The Value Equation

The Role of the Chief Strategy Officer

Question: Why do most small business owners fail at strategy?

It is well documented that small businesses do fail at strategy: according to the SBA approximately 600,000 small businesses are created every year and less than 1% make it to ten years and $10M in revenues. 

Ephor Research has found that failure is primarily because of resource constraints (capital and talent), lack of defined processes and operating model, and shortage of strategic options.

A “Chief Strategy Officer” (CSO) can create an effective and relevant strategy which addresses resource constraints resulting in strategic options with scenario plans as well as connection of the strategy to both the financials and daily execution of the business. 

While the CEO makes the ultimate decisions; a CSO explores alternatives and creates options.

The role of the CSO is not one of “business planning;” as the job of budgeting/forecasting should be left to the department heads and finance. 

The CSO’s job is focused on exploring strategic alternatives, examining potential acquisitions and alliances, ensuring healthy dialogues, and facilitating creative tension among executives and the Company’s Board.  CSOs perform primary market research, market intelligence gathering and ensure that the executive team and Company Board are able to understand implications of various choices in order to make informed decisions. 

A CSO is a consultative role; part leader and part doer, an experienced visionary with the responsibility of ensuring execution follows the company’s strategy.  This unique background takes a multitude of different operating experiences, must include being both a creative thinker and influential collaborator (not a dictator or “me first” commando), and must ultimately be a detailed tactician / project manager.

A small businesses by its nature has limited options: either grow organically, increase the financing, merge, or sell.  Ultimately, the #1 job of the CSO is to create “Optionality” for the team.  As a business grows and becomes profitable it creates options for itself and the stakeholders such as:

1. Financial and Capital Raises
2. Strategic Partnerships and/or Technology Partnerships
3. Joint Ventures and Alliances
4. Market and/or Product/Service Expansion
5. Strategic Investor
6. Alternative Product Distribution

The CSO role need not be an internal or dedicated resource.  Many firms have elected to outsource this role to domain experts and advisory firms that can bring experience, intellectual capital and best-of-breed processes.

 

Technorati Tags: chief strategy officer,CSO,the role of the chief strategy officer,small business strategy,management best practices,Strategic Optionality

Creating Scale: Playbooks Drive Employee Accountability and Improve Daily Performance

Playbooks are informative instruction manuals for employees that create scale in a business by improving new employee onboarding success rates and by ensuring that employees daily activities are aligned with a firm’s objectives.    

An effective Playbook ensures accountability of daily performance by providing a framework for onboarding, training, coaching, employee discipline and incentives.

An effective Playbook includes:

• The employee’s objectives and metrics.
• The approach, programs, and activities that will enable the employee to meet their near and long‐term activity and results goals.
• Clear how-to instructions for team members to  support the financial objectives of the company through their daily activities.
• Methodology for the functional aspect (sales, manufacturing, customer service, etc.) of the business model that pertains to the employee.
• Narrative and descriptive text as well as images, visuals, audio, assessments, checklists, and evaluation tests as needed.

Technorati Tags: playbook,employee playbook,creating scale,operational scale,operational best practices,management best practices

Creating Operating Scale

Have you ever wondered why Fortune 500 companies have significantly higher revenues and profits per employee? 

Creating operating scale in a business is one of the main responsibilities of effective managers (and a requirement for both growth and efficient use of capital).  

Methods for Creating Operating Scale:

1. Over-communicate corporate mission, vision, values, and both near and long-term financial objectives on a regular basis. 
2. Ensure transparency of corporate and individual performance.  Start by publishing monthly operating reports that detail the operating performance of the business including current gaps and bottlenecks.
3. Institute Playbooks for every role in your organization (Playbooks are instruction manuals that guide daily performance and hold the employee accountable.)
4. Implement a lock-step onboarding program for all new employees which details the first 30 and 90 days in granular detail including activities, goals, and the definition of success. 
5. Initiate regular department, function, and team communication rhythms (i.e. routine, scheduled meeting times) to ensure effective top-down AND bottom-up communication at the “team level.” Improvement of “Team” dynamics is always a requisite for improvement.
6. Create a Yearly Initiative.  Examples:
1. Implement a culture of “Service Excellence”
2. Productize all services
3. Validate and refine expansion economics including customer acquisition and service model
4. Implement company-wide reporting and dashboards
5. Start benchmarking against top competitors or substitutes
7. Have everyone sell.  Teach everyone how-to sell including having all employees be proficient at delivering the value-proposition, elevator pitch, and outline of core products and services.
8. Create Lifecycle “Productization” for your buyer so that at each stage of their business you make it easy to buy.  Both customer referrals and retention is enhanced with each and every additional product, service, or “tie-in” to the customer (technology for example).
9. Utilize Targeting (market segmentation) to increase your probabilities of success as well as cost-effectiveness of your sales and marketing efforts. 
10. Implement Human Capital Best Practices including: Strategic Workforce Planning, Screening and Assessments (Top-Grading and Birkman for example), Leadership Planning, Employer Branding, and Talent Management System (HRIS).

The business case for operating scale is simple: today’s market and economic environment requires effective management to survive; and wealth creation is achieved with timely operational execution coupled with consistent improvement. (Strategic effectiveness creates exponential wealth.)

Technorati Tags: operational scale,operating scale,management best practices,management scale

 

Business Owners Need to Get Paid > How-To Create an Institutional Investment

Business owners always say to me, “Why would I need capital and advice once I get to $5M?”  

This is a short-sighted view and one of the main reasons why less than 1% of all companies reach ten years and $10M in revenues (SBA Department of Labor finding). AND also why very few business owners achieve financial freedom. 

An executive team is effective, healthy, and wise when it creates “Optionality” for itself. 

While the days of angel investors and “hockey-stick funding” went away with the stock market losses in 2008; enterprises with a unique business model, effective management, and positive cash flows have access to institutional investors (private equity, SPIC,  family office investors, strategic investors, to name a few options) whom can provide Optionality.  

A small business has the following limited options:

1. Grow organically;
2. Merge to become bigger; or
3. Sell.

Institutional Investment creates additional options such as:

1. Get paid for the business you created by selling a percentage to institutional investors while still retaining majority control;
2. Grow by acquiring additional locations, competitors/substitutes, technology add-ons, or distressed revenues;
3. Expand into new products/services or markets; or
4. Acquire top talent.  

Ten Criteria for Institutional Investment

1. Repeat Customers. The main reason why most small businesses fail is that they run out of cash. By building a business with a recurring revenue model a firm not only creates more stable financial footing, but also opens the door for institutional investment.  
2. Easy to Realize 5X+ Revenue Growth.  Growth capital investors are seeking companies that can grow at 40% per year or more and realize a 40% return on invested capital.
3. Significant Barriers To Entry. What is in place to prevent other companies from copying what you’re doing?
4. Strong Financial Indicators. EBITDA of at least 10%, above industry average Gross Profit, cost-effective customer acquisition costs. Understanding of these key metrics is requirement before scaling and growing. 
5. Consistent Operational Performance.  This means steady margins, EBITDA, and new customers quarter after quarter.
6. #1 or #2 Market Targeting.  Unless you are positioned #1 or #2 in your market your branding and strategy needs work.  At the same time investors like to see some competition because it validates that a market exists.
7. 30 Named, Referenceable Clients.
8. Investable Market Sector. There are a plethora of investable industry sectors.  A few “hot” investment sectors for the second half of 2009 include:
   • Healthcare business services
   • Healthcare technology-enabled business service-oriented solutions
   • Business Process Outsourcing (BPO) including Human Resources Outsourcing (HRO) and Finance and Accounting Outsourcing (FAO)
   • IT mobility solutions
   • Marketing and online technology-enabled business solutions
   • Workforce software and technology
   • Small and mid-market focused SaaS solutions
   • In summary: anything that improves productivity while simultaneously reducing costs.
9. Scalable operating processes.  Does each new dollar invested at the field-level result in a higher percentage return of profit?  If not, additional operational refinement is needed. 
10. Effective management processes.  Monthly operating, sales, and financial performance is known, reported, and effectively communicated to all employees.

The institutional investment criteria listed above is a roadmap for wealth creation.  Are you and your firm ready for analysis by outsiders on a regular basis? 

It all depends on your “Happy Ending.”  Is your “Happy Ending” to create wealth and ensure a lifetime of financial stability for your family or to have 100% control of your business?

 

Technorati Tags: growth capital,instiutional investment,management best practices,operating scale,happy ending

Top Ten Workforce Trends for Emerging Enterprises

#10: Prevalence of Advisors - Historically, "strategic advisors" consisted of accountants, CPAs, and lawyers; today however top-performing companies are turning to self-created advisory boards consisting of industry leaders, partners, and/or customers.  

#9: Outsourcing Adoption is Increasing.  Almost all companies outsource something; whether its payroll, marketing, sales, accounting, finance, or HR.   The Ephor Research Practice reports outsourcing adoption rates by function for employers with 25 to 2,000 employees: Human Resources 18%, Information Technology 26%, and 40% of all small businesses outsource some or all of accounting and finance.

#8: Run Human Resources like a Profit Center.  Anything that is measured can be improved.   Many organizations start with measuring basic HR measures (revenue and profit per employee, turnover rates, cost-per-hire, and employee engagement) and monitor quarter-by-quarter trends.   By shifting HR's focus from payroll and administration to organizational development and implementation of Human Capital best practices organizations become top performers.  

#7: Focus Performance Reviews on Forward Looking Goals, training, and career development.  HR experts and thought-leaders have written ad-museum about making performance reviews as motivational tool and not for discipline.

#6: Adopt Flexible Scheduling. 68 percent of firms utilize some type of alternative scheduling.  With the advent of conferencing and collaboration tools plus rising gas and transportation costs companies are embracing 9/80 and other flexible work schedules.

#5: Embrace Transparency. While stories of corporate greed plague the economy; many organizations have opted for more transparent reporting which drives accountability, engagement, communication, and connectiveness. 

#4: Improve Employee Productivity with training and tools. Download Employee Productivity Best Practices for Entrepreneurs.

#3: Invest in employee development and retention.   The average professional employee turnover costs an organization $50,000.00!   Read more about “Employee Management Best Practices.”

#2: Shift from reactive staffing mindset to proactive Workforce Planning. Workforce planning improves quality-of-hire and reduces recruiting costs.

#1: Create Workforce Scorecards – The path starts with creating transparent measurement and metrics.  Daily accountability at the front-line is a real problem that can be mitigated with effective management and measurement techniques.

We have found that companies that implement effective human capital best practices achieve the following:

A. Create scalable procedures (i.e. reduce labor and related workforce costs by 20 – 50%);

B. Develop more effective managers and leaders;

C. Improve workforce productivity; and

D. Mitigate workforce related risks and compliance issues.

 

Technorati Tags: workforce best practices,human capital trends,workforce trends,human capital best practices

Effective Sales Management Best Practices

For the majority of owners hiring sales people is the same as going to Vegas and rolling dice as 80% of all sales personnel hired by small business  employers fail to live up to their hiring goals and quotas (source:  Ephor Group Research, primary research with more than 1,200 small businesses over the last four years).

Clearly, quality-of-hire can be improved, but how often is the failure due to inadequate  sales infrastructure, lack of a proven customer acquisition model, and/or ineffective sales management?

Achieving a state of effective sales management practices is not an oasis; but like most things in life it is a journey. 

If there was a “Silver Bullet” don’t you think you would have heard about the book or technique by now? Effective Sales Management requires tried and true practices, applied consistently including:

1. Setup Your Infrastructure for Success – i.e. is your culture and organizational environment conducive for people to succeed?  Are employees setup in a “Winnable Game?”
   1. People > Do you have the right skilled labor, doing the right job, at the right place, at the right time, in the right quantity, with the right quality?  (Salesforce Checklist)
   2. Process > Have you established both a) cost-per-appointment and your b) proposal-to-close conversion rate?  
      1. Is your sales process a “Transactional Sales Process” or “Consultative Sales Process” (also referred to as a “Complex Sale”)?
      2. Are your people supposed to work the entire sales process from 0% (Qualifying) to appointment setting to 100% (closing a new client)? 
         1. For B2B technology, outsourcing, and business service employers the cost of having a full-time sales rep schedule appointments is approximately $1,000 per appointment.  Inside sales can schedule qualified appointments for $500 and telemarketing for $250 per appointment respectively. What is the best use of everyone’s time?  
         2. From the Ephor Group Research department: Top performing sales personnel can schedule one appointment per day and run six (6) meetings effectively per week.
   3. Systems > Do your people, partners and sales team all have the right tools needed for success?  (Revenue Checklist for Fast Growth Enterprises)
2. Provide Daily Motivation – Both monetary (compensation, bonuses, incentives) and non-monetary drivers.    A sales person’s daily activities are motivated either to a) avoid pain or to b) gain a positive benefit.
1. The majority of firms compensation plans are misaligned with the company’s financial objectives (not enough incentive pay and  the cost-of-sales is out-of-touch with the company and industry economics).
2. Sales people need confidence and “wins” all the time to be successful.  But too often we fail to congratulate in groups, and discipline effectively one-on-one.  
3. Daily motivation comes in many forms such as:
1. A press release highlighting the company
2. Winning awards
3. Celebrating pipeline movement milestones
3. Remove all Obstacles – Sales is a game best won with focus (increase your odds of success; i.e. probability) and consistent execution (the sales person that makes progress everyday will have more success than a flashy rep with a great first impression).
   • Regardless of how well your sales people are paid, or their background, or how great of a product/service; management’s job is to eliminate distractions and all obstacles (real or perceived).  Here are a few brief examples:
     • Sales and operations disagree on terms and the deal stalls.  One way to remove the obstacle would be to share the incentive compensation to motivate operations in alignment with sales.
     • Appointments set by inside sales are not of high enough quality.  Have field sales involved and have veto over the inside sales hire or telemarketing firm used.
4. Ensure Accountability -  Are daily, weekly, monthly, and quarterly targets known and understood?  The move towards transparency (and corresponding move towards more variable compensation) is key. 
   1. Clear goals and expectations for both activities and results.
   2. Sales performance improvement initiates with having the sales person develop a one page plan that details whom they are targeting, the techniques and budget and how much will be sold in what timeframe.
      1. Top-Down Approach:  
         1. Identify the revenue goal (# of sales, average price per sales)
         2. Divide the number of sales needed by your close rate and then multiple by a factor of ten (that is how many follow-up appointments are needed with qualified prospects to hit your revenue goal)
      2. Bottom-up Approach:
         1. Review and determine your "top-tier" prospects; assign an owner and detail all revenue possibilities in these accounts - these are priority targets
         2. Conduct a brainstorming session and list every possible sales opportunity; capture in sales pipeline CRM system

 

Re-Starting Down the Path of Effective Sales Management Practices:

1. Be visible and lead by example.   Put on your game face, be motivated, and do what’s “hard” or “unpleasant” first everyday.
2. Have your sales team individually create one-page sales “targeting” plan and then use the review of the plan to discuss obstacles, motivation, and accountability.
3. Over communicate.  Detailed discussions about activity levels and results is a requirement of leadership

 

For more sales management best practices checkout the following resources:

• HBR (New Science of Sales Productivity)
• Sales Tools & Sales Team Tools
• The Three Most Common Mistakes Sales Managers Make

My favorite sales management books:

• Topgrading for Sales : World-Class Methods to Interview, Hire, and Coach Top Sales Representatives, Smart & Alexander
• The New Strategic Selling: The Unique Sales System Proven Successful by the World's Best Companies, Miller Heiman
• The Little Red Book of Selling, Jeffrey Gitomer
• The Art of War, Sun-Tzu
• Sales Essentials Series, Steve Shiffman
• Raving Fans, Ken Blanchard
• How to Win Friends & Influence People, Dale Carnegie
• Good to Great, Jim Collins
• Crossing the Chasm : Marketing and Selling Disruptive Products to Mainstream Customers, Geoffrey A. Moore
• 1001 Ways to Reward Employees, Bob Nelson

Technorati Tags: sales management checklist,sales management best practices,revenue best practices,customer acqusition best practices

Are you prepared in case of disaster?

Let me set the scene: It was last Sunday morning around 10:30 am when my PC suddenly flashed and gave me the deadly Microsoft Windows blue

screen with the following error message:

“Fatal System Error: c21000a….”

After several failed attempts to either restore to an earlier instance or to fix the problem in SAFE MODE Dell informed me that I needed to start over. And so it began, the long arduous and painstakingly frustrating process of reloading all the software and applications (it took about 8 hours). 

I thought myself lucky as I had purchased an online backup application that backs up “all my files” remotely while I work.   Unfortunately, I made two critical mistakes:

1. You must manually set the solution to backup your PST file in order to save your email, contacts, and calendar; and
2. I did not select a provider that provided a full offline restore (I would have paid any amount to get my business files back via CD once I determined the online restore was having versioning issues).  Plus the online restore process took more than 100 hours to complete. 

 

The criteria I recommend using when evaluating online backup services:

1. Software Compatibility (not all run on Vista or Apple for example)
2. Tech Support (only via IM or on the phone as well? When you have problems you will want to talk to a real person!)
3. Provide offline copy restore of all files (Yes or No? This would have saved me hours)
4. Price per GB
5. Setup Usability (All are fairly straightforward and most offer a free trial)
6. Restoring Single Files Ease of Use (most meet this requirement)
7. Full Restore of All Files (How long does it take to restore all files? Which files are restored?)
8. Multiple Computer Backup (most of the solutions only allow one machine to be backed up per subscription)
9. File Versioning (when you delete a file by mistake or it becomes corrupted, you can retrieve a previous version to work from. If this is an important feature for you, pay attention to the versioning limitations)
10. Computer Performance During Backup (How much of your PC’s resources are being consumed?  My backup solution locked up repeatedly during restore)
11. Backup of Which File Types (Microsoft Outlook PST for example)
12. Online File Sharing (most do not allow this but a few do)
13. Synching (backing up latest version between your PC, laptop, and mobile devices)

 

For a more comprehensive list on online backup solutions do a search for “online backup services” at www.pcmag.com and you will be able to compare multiple solutions.  Also,  checkout the following resources:

1. Consumer Search Report on Selecting the Right Online Backup for You
2. Brief review of top online backup providers