Building Business Value | Corporate Management Strategies

Focusing on Your Company Strengths

When a company decides to take on the challenge of working their way through the ‘value building process', one of the exercises we take the leadership teams through is an analysis of what drives value in their business.  There are about 90 areas of value segmented into 14 different dimensions such as "Markets", "Product or Service Leadership", "Pricing" and "Financial Performance".

Business leaders often ask if a company has to excel in all fourteen dimensions to build a premium value.

Absolutely not.

You've got to meet industry standards in each category and you have to excel in the dimensions where your company has special expertise.  Marcus Buckingham, who developed a "strengths management" approach to building efficiency, offers the analogy of responding to a report card your child brought home with three As, one B, one C, and one D.

Which subject gets your immediate attention?

If you're like most parents, it's the one with the D. Buckingham suggests that you focus on your child's strengths instead. Your son may be a prodigy in the subjects in which he received As. Get some help to pull up the lower grade, but don't waste all your time getting that D to a B or an A while risking the As.

Similarly, it is important to keep some perspective as you achieve an honest assessment of your organization. Eventually, you'll hone in on your company's strengths and bring your D grades up enough to stay out of hot water.

Using Leverage to Build Value

Last weekend I attended a reunion of former Conquest employees.  Conquest was a very successful technology company founded by Norm Snyder and Bill Anderson that was sold to the Boeing Company in 2003.  It was a treat to see old friends and colleagues but what continues to stick in my mind are the former employees of Conquest that have gone on to start very successful companies.  They include Mosaic Technologies Group, founded by Mike Grier, Summit Solutions, established by Jeff Leco, Dauntless (recently acquired by Abraxas Corporation), founded by Mike Martinka, AVID Technology Professionals, started by Troy Bundy and Entegra Systems, founded by Dean Johnson. 

Unfortunately for Boeing, these success stories, representing about $100M in revenues, all occurred outside the confines of their company.  So the question for Boeing, or any other acquiring company is this:  how do you keep talented staff with entrepreneurial tendencies inside the company?  How do you create an environment where budding business leaders and entrepreneurs can stay with their existing firm, share the risk and reap the rewards but continue building value in the parent company?

Successful business leaders are on a continual search for ways to leverage their business.  They look for ways to take what they do well today, and turn that into a revenue enhancer, a cost reducer, a customer benefit or a low risk way to increase corporate value.  A leverage point is that one component of corporate operations that can be turned to over and over again with proven results.  Corporate leverage points are tried and true performers and are continually called upon to deliver.  Corporate leverage points are normally associated with a component of the business representing a vertical slice of the operation.  In the Gilded Age, this translated into Standard of Ohio and Standard of New York carrying the bulk of the weight for Standard Oil.  Today, it's Google banking on its core search engine revenues to fund all types of new initiatives or Southwest Airlines leveraging its efficient business model and squeezing their competitors by not charging for bags.  Every organization, small or large, public or private, product or services has Leverage Points.  Companies that maintain their success over time actually know what their leverage points are and how they enhance the value of their business.

The Internal Franchise

A franchise is a method for marketing and distributing products and services. Companies like GNC, Jiffy-Lube, Burger King and 7-11 have used franchising to grow very rapidly and secure a significant share of their markets before competitors could catch up.

In a franchise system, a franchisor licenses a business formula--a complete way of doing business--to a franchisee. The franchisee agrees to operate the business according to specific guidelines, and to pay the franchisor a percentage of sales as a royalty. The franchisor/franchisee relationship is governed by a franchise agreement--a binding, legal agreement.

The franchise model is one of the fastest growing segments of our economy. According to the International Franchise Association, franchises employ more than eight million people in more than half a million outlets, and a new franchise outlet opens every eight minutes in the US. Franchising provides the opportunity to run your own business with less risk than starting from scratch on your own. One of the hardest parts about starting a business is to design the business concept. In franchising, that is already done for you. You simply have to learn to run the business. You have a serious head start on competitors who start from ground zero. Because of these reasons, many Americans are turning to franchising to pursue their entrepreneurial dreams.

An Internal Franchise is similar to a traditional franchise operation. In an Internal Franchise the company makes its Operating Model explicit and then "franchises" the Operating Model to its employees.  The employees are then coached, mentored, and trained to operate the business at the highest level of proficiency. In an Internal Franchise, the franchise agreement is not a legal binding contract, it's the company's culture - perhaps you could consider it an Ownership Culture.

If a franchise is a method of marketing and distributing products and services, then an Internal Franchise is the last, untapped distribution channel for your products and services. When you can turn to your employees, teach them your Operating Model, and empower them to run the business, you have established a new distribution channel. It is a powerful form of leverage, not to mention it's a tremendous value proposition for your employees. And, it's an effective framework for dealing with the challenges of running a business in today's competitive, rapidly changing environment.  It is your acres of diamonds and if mined properly, the leverage point your business will grow to rely on.

Have You Fallen Into the "Success Trap"?

In business today, things change so rapidly that what worked yesterday won't necessarily work today. But tell that to an executive who is so enamored of his own past performance that he can't see how the world has changed. For example, fifteen years ago, technical service companies could make handsome earnings by augmenting staffs to build custom business applications for clients. Today, however, those firms make a third of what they once did on the same deals. On top of that, clients expect that companies will outsource the technical services work to India and bear all the risk in the transaction.

It's often tough to convince a CEO that what brought him success when Bill Clinton was president won't fly today.  Being flexible and blending new ideas with the old helps avoid this pitfall.

Tenacity Solutions, a midmarket company in Virginia, has found a way to combine the old with the new. CEO Leo Fox says that Tenacity does business the old-fashioned way, and the company's staff and customers will vouch for that. He believes that serving customers and staff never goes out of style. COO Matt Wilmoth and Fox have built a company that makes great use of the "software as a service" business model and outsources virtually everything in their business that is not core to their reason for being in business.

The Relationship of Execution to Success

I'm like a billion other people out there that read all (OK, almost all) of Seth Godin's work because it makes them think.  I'm inspired and agree with most, flinch with some,  struggle with a bit but reject very little.  Seth's recent blog on The Hierarchy of Success finds me somewhere in the middle of ‘struggle' and ‘reject'.

I think most of my angst is in his perception of execution.  Perhaps he has confused execution with minutiae or even obsession.  Now my world is the world of midmarket companies and God knows there are a ton of midmarket executives that obsess over the details of a benefits package or the colors of the corporate logo, but I don't really consider this execution, just bad leadership.

Just about every midmarket CEO I meet can tell me what their company does and where they would like to see it go.  It may not be pretty, but if really pressed, they can give you a visionary tale on the future of the company.  Where I see many fall however, is in the execution of those new ideas or strategy or approach.

Most midmarket companies are very good at what they do, or once were.  The challenge they face occurs when they shift directions (and they inevitably will).  When they move into the unknown, they often struggle with the ‘execution' of the new strategy or approach.  The leadership and management skills needed to build the product or deliver the service that sells today does not always map to the skills needed to turn the company in a new direction.  That latter requires the ability to execute the plan ... the new plan ... the plan that contains the new strategy and approach and tactics for the new product or service you are taking to market.

So Seth may be right if you're talking about executing the current game plan.  But the leaders of today's successful companies know how to execute transformational initiatives that continue to build enterprise value.  Leaders that can't execute are left in the dust holding that strategic plan filled with visionary platitudes, out of line strategies and unrealistic goals.

Are Your Business Plans Ego Driven?

Normally, a leader's greatest attribute is unbridled optimism. As retired General Colin Powell says, "Perpetual optimism is a force multiplier."  You would rather have Colin Powell lead you into battle than Eeyore, but you also need to deal in reality. The unbridled optimism that turns a business dreamer into a business leader has a downside: it can keep executives from confronting the hard facts about their organizations. Sometimes leaders sweep so much bad news under the rug that they can hardly see their own desks. A bright outlook is terrific, as long as it is tempered by an ability to deal in reality, a trait that not all leaders have.

The "Process" of Building Business Value

Virtually every midmarket leader I know is a great doer.  They may have made their mark in business by being a great engineer, sales person, designer or consultant.  At some point in their business life they were probably recognized as being a leader in their field.

But virtually every midmarket company I know that has not found a way to leverage the competencies, skills and qualities of these doers begins to flounder and places an artificial cap on their potential business value.

Not many of us get very excited when we begin to talk about process, but if implemented with thought and foresight, business processes can build more business value than all the doers combined.

The trick is thinking through the process creation and implementation.

Identify the areas of your business that should work like clockwork for your company to become a market leader.  Whether its product development, sales, service delivery, recruiting, financial management or business development, identify the key areas of your business.

Building process allows you to build capacity and ensures quality along the way.  Your doers and heroes will be free to open new markets, discover new ways of delivering your service and inventing new products.

Doesn't that sound better than continually reinventing the wheel each time you face what should be a routine business issue?

Do You Have the "Fat and Happy" Syndrome?

A CEO who develops a reputation as a turnaround specialist is likely to be wooed by other struggling companies to accomplish the same magic for them. To accomplish this, the CEO often tries to "put the band back together" by going out and rehiring the team that made the first turnaround so successful. The problem is that a lot of those executives may be fat and happy by now - they made their money on the first deal and no longer have the fire, the energy, or the desire to work those sixty-hour weeks again. Putting the band back together might work for the Eagles, but in the business world, people often end up singing an unhappy tune.

Focusing on Revenue Instead of Value

Midmarket CEOs often get asked "How big is your company?" In American business, size matters. Beyond the preoccupation with numbers and size is a much more important question that is rarely asked: "What impact does your company have in the marketplace?" Is the company a bit player, a role player, or the "leading man" in its market? Typically, business leaders describe their companies in terms of revenue, head count, or plants and equipment.  Revenue is an easy answer because that's a scorecard everyone can understand. But when they use this measure, companies shy away from the "value discussion" because value is a much more esoteric concept.

If the average middle-market CEO were asked, "What are the five things that make your company valuable?" she wouldn't know the answer. She knows her company has to make money, make payroll, and win more business, but she doesn't know what really makes her company valuable in her marketplace. This results in the tendency to make seat-of-the-pants decisions that are not fiscally prudent. A company might decide to sell a particular product in a market niche, even though no other company is willing to partner with it. Or leaders might decide to keep a line of business going, though it might be smarter to shut the line down and use the resources elsewhere.   Know what makes your company valuable to the marketplace and what is core for you.

The Power of Attitude

Is it possible to change somebody's behavior?  Is it possible to get them to act differently?  When we exert pressure and threaten punishment, it is possible to force someone to act differently?
If it does work, the effect is only temporary.   To get someone to change from the inside out, you start with attitude.  People change their behaviors when their world-view changes. The normal change process goes something like this:

1. People accept a new idea as appropriate and possible.
2. Their attitude changes.
3. Their behavior changes.

In other words, until someone accepts a new idea as appropriate and possible, their attitude won't change. And until their attitudes change, their behavior won't change. At least not viscerally. They may fake it if it's in their best interest, but it won't be meaningful, lasting change.