When Janel and I went to a restaurant where we regularly eat, we were informed that the buffet salad bar was no longer available, yet the prices were still the same. What was once a busy place located in a tourist district, now has only one worker in the front and very few customers when we’ve visited. It is just another example of how many businesses are dealing with shrinking sales by slashing their costs and at the same time reducing the value their customers receive.
It’s amazing how many organizations practice “business anorexia” as their primary strategy to deal with the downturn in the economy. This describes the extreme financial “starvation” that organizations put themselves through, and that weakens their ability to compete. If continued, it creates a downward spiral that causes a business to go through these steps: 1) Rising prices and a weakened economy prompts cost-cutting measures because it provides immediate relief on the bottom line; 2) lowering costs means stretching out the resources and cutting investment for long-term growth, and possibly laying off employees; 3) this leads to a demoralized workforce that spends more time worrying about their jobs rather than focusing on the customers; 4) the organization develops an internal focus and disconnection with the customer; 5) which impacts the customer’s experience negatively and causes them to shop around for other options; 6) which reduces sales, and 7) and causes the organization to operate on paper-thin margins or at a loss; 8) which leads to further cost cutting… and so the cycle continues until the business eventually collapses.
To avoid this sickly cycle, it’s best to interrupt the pattern by starting at the earliest point in the process, which is using knee-jerk, tactical cost-cutting measures. All costs can be divided into two major categories: tactical and strategic. Tactical costs are useful to operate a business, but they don’t clearly bring in more revenue. This would include all assets and activities that maintain the status quo, such as administrative costs of all types, and some costs associated with manufacturing or service operations. It also includes discretionary costs, which cannot be traced to a specific increase in profitability on the bottom line.
Strategic costs, on the other hand, are those assets and activities that grow the business and directly create greater value for the customer and business. Focusing on those costs will yield a greater return on costs over time with an ultimate outcome of profit improvement versus just cost cutting. The businesses that survive and prosper during tough economic times are those that actually outspend their competition on strategic costs, as a percentage of revenue; while reducing their tactical costs as much as possible.
For example, if you have a lead generation program that has proven to bring in $1,000 of profit for every $500 you spend; it would be ludicrous to cut your costs for this program because you’ll realize an equivalent reduction in profits. Instead, you should increase your spending for this cost if you continue to see the same percentage improvement in profits, even if it means you have to borrow the money.
Before cutting a single penny, your business should be able to answer these questions: What business are you in? What are your prioritized and agreed upon goals and objectives to maximize your purpose? What are the criteria that will be used to measure each asset and activity and guide you in your decisions to improve your profit?
Your company must analyze and justify all of your costs and develop an overall strategy that outlines your profit improvement philosophy and practices. You should understand these three best practices in order to reverse the downward spiral: First, you must know what you do best or better than any other business; second, your business must hire the best people who love doing what they do best; and third, you must thoroughly understand and deliver what your best customers value. The intersection of these three areas will create a significant differentiating factor for your business and cause it to become the obvious choice. Let’s look at these three dynamic aspects in more detail.
First, know what you do best – and become even better at doing it. Be creative and innovative so that you can continue to improve. Monitor your competition to know what they offer to their customers. Do some research or visit businesses similar to yours when you travel, and take notes from your visits. Sam Walton of Wal-Mart was constantly looking for better ways to do what Wal-Mart did best. He would visit his numerous stores and take notes; visit the competition and take notes, then implement the best ideas throughout the stores. It can sometimes be a mistake to expand your product or service offering too far, and thus dilute your core competencies.
When you fully understand what you do best, it’s important to find and hire people who love doing what you do best. The Container Store has been ranked the number one business to work for, and their philosophy is that one great employee is worth three good employees, three good employees are worth three average employees, and one average employee is worth three lousy employees. Therefore one great employee is worth 27 lousy employees – and they’ll be a profit center for your business.
Nordstrom’s number one customer service strategy was to be meticulous about hiring the right people and then training them to sell – not hiring good salespeople and training them to be nice. You need to find people who genuinely like working and serving your customers, and who make customers feel important and valued. Nordstrom’s philosophy is to “hire the smile, train the skill.”
I’ve worked with several organizations that are very careful about who they hire. Whenever they meet someone working at another business who has great customer service skills, they will make a note about that person and if a position opens up, they will invite him or her to apply. What do you do if you have people who don’t appear to love doing what you do best and are not good working with your customers? If you’ve tried to coach and train them to become better customer service reps, then you might need to find other work for them, possibly in a support role.
The third factor is to perhaps the most important. You have to identify your best customers and deliver what they truly value. This process requires a mental shift from being transaction-oriented to becoming more customer outcome focused. Customers don’t just buy goods and services; they buy what those products do for them, or the outcome they expect. If you can understand that outcome and exceed their expectations, then you will be able to deliver greater value to them, which will develop greater customer loyalty.
Once these three factors are operating within your business, you will be able to reverse the downward spiral and instead of cutting costs, you’ll have the additional revenue to train your staff, create greater job security and allow them to focus on your customers by providing the resources they need to fully serve them. When your customers feel like they are getting greater value from your business, it will differentiate your business from the numerous competitors who sell similar goods or services, and it will cure business anorexia by allowing you to have an organization that is well-fed from the growing sales of customers.
Thursday, December 8, 2011
Thursday, December 1, 2011
Your Crystal Ball
You’ve probably seen a movie where someone visits a Gypsy woman to have their future foretold. She gazes intently into a large crystal ball and then begins to predict impending doom or untold riches with the words, “I see your future, and…”
What can you do if you want to know your future, and particularly the future of your company? Well, you could start searching on eBay for a used crystal ball, or you can foretell your own future by developing a vision statement that puts you in control of your destiny – instead of relying on the stars, Karma, or luck.
I’m not taking about a vision statement that is typically short and nondescript, and would make a better slogan than a detailed picture of your future. I’m talking about a detailed word picture that Cameron Herold, in his book, “Double Double: How to Double Your Revenue and Profits in 3 Years or Less,” calls a “painted picture.” This type of vision specifically describes what your business and life will look and be like in the next three years. He uses this timeline because it is short enough to create a strategic plan that is realistic and achievable, but long enough to implement innovative solutions and see their results within the three years.
The vision you create should be compelling and visual so it creates “buy-in” for your entire staff, and allows them to see the same vision that is in your mind. Many vision statements are too simple and vague, and therefore fall short of their mark to create a compelling word picture.
When it’s complete, you will have a detailed document that is between three to four pages. The contents of your painted picture should be a multi-sensory description of what you would see, hear, and feel as you walked around your workplace in the future. It should say what the media, community, and your customers will say about you. You’ll want to state how much your company earns in sales and profits, and you could include the type of employees who work for you and the core values you’ve instilled, that allow them to make good decisions.
You can include as many more categories as you need or want. Some categories could include customer service, marketing, technology, and your ideal work-life balance. Ultimately, your future business should provide you the resources and time to create your ideal lifestyle.
An important distinction is to focus on what you want and where you’re going, rather than how you plan to get there. That will happen when you dig into the details to create a strategic plan. Your painted picture should be a big picture look at your business from 30,000-foot, and the end results you’ll realize toward the end of your journey.
Herold’s own painted picture includes a short, but descriptive paragraph written in 16 different categories of his business and personal life. You can read a copy of it on his website at www.backpocketcoo.com. He encourages people to share their vision with employees, suppliers, bankers, and even customers. The reason for this is it gets your stakeholders to align with your vision and goals so that they understand their role in the grand scheme of things and how they will benefit. Some of them may even play a critical role in its realization.
You could even take it to another level by having an artist or graphic designer make it more engaging with visual imagery. Or, you could create a PowerPoint slideshow with photos and graphics to illustrate your word picture with real pictures.
Review it periodically, both individually and with your employees. Herold suggests reviewing the vision at a quarterly retreat where each person circles the words that mean the most to them before brainstorming ways to make it happen. One executive reads a section of the painted picture at the start of every meeting where more than two people are in attendance. Six months before the three year period ends, you should start crafting your next painted picture.
If you don’t have a vision statement, or one of those vague one-to-three sentence statements that doesn’t inspire anyone, you may want to consider putting together your own painted picture. When it’s complete, you could hold a company event, and if you have a dramatic flair, you could have someone, dressed as a Gypsy, gaze intently into a large crystal ball as she begins reciting your vision with the worlds, “I see your future, and…”
What can you do if you want to know your future, and particularly the future of your company? Well, you could start searching on eBay for a used crystal ball, or you can foretell your own future by developing a vision statement that puts you in control of your destiny – instead of relying on the stars, Karma, or luck.
I’m not taking about a vision statement that is typically short and nondescript, and would make a better slogan than a detailed picture of your future. I’m talking about a detailed word picture that Cameron Herold, in his book, “Double Double: How to Double Your Revenue and Profits in 3 Years or Less,” calls a “painted picture.” This type of vision specifically describes what your business and life will look and be like in the next three years. He uses this timeline because it is short enough to create a strategic plan that is realistic and achievable, but long enough to implement innovative solutions and see their results within the three years.
The vision you create should be compelling and visual so it creates “buy-in” for your entire staff, and allows them to see the same vision that is in your mind. Many vision statements are too simple and vague, and therefore fall short of their mark to create a compelling word picture.
When it’s complete, you will have a detailed document that is between three to four pages. The contents of your painted picture should be a multi-sensory description of what you would see, hear, and feel as you walked around your workplace in the future. It should say what the media, community, and your customers will say about you. You’ll want to state how much your company earns in sales and profits, and you could include the type of employees who work for you and the core values you’ve instilled, that allow them to make good decisions.
You can include as many more categories as you need or want. Some categories could include customer service, marketing, technology, and your ideal work-life balance. Ultimately, your future business should provide you the resources and time to create your ideal lifestyle.
An important distinction is to focus on what you want and where you’re going, rather than how you plan to get there. That will happen when you dig into the details to create a strategic plan. Your painted picture should be a big picture look at your business from 30,000-foot, and the end results you’ll realize toward the end of your journey.
Herold’s own painted picture includes a short, but descriptive paragraph written in 16 different categories of his business and personal life. You can read a copy of it on his website at www.backpocketcoo.com. He encourages people to share their vision with employees, suppliers, bankers, and even customers. The reason for this is it gets your stakeholders to align with your vision and goals so that they understand their role in the grand scheme of things and how they will benefit. Some of them may even play a critical role in its realization.
You could even take it to another level by having an artist or graphic designer make it more engaging with visual imagery. Or, you could create a PowerPoint slideshow with photos and graphics to illustrate your word picture with real pictures.
Review it periodically, both individually and with your employees. Herold suggests reviewing the vision at a quarterly retreat where each person circles the words that mean the most to them before brainstorming ways to make it happen. One executive reads a section of the painted picture at the start of every meeting where more than two people are in attendance. Six months before the three year period ends, you should start crafting your next painted picture.
If you don’t have a vision statement, or one of those vague one-to-three sentence statements that doesn’t inspire anyone, you may want to consider putting together your own painted picture. When it’s complete, you could hold a company event, and if you have a dramatic flair, you could have someone, dressed as a Gypsy, gaze intently into a large crystal ball as she begins reciting your vision with the worlds, “I see your future, and…”
Pessemistic Optimism
“Pray as though everything depended on God. Work as though everything depended on you.” – Saint Augustine
Students in my business class prepare the entire semester for a major presentation that they make to “investors” who evaluate each presentation using specific criteria. It goes pretty fast with only 12 minutes given for each group to cover all the details, so I encourage them to have some printed material, diagrams, and product examples for the investors to view.
This semester, there was a glitch with a couple of the student’s presentations because about halfway through, their computer failed to display their PowerPoint presentation on the large screen. Without any printed materials, they were left to just talk about their business concept with no visual backup.
Murphy’s Law states that if anything can go wrong, it will. A corollary to this law is that it will happen at the worst possible time. I had my own chance to see Murphy’s Law in action during finals week when I came into the office on Monday morning and turned my computer on and learned that it had crashed. With all my grades, tests and projects on the computer, I was devastated for a moment. Then I remembered I had backed up the data on my computer, but it was a couple of months ago. Thanks to Jovian in the IT department at the college, he was able to recover most of the files by the next day.
These various incidents in the last few days made me think about some sharp entrepreneur’s I’ve worked with who exhibited the quality of pessimistic optimism. They were highly optimistic, had a big vision, and were confident that they would achieve their objectives; however, they also had a thin slice of pessimism that caused them to over prepare by examining any worst case scenarios and being ready to deal with them. In other words, they had backups and contingency plans in place, and they were ready to implement them, if needed, so they could quickly switch gears and get back on track.
Jeffrey Bussgang tells the story in his book, Mastering the VC Game, of how Christoph Westphal left a venture capital firm to become a founding CEO of a company developing a drug that would allow people to live substantially longer. Christoph had an extraordinary vision and went on the road to present his plan with boundless optimism to several venture capital firms. However, he tempered his optimism with a dash of paranoia, and explained: “I assume that everything is going to go wrong. Paranoia is part of what drives a lot of entrepreneurs in a positive direction, just worrying that everything is going to go wrong and trying to mitigate every possible risk. As Intel’s Andrew Grove said, ‘only the paranoid survive.’”
Many individuals seem to operate under the belief of optimistic pessimism. They know that things are bad and getting worse, but they take little action and instead hope that someone will have mercy or something will change at the last minute to make everything better. They take one half of Saint Augustine’s quote and pray that everything will turn out for their good – and sometimes it does. However, they seem to ignore the other half of the quote that requires them to work as if everything depended on them.
We are living in tough times that have many people stressed out. There is plenty of room for pessimism and evidence that things will go from bad to worst. In this dismal situation, some still hope that something good will happen, and relying on someone else to make it happen.
By contrast, I was talking to a prominent entrepreneur last week who spoke as if we were going through good times. He talked about his business ventures and real estate holdings with a 95 percent occupancy rate. His optimism was contagious, and one would think that he was just blessed by providence or good luck. In reality, he had carefully planned for any contingencies and created an environment that attracted customers and tenants because of the careful attention to detail he places in all his work.
Optimists see the good there is in the world, and take action as if everything depended on them, and the smart ones also pray as if everything depended on God. Thanksgiving is a time to consider all those things we are grateful for in our lives. We have been blessed by God with life and the energy to pursue the abundant opportunities that surround us – even during tough economic times. It is up to us to become a pessimistic optimist and make things happen.
Students in my business class prepare the entire semester for a major presentation that they make to “investors” who evaluate each presentation using specific criteria. It goes pretty fast with only 12 minutes given for each group to cover all the details, so I encourage them to have some printed material, diagrams, and product examples for the investors to view.
This semester, there was a glitch with a couple of the student’s presentations because about halfway through, their computer failed to display their PowerPoint presentation on the large screen. Without any printed materials, they were left to just talk about their business concept with no visual backup.
Murphy’s Law states that if anything can go wrong, it will. A corollary to this law is that it will happen at the worst possible time. I had my own chance to see Murphy’s Law in action during finals week when I came into the office on Monday morning and turned my computer on and learned that it had crashed. With all my grades, tests and projects on the computer, I was devastated for a moment. Then I remembered I had backed up the data on my computer, but it was a couple of months ago. Thanks to Jovian in the IT department at the college, he was able to recover most of the files by the next day.
These various incidents in the last few days made me think about some sharp entrepreneur’s I’ve worked with who exhibited the quality of pessimistic optimism. They were highly optimistic, had a big vision, and were confident that they would achieve their objectives; however, they also had a thin slice of pessimism that caused them to over prepare by examining any worst case scenarios and being ready to deal with them. In other words, they had backups and contingency plans in place, and they were ready to implement them, if needed, so they could quickly switch gears and get back on track.
Jeffrey Bussgang tells the story in his book, Mastering the VC Game, of how Christoph Westphal left a venture capital firm to become a founding CEO of a company developing a drug that would allow people to live substantially longer. Christoph had an extraordinary vision and went on the road to present his plan with boundless optimism to several venture capital firms. However, he tempered his optimism with a dash of paranoia, and explained: “I assume that everything is going to go wrong. Paranoia is part of what drives a lot of entrepreneurs in a positive direction, just worrying that everything is going to go wrong and trying to mitigate every possible risk. As Intel’s Andrew Grove said, ‘only the paranoid survive.’”
Many individuals seem to operate under the belief of optimistic pessimism. They know that things are bad and getting worse, but they take little action and instead hope that someone will have mercy or something will change at the last minute to make everything better. They take one half of Saint Augustine’s quote and pray that everything will turn out for their good – and sometimes it does. However, they seem to ignore the other half of the quote that requires them to work as if everything depended on them.
We are living in tough times that have many people stressed out. There is plenty of room for pessimism and evidence that things will go from bad to worst. In this dismal situation, some still hope that something good will happen, and relying on someone else to make it happen.
By contrast, I was talking to a prominent entrepreneur last week who spoke as if we were going through good times. He talked about his business ventures and real estate holdings with a 95 percent occupancy rate. His optimism was contagious, and one would think that he was just blessed by providence or good luck. In reality, he had carefully planned for any contingencies and created an environment that attracted customers and tenants because of the careful attention to detail he places in all his work.
Optimists see the good there is in the world, and take action as if everything depended on them, and the smart ones also pray as if everything depended on God. Thanksgiving is a time to consider all those things we are grateful for in our lives. We have been blessed by God with life and the energy to pursue the abundant opportunities that surround us – even during tough economic times. It is up to us to become a pessimistic optimist and make things happen.
Subscribe to:
Posts (Atom)