Building Business Value | Corporate Management Strategies

The Power of Life Long Learning - Take the 90 Day Challenge

About ten years ago, my wife and I attended the annual neighborhood Christmas party when I found myself cheerfully buried deep in conversation with my neighbor Paul.  You see Paul is one of the smartest men I know and has a fascinating world-view, having built nuclear reactors all over Europe in his younger days.  We covered the typical neighborhood news and shared thoughts on current events when it happened!  Paul quoted Voltaire like a fantasy football geek quotes Brett Favre passing statistics.  No pretense or pomposity, just a matter of fact reference to the 18^th century philosopher that left me gasping for my intellectual life.  On the way home, I asked my wife if she thought my public school education and degrees from Maryland and Loyola should have better equipped me to strike back with a John Locke reference or a quote from Candide!  We weren’t able to solve the dilemma that night but I did find “Candide and Other Stories” in my stocking that year.  Thank God, my wife is a life long learner.  And that is the point!

New Challenges Require New Thought

Einstein said "The significant problems we face cannot be solved at the same level of thinking we were at when we created them."  In other words, business leaders need to continue to evolve their thinking.  Dot com thinking won’t solve web 2.0 challenges any more than pre-recession thinking will get business rolling again.  We’ve got to find new ways to address our challenges given the current economic conditions.  You can overcome this trap by stimulating your mind and challenging your paradigms.  For example, how can you get the bank to increase your line-of-credit when they’ve begun to squeeze even their best clients?  How can you stimulate sales when even your competition seems to be flat?  How can you find the very best talent your industry has to offer during a time when the fully employed seem to be hunkering down?  It takes a new level of thinking.  The problems have changed and so must our thinking.

The 90 Day Challenge

So here is your challenge.  For the next month, commit to spending 15 minutes each day reading something new about business.  Try not to be picky as you begin your odyssey.  In fact, the more outrageous, the better.  During the following month, fine tune your reading to certain blogs, trade rags, or business books. Continue to challenge yourself and roam outside your comfort zone.  Read anything you can get your hands on  from Seth Godin, Chris Brogan, Daniel Pink, David Meerman Scott, Malcolm Gladwell, Matthew Kelly, Patrick Lencioni or Thomas Friedman.  Flip through Forbes or Business Week or Fast Company or Inc.  Subscribe to a couple of newsletters, blogs or daily inspirationals.

After the first couple of months, begin working your way up to an hour each day. After 3 months you’ll find this 60 minutes to be the most creative, thought provoking, business building time you’ve ever experienced.  It could quite possibly change your life!  Remember, your business, your employees, your customers, your partners, your bank and your shareholders all expect you to be doing this.

"The significant problems we face cannot be solved at the same level of thinking we were at when we created them."

Critical Questions Every Leader Should Ask About Their Market

McDonald’s has sold more than 100 billion hamburgers, but did you ever wonder why they never sold hotdogs in America?

Simple: they know their market, what works and what doesn’t. Plus, their founder, Ray Kroc wasn’t a fan of the hotdog – and he turned out to be relatively successful.

Here’s a simple question for company management: Do you know whether or not your company should sell hot dogs?

As your company expands and builds value, one of the crucial areas you must have a firm grip on is your market. Sure, you’re saying, “We sell acne medicine to teenagers, what could go wrong.” Fine, but how much do you really KNOW about the teenage marketplace?

However you answer that question, conducting a market evaluation plays an integral part in building long term enterprise value. This exercise is designed to help you and your leadership team decide where your company currently fits in the market, and where it can grow. There is vital information just waiting to be discovered that will surprise – and hopefully – delight you and your team.

Product and Service Development

The first place to focus is the development of your services or products. Ask yourself, what exactly do we do? And how well do we do it? Who do we do it for?  Can we keep doing this and profitably grow?  Can others mimic our success and steal our market share?  Is our product or service a platform that can be leveraged or a stand-alone with no future?  What is the health of your market: is it growing or stagnating? Don’t forget to check if the market has developed a submarket that is taking off in a new direction!

Product and Service Delivery

Delivery of your services or products is another key target –consider your sales cycle and how long it takes between a client’s first interaction with your company to a completed sale. If your delivery method is still in development and varies from case to case, it’s time to establish processes and procedures to develop consistency.  Is the sales process more complex than it needs to be?  Can someone simplify the selling and the delivery and beat you to the punch?

Eating the Sacred Cow

Diving into your financials will provide you insight … warts and all, into the health of your company.  Obviously, we need to know where the money comes from, where it goes, and how much of it remains. We’re taking a deep dive, so remember to identify where sales and profits are highest in terms of specific products and services. And don’t hide a service or product that’s not performing – transparency is the watchword of the day, and lack of it could cost you dearly.  Underperforming parts of your business will not fix themselves and will slowly eat away at your value.

Who’s in Charge?

How to Avoid the 'Hero Paradigm'

Many companies get caught in the trap of relying on heroes. So many companies in challenging economic times have flattened out. They've had some success in the past but they are now facing a flat top line or worse, their top line is shrinking. Sometimes this is the result of the "hero paradigm." This is where companies succeed based on the activities of a hero or a set of heroes. They eventually flatten out because they lack process, structure, and methodology (the bane of entrepreneurs), and they can't scale.

A quick litmus test for your company to see if your success is dependent on heroes is to listen carefully to your language of success. How do you describe success?

For example, some leaders will talk about opening up a new market with a comment like, "We were successful in the Southwest because of John's contacts and his ability to push through sales during the last quarter." Can you imagine, Eric Schmidt of Google or Larry Ellison of Oracle saying, "We attribute our success in India to the ability of Mary Jane and her knowledge of corporate IT buying behavior!"

Some companies rely on heroes to be successful while others learned to scale, and although they certainly have superstars on their teams, they've learned how to repeat their successes by leveraging individual competencies, not relying on them.

Are You a Bottom Line Manager or a Top Line Leader?

I was in a meeting recently when I overheard a senior executive make a bold pronouncement:  “I’m a bottom line kind of guy”!  There is nothing wrong with this mind you.  Harry Truman was famous for the “buck stops here” sign on his desk.   Most of us feel great when we finally “get to the bottom” of a sticky problem, but as the economy has stagnated and recovery has slowed, I’ve noticed an overemphasis on bottom line management in many companies.

What are Bottom Line Managers? These managers concentrate on the expense side of the income statement. They sit at their desks with their operating budgets in hand, dutifully reviewing each and every expense report to make sure it is in the budget. Organizations spend thousands of hours developing, reviewing, and reconciling operational budgets and very little time discussing their customers.

Top Line Leaders, on the other hand, focus on the revenue side of the equation. They understand that the only way to create new opportunities is to find new customers.  I saw a documentary on the history of Apple last week on CNBC and marketing guru Guy Kawasaki shared his philosophy that “sales cure all ills” and I remember thinking “ain’t that the truth".

Top Line Leaders focus on substantially increasing revenues by finding new niches, new or modified products and services, or by expanding geographically or online. Top Line Leaders build a leadership team that includes Bottom Line Managers, but the Top Line Leader is always first among equals.

Many growing companies experience an overwhelming urge to put in place a "manager" who begins to control expenses. Thomas Watson, Jr., the long time CEO of IBM, is quoted in his book “Father, Son and Co” as saying that IBM “didn’t have an operational budget until it was over $400M in revenue”.  Obviously, expense control is important and essential to a company's long-term health, but revenue generation and the expansion of the top line should drive expense decisions.

Stagnant businesses have an abundance of Bottom Line Managers. It is not a creative job. The hard part is Top Line Leadership.

4 Questions to Find Your Higher Purpose

As your company develops its higher purpose ask yourself the following question: if we were to go out of business tomorrow, and nobody was hurt, why would it matter? The employees at King Arthur Flour remind themselves that every day, people across the country count on their flour to make their baking the best it can be.  Google's purpose is "to organize the world."  Amazon's purpose is to "build a place where people can come to find and discover anything they might want to buy online."  Washington DC's Sibley Memorial Hospital's purpose is to "promote wellness, to relieve suffering, and to restore health as swiftly, safely, and humanely as it can be done."

Is there some compelling reason your company exists? Are there clients who rely on your products and services to keep them safe, profitable or even alive? Would lives be altered or mountains left unclimbed if your company didn't exist?

Remember the story of the two stone masons. For days on end, both were toiling at the physically demanding task of stacking one stone upon another. When the first mason was asked what he was doing, he responded that he was stacking stones and securing them with mortar. But when the other was asked the same question, his response was that he was building a cathedral. Who do you think was more personally fulfilled? Which mason would be willing to work late, take on more responsibilities, and groom the next generation of stone masons?

The Deep Dark Secret of What Drives Value in Your Company

This is the second in a two-part blog entry.

In the last blog entry, we discussed value drivers and defined them as the tangible and intangible elements, which enhance the perceived value of your company’s product or service. You can think of Value Drivers like a packing list.  By making an exhaustive list of the things that drive the value of your company, you are building consensus with your leadership team on the items of importance in your journey to build a more valuable company. Value drivers help you gain insight into every department, division or business unit of your enterprise and how they work together and impact one another.

There are 8 internal value drivers and 6 external. Both sets are crucial in helping leadership teams determine the value of their company, and focus on the positive.

Let’s start with the internal value drivers; these are special because they are under your control. In order to drill down one more step, each value driver has a special area of focus – also known as a dimension. By taking a more granular look at each driver, it’s easier to put a value on a concept that can be abstract at best.

Here are the internal value drivers:

1. Financial performance & management
2. Corporate structure, ownership & legal
3. Asset base
4. Product/service development
5. Delivery
6. Business management
7. Information systems & internet
8. Leadership, management, & HR

Scoring each value driver with your leadership team presents a clear, and accurate, picture of where you stand. Consensus is key in order to continue moving forward. Rating these value drivers will provide a baseline, and also direct your attention to the transformational initiatives which are crucial to success.  I use a 1 to 5 scale with 5 equating to an industry high benchmark and 1 representing a absence of knowledge or a real company weakness.

The external value drivers are representative of how your company is perceived by outside stakeholders: this includes the competition, your bank, as well as current and potential clients. In most cases, the big leaps in enterprise value will come from changes to the external value drivers so pay special attention to these.

Here are the external value drivers:

1. Markets & marketing
2. Sales & channel management
3. Product/service offerings
4. Pricing
5. Customer base
6. Customer support

These value drivers offer you and your team the opportunity to take a critical look at your services and/or products and how they perform in the market. You’ll also determine if you’re selling them at the right price, through the right channels and to the right customer base.

Understanding your company’s value is critical to any strategic planning process since it guides decisions that will have the biggest return on investment (ROI).

Remember, this exercise can’t be conducted in a vacuum. You’ll need to include your entire leadership team (and perhaps external stakeholders) for their input and experience – and to make sure everyone is on the same page. As you tally up the scores for each section, you’ll be able to build a consensus and see where you are, and where you need to be.

The Secret of What Drives Value in Your Business

This is the first in a two-part blog entry.

It seems like I’ve been on the road for the last month.  Charlottesville, VA, the Outer Banks of North Carolina, Virginia Beach, Ft. Lauderdale … a hectic travel cocktail comprising business and pleasure.  It brought to mind a  basic travel tip.  Before you embark on a journey, write out a list of the things you’ll need. Socks, shoes, golf clubs, laptop, chargers, Motrin – the list can be daunting, but it collects the necessary information in one place.

You can think of Value Drivers like a packing list.  By making an exhaustive list of the things that drive the value of your company, you are building consensus with your leadership team on the items of importance in your journey to build a more valuable company. Value drivers help you gain insight into every department, division or business unit of your enterprise and how they work together and impact one another.

So what is a value driver? Good question! Value drivers are the tangible and intangible elements which enhance the perceived value of your company’s product or service.

For example, Netflix has many value drivers that go beyond revenue, earnings and their selection of movies – their first rate, do-anything-for-you customer service is a value driver. It’s nothing you can see, taste, touch or smell, but it’s helped this company unseat former business goliath Blockbuster.

Try to write down all of the different value drivers in your company.  It may seem like an insurmountable task.  Perhaps like making a packing list for traveling nonstop for 80 years!  But hang in there …. you can do this.

The first place to start is to separate the value drivers into two general groups: internal and external. While we’ll take a closer look at what we mean by internal and external in the next blog, here’s the list to help get you thinking:

Internal                                                           External

Financial performance and management         Markets & marketing
Corporate structure, ownership & legal          Sales & channel management
Asset base                                                      Pricing
Product/service development                          Customer base
Delivery                                                           Customer support
Business management                                  
Information systems & internet                      
Leadership, management & HR

Now that you have them separated, it’s easier for you and your leadership team to score each group on a sliding scale from one to five.   It is important to build consensus among the team on the relative strength of a value driver.  If the CEO believes one thing and the rest of the leadership team believes another, we obviously have issues!

Remember that for some areas, there might not be a score, and that’s not a bad thing. Not every company values each of the areas.  Another thing to keep in mind, when the project is completed, human nature says to focus on the bad area, but don’t forget that we’re also very interested in the strengths – they are what will give your company the most value, and make it appealing to outside interests.

Another positive result of this exercise is that it brings every element from your company together, and it gets them talking – maybe for the first time. Think about how productive a conversation on ‘what drives enterprise value’ could be between the marketing department and the engineers or the accounting team and the outside sales manager.

The next blog entry will further define each internal and external value driver, what they represent, and how to use each category to your company’s advantage.

Signs That You are in the Wrong Business

In early May, the record industry set a new standard.  Not a standard they’ll be pleased with, but it may be the best evidence yet that the “reports of its death are not exaggerated.”  The week of May 12, 2010, marked the fewest number of total album sales, 5.3 million, in a single week since Nielsen SoundScan started its tracking in 1991.  Some reports actually had this as the worst week of record sales since the early 60’s

Now my daughter will be happy to know that Justin Bieber was the best selling album of that week and record industry execs may say they are just waiting for a number of highly anticipated album debuts, but the truth seems to be that the industry is dying.  We may have more music choices than ever, but the record business itself is dying and its been dying for about 10 years.  From file sharing to iTunes, the recording industry seems to have little to offer consumers.

Warning Signs

So what are the signs that your industry may be dying?  The Motley Fool says the top four signs of a dying business are:

• Bad Boards,
• Too Much Leverage,
• Cash Flow Problems and
• Bad Investments. 

Certainly poor governance combined with a lousy balance sheet are signs the end may be near, but what if your entire industry is changing for the worse.

A Frog in Hot Water

Folklore has it that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death.  You can do the test at home, but the notion does holds true for most business leaders.  Major changes, or what Andy Grove called inflection points, can sometime shock us into a new direction, but very gradual changes in the market can lull us into a false sense of security.  An inflection point occurs “where the old strategic picture dissolves and gives way to the new.”  The more gradual the dissolution of the picture dissolves, the more difficult it is for us to react properly.

Get the Facts

During gradual market shifts, it is important to collect and analyze relevant data.  Looking for trends and gradual shifts in the market place gives you the opportunity to make gradual changes in response to the stimulus.  The problem is that small management changes don’t always keep up with the market.  Sometimes, transformational changes are required.

Break Down the Problem

The auto industry has suffered more than most in the last 10 years, but how should auto manufacturers respond to the changes in the market?  Do they address fuel efficiency, size, look, power output, reliability or all of the above?  This is when industry expertise really plays a huge role.  A knee jerk response to fuel efficiency may be just the tweak needed or perhaps reliability and looks are still the main drivers.  The key is understanding the components that comprise the buying patterns of your customers and then making fact based changes.

Another dying industry is the member management business.  That industry has been hit by the double whammy of membership loss and major technology changes.  No longer are people interested in joining an association for $150 a year just to get a quarterly magazine.  They’ll join an industry, market, or interest area specific LinkedIn Group or Google Group for free!  Companies in this space have had to shift into market segments where they could possible redeploy their core competencies.  A major move indeed! 

A 2010 report from IBIS World, published in Inc. magazine, Voice Over IP (VOIP), eCommerce and Recycling were a few of the projected high performing industries over the next decade while the Video Rental, Wired Telecom Carrier and Tank industries are projected to be on the downswing.

Best Performing Industries In The Coming Decade (2010-2019)

                     
 

1         Voice Over Internet Protocol Providers (VoIP)          149.6%   
 

2         Retirement & Pension Plans                                     133.7%   
 

3         Biotechnology                                                        127.6%   
 

4         eCommerce & Online Auctions                                 124.7%   
 

5         Environmental Consulting                                        120.3%   
 

6         Video Games                                                          112.9%   
 

7         Trusts & Estates                                                      105.7%   
 

8         Search Engines                                                       100.9%   
 

9        Recycling Facilities                                                    80.9%   
 

10       Land Development                                                   72.7% 

 

Worst Performing Industries In The Coming Decade (2010-2019)

  
 

1        Wired Telecommunications Carriers                          -52.0%   
 

2         Tank & Armored Vehicle Manufacturing                     -51.9%   
 

3         Small Household Appliance Manufacturing                 -34.4%   
 

4         DVD, Game & Video Rental                                     -32.8%   
 

5         Photofinishing                                                         -31.5%   
 

6         Lighting & Bulb Manufacturing                                  -26.8%   
 

7         Telecommunications Resellers                                  -26.4%   
 

8         Laminated Plastics Manufacturing                              -25.3%   
 

9         Synthetic Fiber Manufacturing                                  -24.6%   
 

10       Wire & Spring Manufacturing                                    -24.5% 

Leaders must constantly collect the data, search hard for the strategic inflection points and face the cold hard reality of their market place.  Anything short of this and your competition is having frogs’ legs for dinner!

4 Steps to Making Unbiased Decisions

How many decisions do you make in the course of the day?  Five, ten, hundreds?

Some are as trivial as Dunkin Donuts or Starbucks?  Others are more operational, such as signing a training request form or agreeing to new terms with a vendor.  Still some of your decisions will be strategic and require a bit more thought.  In these instances, are you able to be unbiased in your decision-making?

We are all products of experiences, education, culture and our environment so it is only natural that we carry the biases we develop into most business situations.  Consider your former boss who always seemed to be enthralled with the thoughts of one of your colleagues.  How about the time you became preoccupied with one particular solution and eventually went down on a smoldering heap!  It can take all of our mental agility and strength to remain open to alternatives and not jump at the first solution that feels good.

There is an old saying that “a mind is like a parachute, it works best when open!”  The same can be said for decision-making.  Being open to alternatives can lead to some amazing results.

Step 1 – Get Clarity.  I can’t tell you the number of times I hear managers and leaders shout out solutions before they truly understand the problem.  Get the facts, all the facts! To paraphrase Steven Covey, seek first to clarify.

Step  2 – Root out the Cause.  Root cause analysis is predicated on the belief that problems are best solved by trying to correct or eliminate root causes rather than administering to the symptoms of the problem.  Get to the root of the problem.

Step 3 – Analyze the Alternatives.  Analyze your alternatives and consider the risk and return on each of your alternatives.  A word of warning about this step – beware of analysis paralysis!  Socialize your alternatives but don’t fall prey to inaction.

Step 4 – Implement and Evaluate.  Don’t assume your job is done once you’ve made and implemented your decision.  Perhaps the results were not what you had hoped for.  Your alternatives may have uncovered the very best solution and your implementation was faulty.  Or maybe you never actually uncovered the root cause!  Whatever the case, constantly evaluate your decision process and don’t be afraid to Get Clarity, Root out the Cause Again and come up with another approach.

In most cases, we progress through this process without a thought.  But when the stakes are high and the consequences severe, check your ego at the door, manage your biases and make a decision that will stand the test of time.

The Indie Book Awards

The Indie Book Awards were established to recognize and honor the most exceptional independently published books and is presented by the Independent Book Publishing Professionals Group  in cooperation with Marilyn Allen of Allen O'Shea Literary Agency.

This year, Third Bridge Press entered “Building Business Value” and although we didn’t win the lavish first place prize, we were selected as one of the four ‘finalists.’  I use the personal pronoun ‘we’ in this case, because although I was the author, a lot of hands go into publishing a book.  The editing was done by Sharon Goldinger and her team at PeopleSpeak in Los Angeles.  The layout was done by Beverly Butterfield of Girl of the West Productions in Northern California and Mayapriya Long and her team at Bookwrights of Charlottesville, VA designed the cover.   Cardinal Press of Indianapolis distributes the book and Malloy Printers of Ann Arbor, Michigan were the printers.  So you can see, creating an award winning book takes a team.  In our case, a very talented and diverse team.

By the way, the winner in the business category this year was “Business Law Battle Plan for Entrepreneurs” published by Aviva Publishing.  Congratulations to author Marjorie Jobe!