations is often the best choice. Often, bankruptcy filings can be avoided and the cash saved used to fuel a quicker recovery.

Your choice of option must be agreed upon by the entire management team if you plan to emerge with momentum. Greater transparency than ever before will win morale points with the team and the employees, plus help restore credibility with outsiders. With hard work, tighter controls, and improved leadership, you an “right the ship!”

(Internal) Early Warning Signals of Decline

As ominous as uncontrollable external elements may appear, they are not the major cause of business failure. Rather, controllable internal elements are most frequently the problem. The internal elements that affect businesses are finance, operations, and marketing and sales. These are the basic functions over which a company’s executive team exercises direct control. Any business function can be placed within these categories. 

Business management is the force that drives these functions; yet changes in internal elements are at the root of the majority of business failures. These failures do not occur overnight; rather, such business decline usually occurs in stages. Extensive research that the founder of our organization performed suggests that the basic reason companies fail to recognize the onset of decline is simple management myopia or ignorance.

When your team fails to recognize the internal signals of decline, rationalization often ensues, with blame attributed to uncontrollable external elements. This approach appears on the surface to absolve management of responsibility for the company’s problems. For example, a shortage of cash might be blamed on stricter banking standards or lack of demand for the product/service. This “problem” can then be attributed to the nation’s economy.

Management can then take smaller “leaps of logic” to shift the blame to increased competition, which has made the marketplace unpredictable. While a shortage of cash is a symptom of a problem and surely a major signal of decline, the shortage of cash itself is not the actual problem; the problem may be buried deep within the business’s management and accounting information systems. You may be making sales at a price that does not cover the fixed costs of operations, or accounting personnel may not have developed contribution margin, product cost, and direct cost of sales standards. If your “system” cannot measure the causes of unprofitability, how do you know what changes to make?

As with external elements, internal elements can also interact with one another. Finance, operations, and marketing and sale shave a natural interaction with each other and are, in fact, related to one another. any one of these internal elements may cause decline. As the problem persists, the other functions become involved. Operations techniques may become antiquated. Marketing and sales can be in the wrong market with the wrong product. Finance may be unaware of other departments’ changing financial requirements. Such a lack of information flow between departments also signals decline. Businesses cannot survive without information about both internal and external environments.

Coping With Internal Elements

It is unfortunate when managerial tools are not used for maximum benefit. Many companies fail to manage by cash projections; instead they rely on “looking backward” statements like balance sheets and P&L. Budgets comparing projections to performance are critical to effective management. When budgets are tasks rather than tools, your management is weak. Balance sheets can show working capital reserves even when a company is in decline. Changes in accounts is important to track–it can point you to root causes and symptoms of real problems.

Controlling Internal Elements

The internal elements are the factors that should be most familiar to executive teams, but they are often the most overlooked. The very nature of the internal elements is dynamic; they are continually evolving and require constant monitoring. Since managers may be unable to understand the dynamic nature of the internal elements, a decline may go unnoticed for a while. Management’s primary role is to use these elements to maximize profits. Controlling finance, marketing, and operations requires monitoring of all the functions to identify potential signals of decline.

 

How To Grow Business All the Time

 

Whether your trade is producing software, computing tax liabilities, or manufacturing tangible goods, the success of your organization is going to be tied to strong sales (business development/ “bizdev”) performance over the long haul. Yet, few organizations are able to create a bizdev model that is sustainable and that constantly fuels the capital needs of the enterprise. Bizdev, however, is something that far too many senior executives (or, business owners in the SMB world) think must be acquired through osmosis or tenure. While I don’t actually believe that they think that, their actions would indicate otherwise.

Virtually everyone in North America has had a frustrating experience with bad sales execution. Either one has been on the end of trying to convince someone to buy, or the other end where we hate to be the recipient of “sales.” There’s much wrong with the selling models that are so pervasive that negative experiences abound on both sides of the equation.

Mahan Khalsa, who led the Sales Performance Group at FranklinCovey for a number of years, is one of my favorite authors on the subject of business development. His background included developing instruction for one of the old Big Eight CPA firms, then turning his attention to training almost 100,000 salespeople and consultants from all over the place in many different verticals.

Khalsa says, “Most professional sellers have good intent. They know manipulation and deceit hurt rather than build long-term sales success. They know that building trust is essential to both creating and capturing value. So they eliminate a lot of what would otherwise be dysfunctional—no surprise there. Yet most also consistently engage in actions that are not value adding–for them or for their customers. Even when great intent is present, there is a lot of room for improvement in eliminating dysfunctional behaviors.”

Both Khalsa and Neil Rackham find the tendency to jump to solutions before having completed the questioning process to be the bane of many folks involved in bizdev. I have observed noted rainmakers stumble in prospect meetings over this very subject. It’s as though the brain clicks into autopilot and, rather than seeking to understand, hubris takes over and the rainmaker is intent on being understood. Often, the solution that is recommended is premature–it doesn’t bear the wisdom of listening and consultative due diligence.

“Looking a little more holistically we could say the missing link is the ability to successfully blend excellent inquiry with excellent advocacy – to do a superb job of matching our story to the client’s story. Good inquiry is essential and most often the more undeveloped portion of the balance – and it is still only part of the equation. I’ve seen people get good at inquiry and still not be able to convert on advocacy.” (Khalsa)

When Khalsa left FranklinCovey, part of his intent was to transform the way business developers approach their work. He felt there was room for continuous improvement over an entire career. To that end, he began to wed together the twin concepts of business development and change management, with a sprinkling of performance measurement. In order to see strong long-term results, he argues, there must be an environment supportive of continuous improvement and a repeatable process that can be practiced and refined. 

Edward Deming once said, “It is not enough to do your best. You need to know what to do and then do your best.” So the quality of the practice and application is as important as the quantity of practice – and the quantity is essential. Khalsa subscribes to this concept as it relates to bizdev, stating “What I find liberating and motivating about the research is that everything, repeat everything, we need to do in order to get really good at sales is learnable – if we are willing to practice. It doesn’t have to do with our DNA, our native IQ, our personality type or social style, our years of experience. If we are willing to engage in a high number of repetitions of quality practice we can become as great as we want to be. That’s powerful.”

A key factor in effective bizdev is the ability to build a trusted relationship with the other party. Khalsa firmly believes that trust can be built intentionally and that it is tied strongly to value and information flow. In fact, he would argue that anyone who has two can obtain the third. Fundamentally, a rainmaker will have to become consistently better at doing what is promised and establishing a culture where the other party feels safe to share meaningful information.