Building Business Value | Corporate Management Strategies

The Triple Bottom Line Creates Business Value - Expand your Concept

I had lunch with an old colleague a while ago and he reintroduced me to the concept of the Triple Bottom Line. Alan Randolph is the Professor of Management and Global Business in the business school at the University of Baltimore and the author of "Three Keys to Empowerment". As our conversation drifted around concepts of empowerment and value drivers, Alan reminded me of the concept developed by Ken Blanchard, Alan and others at The Ken Blanchard Companies. 

It goes something like this. Companies should certainly strive to achieve results in EBITDA or the traditional bottom line. That almost goes without saying. But they should also expand their concept of a bottom line to include being considered the employer of choice and the investment of choice. So if it all comes together, you'll strive for the best profits, the best place to work and the best place to invest.

Privately held midmarket companies can easily measure EBITDA, but may struggle with measuring their progress on whether they are the best place to work or the best investment.

Consider turning behavioral goals like "best place to work" with metrics like retention rate and number of applicants per staff opening. Whether you are a good investment can be viewed as a return on investment on the ownership of your stock, but also by how partner firms working with you view their relationship. Is it a profitable venture for stakeholders such as your bank, suppliers, vendors and distributors to continue doing business with you?

So the next time you address your leadership team or staff and broche the topic of meeting bottom line objectives, remember the triple bottom line.  You'll satisfy your shareholders by building long-term value and meeting the objectives of your stakeholders by building a great company.

Making Employee Referrals Pay - A Great Way to Build Your Workforce

Many enduring businesses have been built on the backs of referrals.  One customer talks to another and lauds the product they bought or the service they experienced. Word of mouth is a reference to the passing of information from person to person. Originally the term referred specifically to oral communication (literally words from the mouth), but now includes any type of human communication, such as face to face, telephone, email, and text messaging.  There is even a Word of Mouth Marketing Association (WOMMA) … go figure!

For years, the best professional services companies have known that the best technique for recruiting top talent into their organizations was through employee referrals.  They found that current employees referring prospective employees was a terrific way to build their workforce.  

As the services industry has boomed, so has the need for solid employee referral programs.  Programs that not only attract the best and brightest candidates, but also have a hand in mentoring the new hires and making sure they are a cultural fit.  Programs that build workforce capacity and enterprise value.  Programs that retain employees long after the luster of the newcomers orientation has faded into the background.

Here are five things to consider when rolling out your employee referral program.

1.    Make sure your workplace brand is one worth promoting.  
Asking current employees to ‘sell’ the benefits of your company only works if it is something worth selling.  Don’t even consider an employee referral program until you have an attractive workplace culture.
2.    Determine what defines a great employee.  
Look beyond the technical requirements of the job openings and list the attributes you find attractive in a candidate.  Make sure your employees look to attract staff with both the hard and soft skills to be successful in your company.
3.    Develop an employee referral program that is win-win.  
Determine your total costs for making a hire (labor, advertising, recruiting fees) and compensate employees based on this number.  If you are 25% higher than your competition, who cares, the objective is to develop a program that works for you.
4.    Link the employee and the candidate past the first day of employment.  
Jeanne Roberts, President of KSSI, pays out her recruiting bonuses over a 10 month period.  This encourages the referrer to stay in touch with the new employee.  These mentoring or ‘stay in touch’ programs can go a long way in increasing retention.
5.    Level the information playing field.  
Develop a recruiting packet that employees can use and refer to.  You are not trying to turn all your employees into card carrying members of SHRM, but you do want them to be armed with consistent information on the company.

Turn your company into a referral machine.  Start the process early.  Some companies actually had out referral programs at orientation and use the variable compensation of referral bonuses as a recruiting incentive.

One final note.  Monitor the costs of the program. Establish targets and develop goals for reducing hiring costs.  Successful employee referral programs lower total cost of hiring significantly and when combined with mentoring and outreach hooks, contribute to long term retention. Establish targets and develop goals for reducing hiring costs.

It's What You Don't Know That Can Kill Your Valuation - Be Creative

Experience is a business essential but if used as an excuse to kill innovation, it will end up killing the company.  Here is how the board room conversation in a midmarket company typically flows.  The CEO want to drive revenue in the next two quarters in order to meet the company’s annual revenue targets.  The head of marketing presents a warmed over version of the last years outbound marketing plan.  The head of sales presents a channel program that last year never really got off the ground and said it just needed a bit more energy to succeed.  Product development talks about add-ons and professional services presents their new finder-minder-grinder model.

None of these by themselves are terrible ideas, although they are perilously close.  But they represent a way of thinking that causes a company to get stuck in a pattern of focusing entirely on operational efficiency.  Operational efficiency is important, but not sufficient.

Creativity and innovation rarely show up on valuation reports, but they are key ingredients to building long term business value.  Every company needs to stretch and that does not mean stretch sales goals.  It means innovation and creative thinking.

Unfortunately, not all of us are very good at this.  John Clease, the famous British comedian suggests we create a time space oasis to begin the creative process.  Lock yourself away for a period of time (CrackBerry addicts should start slowly).  Do your best to avoid the trivial, mundane, yet seemingly urgent items on your todo list.  Pick one challenge and simply think about it.  Then, and this is critical, throw away your first idea and keep thinking.  Clease guarantees us we'll come up with more creative solutions after we've trashed the first.

When I have the discipline to follow Clease's advice, I'm at my best.

So sometime during the next week, take 20 minutes of quiet time and follow the links of some very creative people.

I guarantee you’ll begin to look at your business challenges in a different light.

Check out Steve Shapiro's Innovation Poker.
Read Guy Kawasaki's blog and think about how you can change your corner of the world.
Subscribe to the ChangeThis Manifesto and be amazed by the innovative writing.
Wonder around Alltop (Innovation) and find inspiration.
Buy any Seth Godin book for your vacation reading.
Put David Meerman Scott in your corner and change your approach to marketing on the web.

Remember, its what you don’t know that can kill your business.

Any Revenue is Good Revenue! Not Necessarily

No, it isn't. Mid-market executives who feel that way are coming from a scarcity mentality in which they believe that if they don't scoop up every piece of revenue, regardless of whether it makes sense for the company, they're going to starve to death. They get used to selling anything to anyone.  This habit is an easy one to develop during challenging economic times due to the uncertainty of your customer base.  It is even a tougher habit to break as the market improves because you become addicted to the revenue.

By contrast, an abundance mentality means focusing on a niche and dominating it. If a company doesn't dominate a niche market, when it comes time for the marketplace to put a value on it, the market won't know what kind of company it is. A company needs to develop a sustainable market advantage, focus on that advantage, and brand itself in the eyes of its marketplace, or it is not likely to succeed.

A classic book by Michael Tracy and Fred Wiersema that can be a useful read to mid-market leaders is "The Discipline of Market Leaders". Tracy and Wiersema challenge leaders to choose their customers, narrow their focus and dominate their markets.

Twice during the last week I've had conversations with CEO's that have wanted to break into new market segments and change their product mix.  Neither of these are bad ideas, as long as the company can stay focused and dominate their new niche.

So a parting question. If someone did a Google search and your company name came up first, what would that search phrase be?

What are you known for?

Even Incubator Companies think about Long Term Business Value

The bwtech@UMBC Incubator and Accelerator Business Advisory Board meeting was held last week.  This is another way, actually a pretentious way, of referring to the advisory board for the business incubator located on the campus of the University of Maryland Baltimore County.  

Each board meeting we get a ‘parting glimpse’ from one of the incubator companies.  This time it was our pleasure to meet Plant Sensory Systems, a very cool company that is developing technologies to improve agricultural performance.  Their objective is to alleviate negative environmental impacts by optimizing the ability of plants to acquire and utilize nutrients to increase biomass, yield, and quality.  Trust me … it is really cool stuff!

In any event, one of the founders, Frank Turano, spoke of their current success and their firm’s desire to build additional business value before they go out for additional financing.

This blog focuses on the need for midmarket companies to more fully understand what drives value in their companies.  Building business value also applies to incubated companies.  Frank instinctively knows that early stage companies also need to understand what drives value in their businesses.  That knowledge gives him the focus he needs to reach his targets and fulfill his vision.

Chasing every deal for the sake of revenue can be fools gold.  Laser like focus on your value drivers will build long-term business value.

Thanks for the reminder, Frank.

Keep Exit Strategy in Mind – But Stay Focused on Value

In his book Mission Possible, Ken Blanchard describes a present curve and a future curve.  On an X/Y axis, the present curve is a gentle slope pointing, one hopes, upward.  That upward tic is the gain represented by incremental growth due to increased operational effectiveness. Of course, it’s the transformational initiatives that give your company that hyperbolic or hockey stick growth, so you want to have people working on both kinds of items.  Jeanne Lee, in her Forbes article on Exit Strategies discusses midmarket leaders struggling to make good exit decisions in a rough economy.  It is true, it is always more difficult to lead when times are tough, but never loose focus on building value and exit strategy questions will be much easier to answer.  Choosing the right initiatives can help you stay focused on value building.

What’s the difference between a candidate transformational initiative that increases operational effectiveness versus another one that can trigger hyperbolic growth?  Using the area of financial management as an example, a company might realize that it needs to upgrade the accounting and financial systems. It realizes it has a need for an integrated customer management system that has all the components of human resources, payroll, accounts payable, accounts receivable, and cost accounting built into it.

A second candidate transformational initiative might be to recapitalize the company because its line of credit is currently too restrictive in a new market segment it is attacking. What’s the difference? Upgrading the accounting and finance systems is going to take a lot of hard work. It will make the enterprise run more smoothly, but it’s a foundational item as opposed to a transformational process. Recapitalizing the company, by contrast, is a big deal because recapitalizing might allow the company to expand into a whole new business area, hire a new sales staff, or do something else that will create the kind of growth that gets everybody—from management to stakeholders, Wall Street analysts to potential buyers—excited and enthused. It triggers huge growth possbilities as opposed to incremental growth.