Sustainability in 2011–Do you Improvise?

By Sherry Matteson, MA

Economies always cycle – throughout the year, from year to year and from decade to decade.  A solid approach to business as well as to life, is to be your best during the worst!  This is rarely the case, however.
Inherent problems tend to be overlooked under the best financial conditions and shine sharply when profits are slim.  If we are the best when profits are down, it stands to reason that the best times will be phenomenal.

So what are the keys to being the best?

1. Plan-The football team knows the whole play ahead of time. The ballet company dances to a complex series of pre-planned movement. Obviously, communication of the plan is critical in both scenarios. If the ballet company doesn’t know the Prima Dona’s next move they will look foolish and finally leave the stage. There will be no dance, except maybe a solo, which is a common scenario in small business with incredible burden on the owner. The same is true in music- the analogy is obvious. All the players need the score in advance. The results of improvisation can end up at either end of the spectrum- lovely or disastrous. Improvisation is not a good idea in business.

2. Trust– Trusting that the football players want to be their best, the dancers want to perform fabulously and the orchestra members desire to make beautiful music is an early step in building a foundation for success. Without this inherent trust, performance suffers, employees are anxious, confused and feel devalued. This climate is not conducive to high performance. This lack of trust in business usually indicates that leaders feel themselves to be unassisted, even isolated. This translates vividly to team members. It is prudent to hire people you can trust and then let go!
It is conversely a dangerous practice to give full autonomy to employees that are untrustworthy.  Either practice can split the very fabric of a company’s morale.

3. Support- This is a multi-dimensional concept. How does a football coach support the players? How does an orchestra conductor support the musicians? Support is an unflagging attitude but it is also a series of actions. The conductor makes sure that the players have what they need- music, supplies, sound system, auditorium, and and practice. The business leader is the same. To make certain that employees have everything they need to do their job is imperative and it is the business owner’s responsibility.

 4. Adapt- Sustainability in today’s marketplace requires resiliency and the expertise to recover quickly from difficult situations. Complacency is most often the origin of an underperforming business. Imagine if an orchestra played the same symphony over and over again at each venue, because they were good at it. Soon they would lose their audience. What if a great football team executed the same plays over and over at each game, or kept trading out players, hoping the situation would turn around. Without renewal of process, both would die a slow death. It is a fact that we love our habits, but the fact remains that uncritical satisfaction with one’s achievements spells mediocrity in any human endeavor.

A sustainable future requires planning, trusting, supporting and adapting. Where do you stand with regard to these concepts?

Do You Have Control of Your Business…or the ILLUSION of Control?

by Donald Miller, President

Let’s start this discussion by defining our terms. The Oxford American Dictionary defines control as: “The power to influence peoples behavior or the course of events”.

The definition of illusion is “a false idea or belief” and “deceptive appearance of impression.”

Which best describes your company and your position in it? Most of the small to medium sized businesses we encounter have some things in common.  Usually the owner has expertise or some experience in the product or service the company is providing.  For example the Master electrician owns the electrical contracting company.  The homebuilder becomes the General Contractor etc. We know that they understand the technical side of their business however by choice that isn’t their job anymore.  They are now the President but they haven’t had the training for this job so by nature they revert to performing pieces of their old job which cannot have the desired results. The result creates the ultimate firefighter that works very hard but never seems to get ahead. After years of this they begin to accept things like breaking even or even financial losses as “well that’s the nature of this business”.  Or worse yet “you know the economy is bad” instead of saying what do I need to do to become President of this company?

Jack Welch former CEO of General Electric during its largest period of growth is someone I was able to spend some time with some years ago. He vocalized some of the basic tenents I’ve been managing with all of my life. For example:

An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage. (This is virtually the credo of The dMb Group)

• Change before you have to.
• Control your own destiny or someone else will.
• Don’t manage- lead change before you have to.

The point of this discussion is face reality as it is, not as it was or as you wish it to be. The mirror of every organization is its President. If you are willing to constantly learn your people will also be. If you are set in your ways and stubborn, so will your people be.  When I hear a President look at his work force and say “well look at them! What am I supposed to do with them?” I don’t look at them, I look at him.

The good news is there are solutions. There is no “Presidents School” but there are tried and true management methods and measures. As soon as you, the President, learn them and embrace them your profit, work effort and effectiveness will improve. As soon as you are committed to learn everyday your workforce will embrace that same ethic. So strive for knowledge and stretch your personal limits.

Remember the school of hard knocks leads nowhere but some hard bruises.

The Sales Myth

Let us start by saying that only an imprudent business owner would not want an increase in revenue! But the myth that “sales will hide all evil” is at best exaggerated and certainly misunderstood.

Over 15 years of analyzing and helping small and medium size businesses, I find this is one of the first “solutions” a client will ask for. There is a perception in this business sector that revenue equates directly to profitability and cash flow improvement. In reality, the only true contribution to profit derives from the Gross Margin/Profit associated to this new revenue. The second factor is the effect on overhead that would result from this increased revenue and the associated activity. So before I would say “lets drive this thing up” I would ask myself a few questions:

1. Does my company have a formal Sales and Marketing Plan in place which clearly identifies end goals? Does this plan identify new customer base, pricing parameters, distribution methods, manpower performance standards, compensation methods?

2. In my company do I currently have the Financial Management Systems in place to have fingertip control of direct expenses which will have a direct effect on the Gross Margin?  Direct Expenses are defined as any expense directly related to the creation of revenue. Common examples would be Material and Labor. These two factors alone are the predominant expenses in most companies. When a company does not have fundamental Budgets, Cash Forecasting and Balance Sheet Management in place, a growth in revenue can have devastating effects on the back-end.                      
                                  

Lets stop. If you as President of your company answered no or maybe to these first two questions, then slow down and rethink. I have found the majority of the small to medium size companies I have analyzed are ill-equipped in these areas. The good news is that any company can make the leap as long as they understand that there are massive differences in what separates a $1 million firm from a $10 million firm in terms of an operating culture, and methods. Trust me when I say that “growing out of business” can be a reality.

Another reality you must face is that in many cases for companies in this revenue range the sales of these firms are limited by various demographics that would logically not change. Can you increase your market share in these demographics? Of course. But how and at what price must be a consideration.

When most entrepreneurs start a company, it is because there is a confidence in the ability to exceed competition performance or capture a new product opportunity. But the business side of the business cannot lag or be left behind. This will limit your ability to act in the role of President, which is essential in any company. Certainly this position is critical in any company over $1 million in revenue.

Advice! Act … Feel… Look… Function like a $ 10 million +++ Company. Learn to maximize true profitability at your current level. Then grow that thing to the Moon!

So next time someone is advising you that you need to “Grow your sales”… just tell them “Only a fool wouldn’t want more revenue! But what I really want is profit!”