December 26th, 2011 — Human Resources
My partner’s caught up in details. She won’t let go. We don’t have time to work on where the business is going. She ends up working really long hours, and expecting me to do the same. I don’t see this ending up well, and I’m running out of patience.
Thoughts of the Day: It’s important to periodically step back and look at what’s going on. Often it seems easier to “do it myself” versus training someone else. Delegation can be scary. Change will take time to implement.
Draw a map of the company’s functions: sales, finance, marketing, operations, human resources, leadership. Put down on paper the tasks required in each area. Match people to the tasks – as things stand today. Identify several areas where the owners are currently assigned to tasks, and others could be trained to take over.
Start with a list of people inside the company who could pull extra duty. Identify tasks that could be grouped together and turned into a job for someone yet to be hired. Consider which tasks could be handled by professionals who come in to work part time.
Tasks such as bookkeeping, personnel, marketing campaigns, shipping, receiving and inventory management, are all ripe for vending out. Break out big subjects, such as sales and operations, into smaller parts and look for opportunity to hire part timers. Lead generation, customer service and production assistance are three common areas where part time help can make a big impact.
Many people hesitate to delegate in the mistaken belief that no one can do the task as well. They think it would be faster to just do the task, than it would be to train someone else. That’s usually only true the first time. The second time the task needs to be done, and the third, and the fourth, valuable time is wasted doing a repetitive task that someone else could have learned to handle.
Some people won’t delegate because they fear the person they’re training will make mistakes. That’s true, the person learning the task will make mistakes. And they’ll have to learn how to recover – just like the owner did when he or she first learned how to do the task. It’s okay to make mistakes – that’s how companies learn to innovate.
Helping someone else step in will take time, practice, and oversight. But eventually the partner is freed up to work on higher level tasks. So build a list of activities that the partner could / should get to, but lacks time to do so. Have a vision of where this delegation / training process is headed, that benefits both the partner and the business.
Sometimes partners don’t make time to work on the business because they’re afraid of what they might discover – the business isn’t growing enough, isn’t profitable enough. Other times, the owner sees himself or herself as too essential to the tasks at hand – no one else could do it as well. In some cases, the owners simply lack the skills to pull back and make time to work on the business.
Start out with incremental changes. Insist on a twice weekly 1 hour meeting to discuss the business, where it is, where it’s going. Spend time planning the future of the business, what it will look like, what it will need. Discuss challenges that have come up during the past week / month, and what to do about them. End the meeting at the 1 hour mark, and get back to day-to-day work.
Set goals and build a budget to pay for the additional help you need. Figure out how many more customers it will take to pay for the help. Keep notes about each meeting, to use the next time you get together. Practice lifting your partners’ sights to a higher point on the horizon – where you both end up out of the day to day, enjoying the business more.
Looking for a good book? The Partnership Charter: How To Start Out Right With Your New Business Partnership (or Fix The One You’re In).
pdf version
December 19th, 2011 — Sales
One of our sales people recently had 4 out of 6 deals fall apart. What concerns me most is that she had put a very high close ratio on all 6 – she estimated that each had an 80% or better chance of closing. I know that her closing percentage estimate is a gut – it’s subjective. How can I help her get a more accurate picture of what’s likely to happen?
Top Thoughts: Sales people often focus on what seems hot today, regardless of the real probability of closing. Getting prospects to close is not an event, but a process – a series of steps that need to be tackled in the right order. Building an accurate sales forecast system will help both sales and management better understand and deal with the challenges they face.
An active prospect, saying what seems like the right things, can easily be mis- interpreted as a sale that’s ready to happen. Sales people can be overly enthusiastic about what they’re working on, and have blind spots about reality. Maybe the prospect was ready to close, maybe it wasn’t. Either way, the forecast of 80% x 6 prospects means that 4 – 5 out of 6 should have closed. In this case, only 2 out 6, or 33%, actually ended up closing. A big gap.
Who cares? Management and the sales person should both care. Management needs actionable, accurate information with which to plan. Sales people need to know what they can count on to close, and where they’re getting tripped up.
It would help both management and the sales person to look at the steps a prospect goes through. Classic sales stages include information gathering, agree on needs, negotiate price, confirm solutions via proposal, negotiate contract. Have a couple brainstorming sessions to figure out the typical path a prospect follows. Build a checklist to use for each sales stage, to verify that everything appropriate to that stage gets covered and checked off.
Think of the sales funnel as a weeding process. As prospects move from one stage to the next, the goal is to focus on those prospects most likely to close, eliminate those that are unlikely to close, and set up a nurturing process for those that could close but aren’t ready. Mistaking so many accounts as highly likely to close (80% or better shot of closing), and they don’t close, means that the sales person is missing something in the weeding in / weeding out process.
Assign probabilities to each sales stage, based on historical averages. For instance, if typically 2 out 10 prospects that complete stage 1 end up closing, put a 20% close ratio on all prospects at the end of stage 1. If the chances increase to 4 out of 10 closing when the prospect completes stage 2, assign a 40% close ratio at the end of stage 2. And so on.
Sales people will get a lot of benefit out of learning to forecast accurately. No good sales person wants to miss out on exceeding quota and cashing commission checks. Help them build a fact based way to assess where they stand.
The sales funnel can also be used to identify training needs. When closes fail to happen, often there’s a pattern – something that gets skipped, or a stall that happens regularly. In this sales person’s case, we found that she missed a crucial step about half way through every sale. We isolated the problem and helped her understand how to keep it from cropping up in the future. Her forecasts are becoming more accurate, and she’s closer to hitting her goals.
When sales management and sales people can agree that the sales forecast is accurate, trust goes up. Confidence increases when both are on the same page. And management can proceed with decisions based on knowing where the company’s growth is coming from, and what else, if anything, needs to be done in order to make plan for the month, quarter, or year.
Looking for a good book? Quotas & Compensation: Pinpoint Sales Management Skill Development Training Series, by Timothy F. Bednarz.
pdf version
December 12th, 2011 — Marketing
When it comes to marketing, we are caught between a tight budget, and the need to know what to continue, what to change, what to drop. We know that when you stop doing marketing you lose all the momentum. But we’re having trouble figuring out how much is enough, too much, too little. And funds to commit to marketing are tight. Help!
Top Thoughts: Marketing is a complex game. Think of each marketing initiative as a type of play. As in team sports, some plays are better in one situation, i.e. offense, some in others, i.e. defense. One play / one marketing initiative can’t do it all.
When you engage with marketing, play to win. Increase wins by practicing and putting various programs into play. Put someone in charge to work with you. Stay within budget, and get creative.
Playing any game without a playbook is a bad idea. The same is true in marketing. You’d probably be very critical of a coach randomly throwing plays at the field, telling the players to try, do their best, without an overall game plan.
Have a book of plays you want to use in marketing, for different purposes. Run the plays multiple times in practice to see if they work, and get the bugs out. Then launch plays real time and test them against the competition.
You can also think of marketing initiatives as members of a team. It’s important that all initiatives pull in the same direction, even though each one is different, and they’re spread out all over the field of play. There is a multiplier effect that comes with variety on the team. Be sure to focus all efforts towards the same goal, winning at getting more clients, more leads and more awareness.
Regularly assess each initiative’s ability to help you achieve short and long term goals. Periodically swap out one play / one team member for another, in order to get the results you want. Here are some examples of marketing categories to focus on:
- Group clients by need, behavior, industry, buying approaches.
- Build a list of existing services – use the list to get new clients.
- Create new products / services, keep existing clients engaged and spending.
- Ask customers and prospects how they found your company, do more of that.
- Do research: demographics, pricing strategy, competitive advantages.
- Develop a toolkit of plays: referrals, billboards, trade shows, direct mail, social media, advertising, case studies, internet demonstrations, the list is endless.
- Weed out the bottom performers, add new ones. Expand the best producers.
Assign someone the job of being your assistant coach. Meet regularly. Review results. Define your goals and agree on what to test. Roll out ideas that deliver in practice sessions, see how they work in the real world. Don’t quit after one try.
When it comes to budget, spend what you can afford. Split the budget between tried and true initiatives, new projects that you’ve tested and know they’re ready for prime time play, and some that are your “farm team” because you’re still experimenting to see if they can work.
Remember that some teams have bigger player budgets than others, and that doesn’t always equate to results. If your budget is small, you’ll need more low cost players – focus on the internet and marketing activities your current staff can implement. Check with industry based peer groups on what works for them. Cut down on expensive trials by adopting programs others have tested.
Your marketing payoff ratio is defined as marketing expenses divided by revenue and also divided by gross profit. To prove marketing efforts are delivering, you want to see the cost of marketing drop, in relationship to revenue and gross profit. Your marketing budget stays steady from year to year, as you change around your “players”, your marketing initiatives. Your marketing spend : revenue ratio drops as proof that your marketing efforts are working.
Looking for a good book? Introduction to Marketing Concepts by Graeme Drummond.
pdf version
December 5th, 2011 — Owner Strategies
Find a business that operates at a loss. Add their revenue to yours. Cut redundant costs. Increase your bottom line. Simple formula – success is in the details.
We’ve decided to do an acquisition. We think this is a good time to try – we’ve heard that prices are lower, some owners are anxious to get out. We’ve never done one before, so we’re not sure where to start, or what to look out for. We also don’t have a lot of room for error. However, without an acquisition, we’ll have difficulty hitting our growth and profit goals, and may be facing a significant loss next year.
Top Thoughts: Acquisitions are potentially a great way to grow the business. Most acquisitions start with lots of optimism, and end up not delivering the expected results. Figure out what your company needs, then go get it. Be careful to pay only for assets you can secure. Look for buyers who are ready to do business.
If you feel like you’re beating your head into the wall, it may be faster and more profitable to do an acquisition as a way to beef up revenue and profit. Perhaps the recession has taken a toll on your customer base. Or costs have risen faster than profits. Or new innovations are pulling customers away. Or you can’t locate the human talent you need. When the core business maxes out, add to the mix of what you own.
Keep in mind that when all the dust settles, most acquisitions fall far short of expectations. That’s not a reason to avoid doing one, just a warning of caution. It is possible to do an acquisition well, and help your company get to the next level. The answer is in the details of how you go about acquiring and managing the newly acquired business.
Start by profiling what your company is good at, and what areas need help. Fill in 2 columns, strengths and weaknesses, for each of the 6 Sisters: Leadership, Sales, Finance, Marketing, Operations, Human Resources. Be realistic about where the company needs reinforcing.
Build a shopping list. Need customers? Need goods to sell to existing customers? Have unused production capacity? Need equipment and expertise to improve profitability? Strong enough at marketing? What about training and development?
Get to work to find acquisition targets that meet your company’s short, mid, and long term needs. Figure out the value that would come from adding specific attributes, volume, skill. Think of the acquisition as time sensitive – if you can’t reap rewards within 1 – 2 years, it may not be worth doing.
Check on the security of the assets you’re buying. Are there outstanding liens or loans due on hard assets. If you’re planning to acquire personnel, which is the case in most acquisitions, are confidentiality agreements, non-competes and golden handcuffs in place – on the right personnel.
I recently heard a business owner brag that he had sold his company, only to start another company and lure former employees and clients to that new entity. The acquirer folded within 2 years. Not particularly admirable, but certainly possible without the proper contracts.
Consider the potential seller’s motivation and experience. If this is their first conversation about selling the business, and they’re just shopping around, they may not be as realistic or quick to close as you’d like. If they’ve been to the doorstep of a deal before, only to have it fall through, the experience may help to reduce their expectations, or be a warning sign that they’re unrealistic.
Ask about the sellers advisors. Beware if there’s no lawyer or accountant to work with. At a minimum, that will slow the process of information gathering and document creation. Trust is built between buyer and seller by putting information and deals on paper and affixing signatures, no more, no less.
Have an acquisition process ready to roll the day you take possession. Put people in charge. Quickly secure personnel, inventory, equipment, customers, and production, in order to minimize losses. Know how much revenue has to be produced, at what margin, to make the acquisition work. Measure results daily, until the new business is on track.
Looking for a good book? Do-It-Yourself Business Sales Guidebook: A Proven System to Help You Sell a Small Business with Less than $1 Million in Revenue, by Ben Brickweg.
pdf version
November 28th, 2011 — Finance
Results of an accounting study: Errors committed by employees with post- graduate degrees have losses five times greater than those with high school degrees; fraud was estimated at 6% of a typical company’s total revenue.
Finance has been handled for a long time by a partner. The job evolved as we grew. Now we’re changing things around. We have to define what is the finance role and who does it.
Top Thoughts: Figuring out who is responsible for what in finance is crucial. Not everything has to be handled by a partner or executive of the firm. Make sure that controls are in place to audit and monitor what’s going on.
Most small businesses start out with informal, unwritten or incomplete job descriptions. Often the job gets to be too big for one person. Or the person doing the job wants to move on. Make this an opportunity to better define what has to happen, and who is responsible.
Tax accounting is usually handled by an outside accountant. Preparing records for the accountant is usually handled by a bookkeeper. Routine data entry of both accounts payable (vendors bills) and accounts receivable (invoices to customers) can be handled by a bookkeeper or a clerk reporting to the bookkeeper.
Routine accounting tasks include answering questions about what’s on a bill and what’s outstanding. Verifying bills are correct takes time and initiative. Decide if customer questions about invoices will be handled by someone in accounting, or referred to customer service.
Different departments may want to be involved in negotiating prices for the materials and services they use. Some people are better at negotiating than others. Centralizing negotiations may result in better pricing, as one person or department has a more global view and hones their negotiating skills.
If the company has inventory, make sure that 2 or more people keep track. One person from accounting, one from operations match records to be sure that all inventory is accounted for regularly. A formal system for checking inventory in and out can reduce questions.
Someone needs to have responsibility for regularly preparing and analyzing reports: Profit and Loss, Balance Sheet, Cash Flow Statement, for starters. This person should be good at excel, comfortable with ratios, able to compare performance from one period to the next.
Data entry is a detailed job. It includes issues of privacy, discretion, and ability to reason through to a logical conclusion. Be sure to assign payroll to someone who can keep pay rates and personnel issues confidential.
The analysis person should like figuring out puzzles, such as how much was spent last year, and how does that compare to spending this year. This person can also be asked to put together a budget and forecast. Communication skills come into play, as budgeting includes working with all departments to gather their input and negotiate end results.
The company’s banking relationships are best handled at the owner level. Having a good relationship with the company’s bankers is crucial. Build that relationship with regular updates on where the company is, how things are going, what needs are likely to come up short and long term. Make it someone’s job to be sure the owner is well informed and prepared for every banking meeting.
Some tasks require a higher level of security and trust. Opening up client payments, entering them into the accounting system, entering credit card details, cutting checks for payments to vendors, and making deposits and withdrawals at the bank, are all high security items. Whenever there’s need for security, consider having an audit system in place.
The # 1 rule in accounting is, “respect what you inspect. Double checking includes a bookkeeper overseeing a clerk’s work. An auditor can come in monthly or quarterly, to verify all transactions.
Separate functions. For example, anyone with their hands on the keyboard, and access to the accounting system, is not allowed to participate in an audit. All bank statements and credit card statements are opened by the owner and scanned for oddball items before being going to data entry.
Make sure that everyone knows there is an audit system. Use feedback from audits to improve performance. Have the team meet regularly to discuss what else has to happen in finance.
Looking for a good book? Schaum’s Outline of Managerial Accounting, 2nd Edition.
pdf version
November 21st, 2011 — Human Resources
The Future Foundation found that managers spend 13% of their time managing poor performers and 14% of their time correcting poor performers mistakes.
It may be time to make some personnel changes. I’m seeing a huge lack of respect, and sensing some divided loyalties. Unfortunately this comes from a couple of my top producers, so I’m really conflicted about what to do. I know that if employees don’t have qualities of allegiance and honesty – they’re not the right fit. But can I afford to put revenue at risk by dealing with this right now?
Top thoughts: A company is only as strong as its weakest links. Addressing the problems may pose some risk, but leaving problems to fester may result in a blow up at an even more inconvenient time. Work on a solution, that strengthens your position. Create opportunity for something better to come along.
I’ve repeatedly seen owners overlook behavior that causes them concern, for fear of making a change. The owner goes through a period of frustration, feeling out of control and lost as to what to do. Eventually the problems come to a head, and usually at a really inconvenient time.
Building a team means everyone has to be pulling in the same direction. As an owner, you build trust with your employees by having an even-handed approach. No special rules.
Underperforming or badmouthing the company, a team member, or supervisor, are behaviors that cannot be tolerated. As a manager, ignoring the situation is worse than the issues caused by the original behavior. Tolerance encourages more of the same, and indicates to team members that kind of behavior is acceptable.
Lack of respect for the company and its employees concerns more than you, the owner. If someone on the team isn’t pulling their weight, or is pulling in a different direction, that can negatively impact the company’s overall performance. Over time it can wear out even the most loyal and committed team members, who may eventually decide to move on out of frustration.
Keep in mind that criticism can cut both ways. One employee chooses to critique another, or complains to a supervisor. Maybe the criticism is justified, maybe not. It is the manager’s responsibility to take note. The complaining employee is not owed an explanation. But the manager would be wise to look into the complaints, to see if there is a problem brewing.
Perhaps both employees need feedback and direction. The complaining employee may need counseling on how to work more cooperatively with peers, taking up issues in a productive manner, and working to get team members to follow their lead. The employee about whom the complaints have been lodged, deserves to be talked to in private, made aware there are concerns, and given a chance to correct them.
Own any feedback, by saying to the employee, “I have some concerns that I want you to be aware of.” and “Here’s what I’ve observed . . . ” Or, “There’s something that’s bothering me about how things have been going lately.”
Always be honest. ” I’m not satisfied with how things are going. If things continue this way, I’ll have no option but to rate your performance sub-par. That could affect your opportunity for advancement, raises, and ultimately jeopardize your continued employment. That’s not where I want this to go, but things cannot continue as is.”
Looking for alternate solutions will help you figure out the potential outside the company. Start to consider your options. Place an ad. Give yourself time to think through who else might step up to do the job. Line up 2 or 3 qualified candidates to fill the job. Keep their names in your rolodex in case of need.
If the employee doesn’t want to deal with the problem, maybe this isn’t the right job, or the right company for them. No matter how valuable this employee has been in the past, if their behavior is unacceptable for any reason, and the employee can’t, or won’t, step up, it’s your responsibility to make changes.
Looking for a good book? 101 Tough Conversations to Have with Employees: A Manager’s Guide to Addressing Performance, Conduct, and Discipline Challenges, by Paul Falcone.
pdf version
