Strategies For The Times

A publisher of a blog for the recreational boating industry recently asked me if I could write something to help his readership who are struggling to hang-in there until the economy improves.

I was a bit baffled at first what to write because it looked like we were in a state of beginning recovery in some arenas and still stuck in stagnated growth in other places.

I spent several hours reading on the internet, and came to realize that businesses need to employ tactics as though they were entering a recession, to shore up the business and maintain a presence for your customers, as well as tactics intended to make it easy for your customers to buy from you and keep them as fans of your business as the economy thaws and people start to spend money.

The seven things businesses should be doing now in light of the current economy are:

1. Keep an eye on cash flow … and work closely with your customers and your suppliers to help keep your checking account in the black. If stuck don’t be reluctant to ask suppliers to allow you to extend your payments - smaller amounts over time when short of cash. Be sure, however, to keep up with the new arrangement to avoid souring the relationship. Equally allow others who owe you money to extend payments when you can. Several of my clients showed me that the customers and suppliers that you come-through the recessions will be the ones you can count on also when things get better.

2. Continue to cut back on unnecessary expenses. Continue to go slow on unnecessary expenses to build your cash reserves. The recovery has been called a 2-step one: two steps forward and one back. You’ll want cash for the "one–back" step as well as the "two-forward” steps as the economy improves. A silver lining to a recession is that it helps us get rid of dead wood that seemed to creep up when money was more abundant.

3. Pay as you go. Capital business expenses should be made on corresponding sales. Known as “bootstrapping,” strive to make sure that elective expenses relate to sales generated within that period of time. This is important. As the economy strengthens there may be temptation to spend on things you have wanted, but held off buying. Continue to hold off for now. If sales are not forth coming, then you need to put in more effort with respect to marketing.

4. Strengthen your community. A community’s collective and individual strengths grow from supporting one another. The downturn hit some sectors harder than others. Understand how your customer base was affected, and adjust your strategy accordingly. For example, if your customers are short on inventory, offer a re-stocking promotion. Partnerships built in hard times lead to strong business relationships that last for many years.

5. Spend on marketing and advertising. This is a necessary expense during a recession. Be visible and let your customers know you are still there. Also, people see the product or service they want when they are ready to buy. Even if they were your customers before, when they are ready to buy they won’t unless they see you. Knock on doors now, and be ready for when they are ready to spend.

6. Offer dramatic, attention getting and significant discounts to reward your existing customers and attract new ones that will stay with you. By managing and engineering your cost carefully, a discount will mean thinner profit margins, but will result in increased cash flow and market share. A restaurant, for example, that offered a significantly discounted Sunday dinner saw its weekend revenue more than double.

7. Stick to your knitting. Build on your strengths; don't diversify into areas that stretch your ability or are simply too risky. For most businesses, this is the time to reorganize and improve on what you do best. Seek growth a bit slower than you would have 4 years ago. It is not the time to absorb the financial repercussions of a bad decision.

The principles are the same for a service as well as a retail business: A service business needs to continue to manage cash flow carefully; spend on marketing, so people know you are still out there; offer incentives for clients to buy from you - if selling B2B, help your clients re-ignite their own recovery by offering discounts on materials they need; and importantly build community.

Linchpins

“People today are being encouraged to make connections, solve interesting problems and to lead”, declared Seth Godin, business guru, author of at least a dozen books including Purple Cow and Tribes. Godin was the keynote speaker at the 2010 Small Business Summit in New York City last week.

The Summit was a remarkable opportunity to be with over 500 small business owners and hear from thought leaders like Seth Godin. The best thing I can share with you about the Summit was some of Godin’s ideas from his recent book Linchpin (Penguin Books), in which he describes a revolution of people becoming essential building blocks of great organizations. The following are some of the highlights as they touched us.

1. The industrialization model of the past century was effective in maximizing production efficiency. It produced scaleable cookie-cutter businesses, but also ordinary products and ordinary people. The model depended upon a workforce culture of obedience and conformity. It carried a promise to people working in the factories that they would be safe, but they would have to follow the rules and perform work that did not require thinking. The result was that it created a labor pool that was easily replicable, interchangeable and dispensable.

2. The problem, however, with a business based on inexpensive, interchangeable, dispensable parts is that once the system is determined others will be able to replicate it less expensively. Management, as a result, would have to produce a product without personalization or connections, and would have to lower its prices to compete, which means a race to the bottom.

3. The world is a different place (again). Today, people are not obedient and are not following rules. They are instead being asked to think. They are being encouraged to make connections, solve interesting problems, lead, and express the art of what they do. This is a race to the top.

4. These people are the linchpins. They are people who lead regardless of title. They connect others, invent, make things happen, and create order out of chaos. They stand up and do work that matters. They make significant differences in whatever they do. They are making their own choices for their own futures. They are the essential building blocks of great organizations.

5. Under the old model there was management and workers. Management needed workers for its factories, and workers needed factories for work, but workers were more dependent upon the factories than factories were dependent on workers. Today, the means of production are a worker and a laptop connected to the Internet, which results in a fundamental shift in power and control. This shift has released the genius in people, who are breaking away from everything they learned. They are breaking away from everything that meant being obedient to the rules of industrialized productivity that produced “perfect” products.

6. Doing it perfectly is boring. It results in ordinary people and ordinary products. Godin sees that what new business really wants is to pay people, not for being competent, but to invent … to be adverse to bowling and every game where what’s perfect is pre-determined.

7. Linchpins do two things for their organizations. They exert emotional labor and they make a map. And when they do that they are indispensable to the organization. They then have more power than management, and when management attracts, motivates, and retains great talent it has more leverage than the competition.

Seth Godiin may be ahead of the curve for many small businesses that are following an industrialization model for their small businesses by creating systems and hiring qualified, but “least” qualified people, to handle routine tasks, as described by Michael Gerber in his best-selling book, The E-Myth Revisited (Harper Business). Godin even writes about Gerber’s model in Linchpin. We may still struggle with how would we get anything made if there were only leaders and no followers. But that may be the wrong question. Rather, what could you accomplish if a leader made everything you produced.

The time with Seth Godin was exciting. I hope I have shared a small sense of his creativity and passion; and I encourage you to go to his website (www.sethgodin.com), and follow his blog (http://sethgodin.typepad.com/).

The Spider Web Syndrome of Small Business

I am preparing my class on Starting A Small Business that I teach at New York University several times a year, and found this great metaphor (Kaplan, Patterns of Entrepreneurial Management, Wiley) about the small business and the spider web.

The skills needed to successfully run a small business with few resources are significantly different than those needed to be successful in a large corporation; and executives who left corporate jobs and are starting businesses will find that they need to look at their new business more like a spider web than a castle.

In the early stages, small businesses are fragile like a spider web, where loss of one or two of the main strands can result in the loss of the entire web. The corporation, however, is more like a castle with strong protection. The start-up has no legal department, marketing department, separate sales team, or someone to call when the computers stop talking with one another, except perhaps themselves. The start-up small business owner has to do it all at first, and often with no experience being a multitasking, always-on-duty spider!

Leadership Succession

At some point all successful organizations encounter the challenge of key people retiring. Whether they are part of the leadership team or the head of a family business, planning a successful and seamless leadership transition is a major challenge.

Succession planning can be one of the most important processes to ensure the legacy of the organization. Mentoring and leadership programs help potential successors develop their skills, and are useful to the existing leadership in selecting successors. The challenge, however, goes beyond identifying who receives the new leadership mantle. The organizational knowledge, embodied in team leaders and developed over time, is critical for the long-term success, and needs to be conveyed from generation of leader to generation of leader.

Organizational knowledge, unlike data or information, exists within people. This knowledge is derived from their experiences, and it includes elements key to the organization's success, such as judgment, values and insights. Most importantly, in a succession process, you need to recognize that this knowledge is not easily replaced.

Often, in the selection of a successor, it can take many years to tap into individuals who have the requisite skills and abilities to replace the CEO or a long-tenured employee. The process can be expedited, however, by thoughtfully transferring this knowledge from the current incumbent to the next generation; and the more time and energy that is invested into the knowledge transfer process, the more likely the success of the successor.

The process requires understanding the intellectual capital and competencies needed to lead the organization. It is also requires knowing where the gaps are, understanding the vulnerabilities that could inhibit a good succession process, and, of course, developing specific strategies and mechanisms to close the gaps.

Ultimately, the leader's role is to take the organization into the future; and in that sense it is one of stewardship, of continuing the health and viability of the organization for the next generation.

A transition process presents an exciting opportunity for a firm to develop new competencies. The next-generation of leaders bring complementary skills and perspectives that can be precisely what your business needs as it seeks to update itself and to continually create value for its customers over time.

And what do the future leaders look like? There are characteristics that you want to look for and nurture in people vying for the next chapter of leadership. You will see in them that:

· They love the nature of the business

· They know themselves, and their strengths and weaknesses

· They want to lead and serve

· They have good relationships and the ability to accommodate others, especially if part of a successor team

· They have earned respect of employees, suppliers, customers, and other leadership team members

· Their skills and abilities fit the strategic needs of the business not only for this time and place, but also for expected future needs

· They respect the past and focus their energies on the future of the business and the industry

The current leadership, in addition to having responsibility for the profitable growth of the firm, also needs to see themselves as stewards carrying the organization into the future, developing and preparing the next generation of leaders to lead.

The Rockefeller Habits

I was recently introduced to The Rockefeller Habits (Verne Harnish, Mastering the Rockefeller Habits, SelectBooks) and thought you might find them valuable too.

They are a model for achieving real and positive change, for positioning your business to take advantage of emerging opportunities as the economy improves, and for achieving profitable growth. The clients that I have been working with, who are using the habits, have seen increased effectiveness and productivity.

The habits are John D. Rockefeller’s management and leadership principles. Harnish gleaned them from Ron Chenoa’s biography of Rockefeller’s, The Titan. The 3 key principles are: Priorities, Data and Rhythm:

• Priorities. Growth requires an alignment within the organization on goals and priorities. Does your organization have a large, long-term goal or vision? What are your top 5 short-term goals or priorities for the year and the next quarter ? Is the number 1 priority understood through the organization? Does everyone in the organization have their own 5 priorities that align with the organization’s priorities?
• Data. It is important to have metrics that cover an extended period of time as well as metrics that provide a short-term focus on an aspect of the business or someone’s job. Do you have data on a daily and weekly basis to provide insight into how the organization is running and what is happening in the marketplace? What real-time feedback do you provide as to how your organization or team is performing consistent to your priorities? Does everyone in the organization have at least one key daily or weekly metric driving his or her performance?
• Rhythm. “Being in a groove” with the business requires a well-organized set of daily, weekly, monthly, quarterly and annual meetings keeping everyone aligned and accountable. The agenda for each provides the balance between the short and long term. While many businesses leaders may feel that they are spending too much time in meetings, in fact, they may be spending too much time in ineffectual meetings.

Rockefeller attributes his success, in part, to meeting daily with key team members to discuss the priorities they were working on, the daily metrics for those priorities, and, importantly, where they were stuck. These daily meetings can be likened to huddles or, as I call them, “stand-up” meetings, because they are quick and focused. A sit-down meeting has a different culture.

Weekly meetings have a different purpose and therefore a different agenda. They are issue-oriented, and their success is depended upon the daily meeting. The monthly meetings are educational; and quarterly and annual meetings are about strategy.

As these habits begin to bear positive results for your organization, a parallel growth of the organization's leadership is also needed. The role of a leader is to take the organization into the future. They will have to predict, delegate and teach, and perhaps the most important, to envision and speak about where you are headed.