How can you create value without funding?

I read in today’s Bloomberg Businessweek Report that the chairman of the Federal Reserve Ben S. Bernanke said that small business is having trouble getting access to credit needed to keep the U.S. recovery going.

The article referenced  Bernanke attending one of the series of meetings in Detroit last month and today recalling a business owner’s comment there that, “If you thought housing had declined in value, take a look at what equipment is worth.”

It’s absolutely true of course if business isn’t growing and equipment is at a surplus banks, which are conservative in good times, aren’t going to want to lend money on it. Most of small business collateral is either in plant buildings and / or equipment. The combination of real estate and equipment values being low makes collateralization difficult.

On the positive side I just had a client refinance his term debt at a great rate and excellent amortization schedule. The load was 90% guaranteed by the USDA rural enterprise program. Which is essentially a program that is working to create jobs in rural high unemployment areas.

First the company must be “bankable” that is approved by a bank subject to the USDA guarantee. A complete package of the loan evaluation by the bank along with company financial performance for the past three years and a detailed business plan showing sales and job forecasts three years out then goes to the USDA for approval.

Credit isn’t easy to come by but there are ways to get it. A company has to have solid financial performance, a well documented strategy and credible financial forecasts to go long with the collateral.

It goes back to what I’ve been preaching for a few years now. You have to have a plan that’s documented. You have to show progress toward making your projections and goals, and you have to have a credible plan moving forward.

Collateral alone isn’t enough anymore. Banks certainly don’t want to foreclose on your buildings or equipment, they used to get 10% to 25% of the loan value in a distressed sale. Depending on the equipment that number may be optimistic in the current environment.

It really goes back to a blog entry I made a few months ago, the strong find a way to survive and prosper in a poor economy and the weak don’t.

Leaders must take steps to clarify their vision for their organizations, document it, eliminate internal waste, and look for internal sources of cash before they will be successful looking at banks as a lending source. One bank I spoke to that specialized in USDA loans said they get anywhere from 12 to 25 deals a week to look at. They can afford to pick the best deals for them.

It is incumbent upon business owners and leaders to understand that there are sources of funds but competition is fierce, and only the best will be looked upon favorably. Strong economic times allows business to become complacent, weak economies make it imperative that they learn and adjust or perish.

In today's environment you had better have value before you look for funding.If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Invent your future with better strategic planning

I read a quote somewhere a few years ago that really made me think. The author said “the future is an invention anyway, you might as well invent a good one”.

If you stop and think about it, it’s really, true the choices and decisions we make throughout life accumulate to determine where we are and what we’re doing.  How many times have you hard someone say, if we knew then what we know now.

Well what if we did know then?  What if you actually had a vision of where you wanted to be in five or ten years, and made decisions and choices based on attaining that vision? You really would be inventing your future. Many successful people employ goal setting as a regular part of their lives. Goal setting focused on a clear vision.

Most people just don’t do that. They spend more time and effort planning a two-week vacation than they do determining what they are going to do with their lives. You wouldn't begin a road trip without a map, why would this be any different? 

 

Many of us look back one day and realize life just happened and they are where they are by _______________. You fill in the blank, luck, fate, breaks, whatever word you choose.

Well experience has taught me that organizations function in much the same way. The choices and decisions they make everyday accumulate to determine where they are in their market, and how well they’re doing. If those decisions are made with reference to a clear vision and direction, they would find that they are indeed creating their own future.

Chapter two of my book, “Bottom Line Focus” is entitled “Start with the end in mind”. It’s aimed at helping organizations and leaders develop a better strategic planning process, drive execution, and ultimately produce better bottom line results. The point of the chapter is before you start a planning process, sit down with all of the stakeholder and determine exactly where it is you want to go.

I don’t mean some vague statement saying I want to double sales, or double margins, but a clear crisp vision of what your organization will look like in five years. What businesses will you be in, what market share, what your market differentiator will be. It should be clear enough you can articulate it to everyone. Next step is sharing it with stakeholders often.

Once everyone understands the vision clearly, all decisions, processes, incentives, investments and other resources should be aligned to attain that vision. It makes decisions easier by simply answering the questions does this take me closer or further from my vision.

If you think about it you are inventing your future. You are clarifying what you want, and taking measured steps to get there. Of course it takes a few other things like honestly and objectively determining where you are now, and developing crisp goals to get from here to there. I could put a plug in here like hiring a great business coach to facilitate the process is a great help.

The point is, invent your future by making it happen rather than letting it happen.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Strategic planning for the real world

Strategic planning has gotten a bad rap, and probably deservedly so. If you believe the research more than 50% of organizations don’t have a documented strategic plan. My view is, of those that do the majority aren’t worth the paper they are printed on.

Why? Because most organizations simply don’t know how to plan.

There is usually a mission statement developed to please all stakeholders and to ultimately be placed on the company website and brochures for marketing purposes. After that there is usually some futuristic stuff based on revenue and sales forecasts that talk about growth. No real direction and not much talk about how the sales forecasts will be accomplished.

A strategic plan for the real world has to be better than that. It has to have clarity, goals and be used to drive accountability. Think of it as planning a vacation road trip. First decide where you want to go, determine where you are now, and then write down what it will take to get you from point A to point B.

Start with a clear vision, what will your business look like in five years? How many people and locations will you have? What markets will you be in? What will be your unique selling proposition? Take all of that and boil it down to a few sentences that you can keep in front of all stakeholders all the time.

Acme manufacturing will double sales from $10MM to $20MM in the coming 5 years and will be a world-class manufacturer of rubber ducks is not a vision statement. It’s more of a wish statement.

Acme manufacturing will develop a seamless sales and distribution network that will facilitate sales growth by at least 100%. We will be known as the highest quality on-time manufacturer of rubber ducks and other complementary bath leisure products in our industry.

 Now this is somewhat better. It speaks about what you want to be, and what you need to provide to get there.

After developing the vision statement, you do an in-depth S.W.O.T analysis to determine where you are now and what’s keeping you from being the world’s top selling supplier of rubber ducks.

You boil the S.W.O.T analysis down into 5 or 6 critical goal categories, and develop clear crisp timed goals to be accomplished over the next twelve to eighteen months to get you on the road to your vision.

You meet on a regular basis and review progress to goals. Are they on track, if now what needs to happen to get them on track? Are the assumptions still valid? Does everyone understand the vision and buy into it? Regular review and reinforcement is paramount to execution.

When the goals are met in 12 to 18 months sit down and review the plan, you should be well on your way to achieving your vision. You are a perhaps a third of the way down your chosen path, is it still valid? Did your market assumptions for rubber duck sales hold true? What other products or services will be a good fit?

Do the S.W.O.T. analysis based on the updated information and start the goals process again.

Effective strategic planning is a process not a one-time exercise. Understanding that change may be necessary and leadership and accountability are needed to drive execution are key first steps to effective strategy.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

What’s the difference between a business coach and a consultant?

I get asked this question often, and it’s confusing because some people use the terms interchangeably.

The best way I can describe the difference is to explain what I do with my clients.

A consultant is hired to study a process or specific issue within the company, whether it’s cycle time reduction, cash flow, or whatever. He of she comes into the business, conducts interviews with the appropriate staff, and learns how the process is being completed now. The consultant then looks at what the outcome is expected to be, compares it to what it is now, and develops recommendations.

A business coach on the other hand does not take the time necessary to become a subject matter expert. He or she believes that the company management knows more about their business that he or she will be able to learn in a reasonable amount of time. The business coach facilitates a process that brings the management team together to solve the problem or issue.

Which way is better? A consultant is actually better if the problem is new to the business and the expertise, skills or experience doesn’t exist within a business. An example would be perhaps converting to a Lean Manufacturing System where outside guidance is needed for initial development and training.  Hiring a consultant for a general business issue or strategic planning is perhaps not the best way to go. The consultant will need to take the time to study your market; your industry, your product and depending on the complexity this could take a lot of time. You as the business owner are paying for that time while he or she learns what you already know for the most part.

A business coach uses proven tools and processes to facilitate the outcome by using your internal knowledge and challenging you and your staff to defend your assumptions and directions. An experienced business coach will use his or her knowledge gained from other markets or industries to lead you toward new and different ways of looking at your business. This is usually much faster and less expensive. In addition the solution to the problem or the development of the strategic plan is yours, you own it and you’ve developed it with outside help. It’s not something that is presented to you in a formal document and left with you as someone else’s solution.

I do both coaching and consulting depending upon the application and the problem. If the business doesn’t have the knowledge internally I, or one of the members of my network will help them develop it. I till try to facilitate ownership of the solution to insure better execution.

For things like strategic planning, diversification, improving bottom line profits I take a coaching role. I use the knowledge available internally and provide my experience and tools to help them look at things differently and to develop custom solutions that are right for their organization.

Be careful when choosing with a coach or consultant. It’s relatively easy to get business cards printed and call your self one or the other. Look for background and a solid track record.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

WIIFM for better leadership results

In order to get the most from your employees, and from your staff you need to learn and communicate WIIFM. (What’s In It For Me). In order for employees to embrace organizational goals they must view them as their own. To do that they must clearly understand how meeting the goals of the organization is tied to achieving their personal goals.

It is much more difficult to separate personal and professional lives than it was even twenty years ago. Money alone is not the primary motivator but a short-term benefit quickly absorbed and forgotten. With the commonality of the two job household, work is a huge part of personal conversation and thought.

Leaders who take the time and make the effort to understand employee wants and needs, and helps the employee set personal goals that complement organizational goals will find better leadership results very achievable.

Goal setting is not a common practice among most of us. It starts by defining what you want in clear and crisp terms. Most of us have great difficulty in understanding or accepting what we want. Needs are easier to define, I need $500 more per month, I need a new car. Once the need is met the problem goes away and along with it the motivation.

Wants are very difficult to define. If you haven’t tried it you may be surprised. One of the exercises in our Leadership Development program is to develop a “dream inventory”. It’s a list of anything and everything you want to achieve or own or whatever your dreams are. We tell the participants to stop at fifty.

I have seen very few got even ten.

We are programmed to take care of needs and forget about most wants. If you can understand your employees wants and tie the achievement into attainment of organizational goals, you have a long term recipe for leadership results.

WIIFM starts with your personal goals and ties into your professional goals why should it be different with your employees?

Leaders need to encourage goal setting on a personal and well as professional level. Most people don’t have a plan for their lives, they just allow life to happen. They give more thought and planning to a two-week vacation than they do for the most important journey of all the journey through life.  If you can help your direct reports understand this and set goals, then have them take it down throughout the organization, how effective do you think that might be?

Explaining your organizational goals so al understand and giving everyone the opportunity to buy-in and develop personal goals that they can achieve through attainment of your goals is a win-win for everyone.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Where should you use a return on investment criteria?

When most executives think about return on investment they think about a formal justification for a large capital investment. Usually in a large company it’s expenditure over a preset limit of say $25,000.

My experience has taught me that much more money is spent everyday with little or no accountability and without thought to return on investment (ROI).

Business executives must demand a return on investment for every resource in their organization.

As a business leader, you have a responsibility to ensure that the assets of your company are used in ways that provide the highest possible return to stakeholders. That applies to all assets, including your human resources. 

I have seen numerous managers over the years that pride themselves on being frugal. Sometimes they go so far as to refuse to purchase something that may aid productivity on the pretense of financial responsibility. Yet, many of these same managers continue to compensate underachieving subordinates without saying a word. They don't seem to understand that employees are critical and expensive resources. When I question them about the obvious disparity, most are unable to see the connection.

When you tolerate poor employee performance, you violate the trust placed in you as a business leader to generate maximum return on investment. You place an unfair burden on other employees who must pick up the slack, or even worse, must correct the errors and deficiencies in poorly completed work. As an effective leader, you must expect excellence. Tolerating mediocrity is toxic to your organization.

The cost of poor performance can be staggering when you consider poor quality, returned goods, rework, overtime to make up lost production, and the negative impact is has on other employees. Many executives fail these dollars as an investment and they treat the cost symptoms rather than the root cause.

To realize a return you must first invest. Leadership development and training your people  is an investment opportunity.

Unfortunately, most companies don't see it that way. They'll invest in new equipment long before they'll invest in their people.

Not infrequently these companies will promote people from the technical and production ranks to roles as supervisors and first level managers without any additional training. Some of the good traits that set these individuals apart, such as dedication and work ethic, are directly transferrable to their new roles. But other needed skills in the area of leadership may be new and foreign to them.

As a result, many upper management initiatives are not effectively transmitted from the boardroom to the shop floor. And much valuable information from the production floor is incorrectly filtered before it reaches upper management.

As wages and health care costs continue to rise, management must invest ever more wisely, consistently, and generously in human resources. Investing in effective leadership development and communications programs pays big dividends in terms of  –

·     Higher productivity.

·     Lower employee turnover.

·     Better quality products.

·     Customer loyalty and satisfaction.

 Be prudent about where you put your time and money. Invest in employees who have demonstrated a willingness to learn and grow.  

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Improved leadership results start with changing culture

I recently wrote an article on achieving better strategic planning results. It was a look at how Toyota became number one in the auto industry through effective long term strategic thinking and execution. It touched on the subject of culture but didn’t go into any real detail.

Just this week I asked a group of people why they thought Toyota had enjoyed so much success and growth. The answer was of course their Toyota Production System (TPS), lean manufacturing and attention to detail. That is exactly what General Motors came away from the Toyota / GM joint venture at NUMMI. Learn the TPS and we’ve solved our problems. And it’s exactly what most U.S. companies feel, that lean manufacturing, or Six Sigma or some other program will make them world class.

They are all missing the point.

Toyota recognizes that the TPS is an excellent tool but is not a silver bullet. Real excellence comes from developing a culture that engages and empowers employees.

This was further emphasized by conversations with a friend that works for a large Fortune 1000 company. He told me about the repercussions he got from escalating a problem with a major account. The company actually put him on a communications improvement plan to work better with his peers, even after the major account told his VP that the performance of one of his peers was preventing them from doing more business together. The old “shoot the messenger” adage is alive and well.

Toyota has a carefully cultivated culture of employees being expected to report problems. Development of that culture begins with the hiring process and continues through training and constant reinforcement. In Japan it is actually considered shameful not to report a problem when it’s noticed.  However saying you want to have employees report problems and actually being receptive and following up on problem resolution is where most managers and executives fall short.

Toyota’s culture employs a term called “Genchi Genbutsu”, translated as go and see for yourself. Employees are expected and required to report problems and managers and executives are expected to go to the source and see for themselves. They are taught not to rely on hearsay.

That’s as far from “shoot the messenger” as you can get.

If you truly want high quality products, excellent customer service, engaged and empowered employees, leadership has to “walk the talk” every day.

The overall culture of the organization has to clearly and visibly support open communications, and a blameless approach to problem solving.

In my book, “Bottom Line Focus” I talk about my own experience with continuous improvement training and implementation. I worked for a then Fortune 500 computer manufacture and was sent to an expensive training session on Total Quality Improvement. The very first time I tried to implement it back at the plant I was told “ship it, it’s month end and we need the sales”. That attitude prevails in the majority of companies I’ve been associated with.

If you really want to see improved leadership results, be a better leader. Don’t just say something live it. 

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

How do you achieve better strategic planning results?

I think strategic plans have gotten a bad rap. If you believe the research most companies don’t even have one even though it is said that over 75% of businesses that fail don’t have a plan.

 When talking to people, especially those that don’t have a plan, I often hear, “strategic plans are useless, they are just guesses”.

In doing the background research for my book, “Bottom Line Focus”, I read a lot on the subject and I think I finally understand why plans are perceived as guesses.

Most people simply don’t know how to develop a meaningful plan.

They document some “goals” as to where they want to take their organizations, assign some actions based on those goals and then basically hope it all happens.

Before you can develop a meaningful plan for your organization you need to understand three things very clearly.

1.    Where you want the organization to be in 3 to 5 years, in detail. What markets, what products, what your differentiator will be in that market etc.

2.    Where you are now. A detailed look internally at your strengths and limitations, as well as externally at your opportunities and threats.

3.    What small, timed and clear steps you need to accomplish to get you from step 2 to step 1.

Major organizational changes are accomplished by a thorough understanding of what needs to be done and where you want to go, along with clear accountability and buy in of all concerned.

Like the old saying goes you “eat an elephant one bit at a time”.

In order to get better strategic planning results, you need to spend some time developing a sound strategic planning process. My 35 years of experience has taught me most companies simply don’t know how to plan.

As I mentioned in my last blog post I just finished reading a book entitled “How Toyota Got to be Number 1” by David Magee. He writes in detail of how Toyota’s long-term strategy is based on the single goal of striving to build the best vehicle in the world, and to offer consumers more for their money. Everything they do is focused on that vision.

Most of us think that the Toyota Manufacturing System is the basis for their success; The truth is that is simply one of the many tools they use to achieve their goal of building the best vehicles. The real secret is the culture they create within the organization that fosters employee engagement, and maybe most importantly the expectation that every employee will immediately report problems and take steps to solve them. They strive to develop a culture where everyone’s input is valued and sought after.

This culture is part of their strategy and is found in everything from the hiring process to over a year of training for most employees. The point is their strategic plan states they want to build the best vehicles possible, and they have set goals for every function of the organization that focuses on attainment of that vision. Everyone in the company from production, to management, to engineering and including human resources develops goals that align with the strategic direction, and they constantly review problems that may interfere with attainment of their vision.

The bottom line is if you want better strategic planning results put effort into development of a better strategic planning process.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Better strategic planning drives bottom line results

I’m reading an interesting book titled “How Toyota Became Number One” Leadership Lessons From the World’s Greatest Car Company by David Magee.  It discusses the Toyota strategy process in detail from their first introduction into the United Sates until the present time. It also talks about how their strategic thinking and customer understanding differs from the U.S car companies.

It points out that Toyota isn’t perfect and have made some market and strategy mistakes, but they recognized them quickly and corrected them just as quickly.

There are several major differences between domestic manufactures and even the other Japanese manufacturers and Toyota, but they all start with better strategic planning.

Toyota develops strategies based on recognizing what the customer needs and wants, and then executes to that strategy. How do they know what the customer wants? They ask them. They don’t guess and build large quantities of what they think will sell and push the units into the dealer network they study the customer. The book talks about the development of the Lexus brand in the U.S. Toyota sent a team to Laguna Beach, CA in 1985 to “live a life of luxury” and study the habits of luxury car buyers. They learned what the customer wanted and the shortfalls of the other luxury cars on the market. The result is Lexus, the largest luxury car brand in the United States selling over 300,000 cars per year.

Toyota’s strategy isn’t to be the number one car company in sales, it is to build the best car on the market and give the customer more value than he or she pays for. They believe that holding to this strategy and keeping a long-term focus rather than short-term results will drive sales.

The book talks about how Detroit automakers rode the SUV wave throughout the last decade. They were the highest margin cars ever built and they built them bigger and bigger up to and including the Excursion, the Suburban and the Hummer. Toyota offer SUV’s as well in the Highlander and the Land Cruiser, they didn’t go after the SUV market in a big way. They instead spent nearly $1 billion on development of the hybrid Prius. GM put nearly as much money into development of the Hummer Because SUV’s were the current fad and they were very profitable. One doesn’t have to look hard to see which company planned for the future and which one went for short-term profits.

The messages I got from reading this book complemented nicely with what I had written in my book, “Bottom Line focus”.

1.  Understand your customer’s needs and wants.
2.   Deliver value.
3.  Develop a strategy that drives your vision
4.  Execute to that strategy.

 

This isn’t intended to be a commercial for Toyota cars and trucks, it’s a roadmap for long-term viability and profitability from a company that seems to have done it right.

There are other examples of excellent quality, customer service and best value for the customer’s money you just have to look for them.

I will say they are more rare than companies that don’t have a clear vision, and strong execution.

Better strategic planning and vision provides better bottom line results because the best marketing strategy is word-of-mouth from loyal customers.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business". 

Create value to “fight China price”

I read an article in our local paper entitled Furniture Industry fights China Price”. Northeast Mississippi is a furniture manufacturing hub and is being hit hard by low cost imports. The article covered a workshop developed by the Mississippi State Franklin Furniture Institute and really provided few answers to the problem.

Having grown up in a steel mill town and seeing what happens to an industry that cannot compete with low cost competition I have some historical knowledge of what happens to a region when the key industry is decimated. My hometown has never recovered.

I’ve done some research on the subject of competing with low cost manufactures and competing on price simply doesn’t work. The average burdened labor rate in China in 2007 was between .70 cents and .92 cents per hour depending on where you get the data. The corresponding rate per hour in the United States for manufacturing jobs is about $25.27 fully burdened with benefits.

In addition the Chinese companies don’t have the regulations and environmental rules to follow and we can all agree it isn’t a level playing field.

But come companies are competing and doing well against low cost competition. Those companies are identifying and developing niches to operate within that take advantage of problems with Chinese production:

• Freight costs
• Increases inventory and safety stock necessitated by potential supply interruptions or poor quality
• Lost sales due to stock out and poor quality
•  Poor logistics support within China
•  Duties, fees and taxes.

The reality of the situation in furniture or in any industry if you allow the product to become a commodity, low price will win every time. In high volume production of the same product with no service or customization, low price is the only differentiator.

What are the companies doing that compete?

• Performance improvements alone such as automation or lean will not allow U.S. companies to compete on price. Certainly U.S. manufacturers must get lean and be as productive as possible, but they will never automate to .90 cent and hour.
•  They take advantage of the close proximity to markets and stay close to their customers, quickly turning customer requirements into opportunities.
• They develop the capability to run low volume and high quality products based on customer orders, allowing retailers and distributors to save money on inventory levels. This can be accomplished through Lean Manufacturing.
• They market their competitive advantages such as some level of customization, build to order, or features based on regional preference.
• They provide excellent customer service and warranty policies that offset the Chinese manufacturers distance from the market.
• Identify and market to consumers that are looking for a higher quality, higher tolerance product that can’t be easily produced in China.
• Use logistics and information to develop a competitive advantage within the supply chain.
• Allow the consumer or end user to have some input to the design and selection of the final product.

There are numerous things that U.S. manufacturers can look at strategically to offset some of China’s weaknesses. Allowing a market to be driven by low price is allowing a market to become at risk and expendable, and once a product becomes a commodity it seldom returns, electronics is a great example.

Better strategic planning, better marketing, and better communications with the customer can all be used as a competitive advantage by U.S. Manufacturers, and directly exploit weaknesses of Chinese manufacturers. Allowing them to dictate the market in our regions and establish low prices as the only selling point is giving up on an industry. Government tariffs and tax credits will never be enough to bridge the gap in labor costs. We must find a different way to do business.

Back to northeast Mississippi the furniture industry seems to be more concerned about each other than trying to form a cohesive marketing strategy to change the market.

If you found this article helpful you may want to download our free whitepaper, "How to Recession Proof Your Business".