Leadership Insights

How Phoenix Business Owners Benefit From Executive Coaching

New Picture 41 How Phoenix Business Owners Benefit From Executive CoachingMany of my members first asked me  “I am a successful small business CEO so what will executive coaching do for me?”

The answer is simply this:  Many small business owners are high achievers and have high expectations of themselves and of those around them.  Trying to run the business while troubleshooting problems and still finding ways to driving the business forward, often feels like trying to change the wheels of the bus while going down the highway at 100 miles per hour. But all too often doubts, uncertainties and a lack of accountability prevent them from doing everything that they could or should.

High achievers continually deliver results and they do it by performing at their best each and every day. Even the best sportsmen and athletes understand the need and benefits of having a good coach.  It is not that they are not the best at what they do, just that it helps to have an honest outside perspective and an accountability partner. Similarly, small business owners are finding that in today’s dynamic business world, even high achievers can benefit greatly from the guidance, support and motivation that an executive coach and peer advisory group provide to keep them on track and focused on their goals.

Peak performance is based on a few key factors, and no matter what business you may be in, the fact is:

– Focused and well prepared executives achieve more
– Focused and well managed teams deliver more
– Well managed companies and teams deliver better profits, are more durable and enjoy more market share.

It is no accident that the majority of CEO’s that we coach have been able to create a stable platform and superior strategies that put them into their best performance yet despite the continuing poor economic climate.

So what exactly does executive coaching do?

Most small business owners and CEO’s work in a vacuum.  The need to keep professional distance between you and your employees means that there simply is no sounding board or anyone to really discuss problems with. Often in business partnerships there are concerns and friction points that cannot be openly discussed.  A common theme in initial discussions with prospective members is the lack of camaraderie and peer interaction.

A small business owner or CEO is doing the best they can and quite often doing many of the right things.  But every CEO knows that there are always things that can be done better. Doing things differently or better requires change so working with an executive coach requires that the CEO be willing to accept and then lead profound changes on an organizational and personal level. Working with a peer group and an executive coach will get you there much quicker and more efficiently than if you tried to do it alone.

What are the advantages of working with CEO Focus?

  1. Executive Coaching helps leverage the efforts of CEO’s with the opportunity and desire to grow to get them there quicker.
  2. Executive coaching helps CEO’s to improve their own personal management and delegation skills in order to become more effective leaders
  3. Executive coaching provides an opportunity for honest feed back and meaningful reflection to increase the awareness of the executive of how they are manageing the organization.
  4. Executive coaching helps executives use other’s mistakes to learn. Everybody makes mistakes and learns from them, but the school of hard knocks is slow and expensive. Engaging a group of true peers to find solutions to problems that the CEO is experiencing, is a rare opportunity. The true power of CEO Focus lies in the group, all of whom are committed to each other, constituted from like minded professionals, and who are committed to giving and receiving open and honest feedback
  5. Executive coaching helps executives review and learn from personal experiences. Through self-reflection, great leaders and peak performing executives are able to learn and grow. In order to be successful, executives need to look back at personal experiences and learn from them. Executive coaching plays a vital role here as executive coaches know how to spark the process of self-reflection so the executives can use the valuable learning, which accrues from this process and apply it to their lives.
  6. The best way to clear your blind spots is to work in a group of capable professionals. Many CEO’s are not aware of, or may simply choose to ignore their blind spots. This is dangerous in a small company since there is not enough depth or breadth in the management team to compensate. Coaching and peer mentoring plays a vital role in clearing blind spots and bringing accountability to the equation.
  7. Executive coaching helps executives balance conflicting demands and provides a sound reference point for balancing professional and personal priorities. Ultimately our companies are our babies, bore out of blood, sweat and tears, but should not define us. They should be a vehicle for us to achieve our personal goals since real success in life is solely determined on who you become, the character and attributes you develop, the people you help, and whether or not at the end of the day you were true to the most important priorities in life – namely: yourself and those closest to you.
  8. Executive coaching helps CEO’s to learn best practices and skills that will directly help them and their staff to work more effectively.  Goals and objectives derive from strategic planning but the journey is probably more important than the destination. Coaching and mentoring help get there in the shortest time and most direct way possible

 

Executive coaching and mentoring is a process that requires commitment.  We understand that small business CEO’s are busy and often intend to do a great many things.

How New Search Engines Will Change Marketing

The Search Engine of The Future

Google is constantly evolving its search engine in ways that it believes will keep it highly relevant to the market in a constantly fluid and evolving web.

Through all the changes in search engine algorithms to date the one constant has been that they have been driven by a few main ingredients but mostly by keywords.  Keywords in your URL, your content, picture labels, headings, links and social media.  Whatever way you slice it, keywords are everywhere in SEO because computers are essentially dumb and this has been one of the only ways that an algorithm could easily determine relevance.

Search engine companies understand that the user experience is vital to their continued success.  The other side of the coin is that the internet has created a fundamental shift in the way that companies now market and the way in which buyers look for information and buy. From the user’s standpoint, the criteria are quick delivery of only relevant content that the user wants: personalized, relevant, recent and unique content.  Given the potential for inaccurate or biased information, great store is placed by the user on opportunities to validate this information.

Semantic Search

Ever at the forefront of development, Google recently announced some new dimensions in their “search engine of the future”. 

Search engine technology has been driven forward hard by developments such as SIRI and Google Assistant which has resulted in a fundamental shift that comes under the label of “Semantic Search”. This uses artificial intelligence in order to create a context and “understanding” of the searcher’s intent.

Current algorithms seek to frame the best guess meaning of the query by trying to align with keywords based largely on search phrases and keywords with the text search inputs. Semantic Search technologies use natural language rather than key words.  But language can be ambiguous so they need to look deeper into the input by examining the relationship between the words, how they work together, and attempt to create a better understanding of what those words mean to the searcher. For instance Semantic Search has to be able to differentiate on grammar and spelling better like understanding that “to” and “too” have different meanings and that when the words “You” and “Tube” are placed together, it changes the meaning. The example Google uses is “Taj Mahal”, which could be a monument or a musical group. To do distinguish effectively, far more contextual input is required – hence the increased reliance on peripheral data such as maps, databases and user information.   To be of use in providing context, these elements have to be mapped in what Google calls a Knowledge Graph.

As you can imagine there will be a significant increase in the influence of peripheral information systems like social media in the decision algorithm.  For instance, part of the initiative to personalize the search return is to look inside the users own frame of reference, say by including the content of their email inbox in the search domain.

The Knowledge Graph

The support system of this semantic search will be Google’s Knowledge Graph, a conglomerate of information aimed to provide create a context around possible queries that people will be searching for. Not only will they need to understand the interrelationships between times, places and people in order to return relevant data, but they will seek to catalogue information about the user’s preferences and history to return relevant items and suggestions that are an extrapolation of those previous activities.

As in-house entities, it is no surprise that Gmail and Google Plus are being integrated heavily into these algorithms with prime space on the SERP (Search Engine Result Page) being allocated to them.  Gmail results will be above ads and other knowledge graph results, making this a valuable location for increased clicks to your site. Only shopping or maps results will appear on top of the Gmail results. So if you target keywords that don’t have map or shopping results, you can appear on the top right without having to pay for those clicks.

What Does It Mean for SEO?

Keywords are easy to identify, include and manipulate, but adding the dimension of intent makes it much harder to engineer or manage results. In order to rank well in semantic search, you will not only have to put your keywords in the right places, but carefully orchestrate the actual meaning behind those keywords and then create content around that to support your intended context. That puts more emphasis on your keyword research and takes the importance of coordinating copy writing with your strategic inbound marketing plan to a whole new level.

When people search, they aim to answer a question. Currently they just search on a few related words that are essentially a truncated version or a key element of the question. SEO therefore revolves around guessing or determining the keyword research is largely data-driven around the popularity of the terms in their question. Keyword research in semantic search will have to focus on what that person actually means when searching for that keyword.

For example what could people be looking for if they search “Pilates”?

  • – What id Pilates
  • – How does Pilates help?
  • – Can I do Pilates on my own?
  • – What equipment do I need to do Pilates?
  • – Are there instructional Pilates videos?
  • – Where can I find a Pilates instructor or classes?

 

Structuring copy to resonate with Semantic Search would require writing each sentence to answer specific questions people might have as it relates to that keyword. You will have to continually ask yourself how what you are writing answers a key question and at the same time you will have to focus on the natural language.  Further, keywords will not be going away anytime soon so the copy will still need to be written as before, to resonate with your target keywords.

This will take time to evolve so will not immediately disrupt the way that we currently target keywords.  However since it adds some richness to the equation and new channels of influence in a highly competitive world, it is something that cannot and should not be ignored.

To me the addition of Gmail and Google + is a fascination and since these arer near real time, there have to be some coolways to leverage the flagging world of social media, especially twitter, to start targeting Gmail accounts?

What does this mean for your Search Marketing Campaign?

Keyword research is and will remain, for now the most important aspect of your inbound marketing campaign.  However in light of the broad trends towards semantic search, now more than ever, is there an imperative to have an integrated and well managed CAMPAIGN!

For instance, not only will there be a need to coordinate the copy on your website with your blog, but now your social media efforts will gain better traction and your email marketing team will need to take heed of all of these elements to provide a comprehensive and fully effective SEO campaign.

As always with the evolution of the internet, the wheel turns!  We have seen the rise and fall of entities such as MySpace, so we know that good ideas will stick, bad ones will fall by the wayside and even some good ones have a finite shelf life. All we can do is to stay engaged in the process and leverage the max out of the current situation.

The especially hard part about small SEO campaigns for businesses is that because of the social media aspect; it all seems so personal and ad hoc.  That makes it extremely hard to step back and realize that it is a set of tools that are working in a very specific way within a carefully designed campaign.  So unless you are Kim Kardashian and your followers are mindlessly hanging on your every move, put the smart phone down and step away from the Twitter.  This it is anything but ad hoc and all about ROI.

Achieving Proper Balance and Focus

As a small business owner, you have to wear a number of different hats. In the mad scramble that characterizes most small business owners day, days become weeks and weeks become months. With the best intentions in the world, strategy and planning are often pushed out to deal with immediate and seemingly more pressing issues.

Mastermind groups are a proven way to bring together business leaders from diverse sectors who are committed to growing their businesses. Our groups form a powerful business executive advisory board that will assist you to test and refine your business strategy, provide invaluable support and perspective and above all the accountability that we crave but find so elusive.

With CEO Focus, executive coaching is facilitated through the 1-1 strategy sessions where you can gain advice and insight into best business practices that are right for your industry, Arizona and the current economic climate. We have the skills and resources to provide the full range of support, training and development that your company needs at every level and in every stream. Together we will develop practical sales, marketing, financial and operating strategies that are tailored to your business and geared to driving your business forward.

Why Do I Need a Business Coach?

All the best sports stars have coaches.  They know that in order to continue to win, they have to continually work hard and strive to improve their game.  It has been proven time and again that these stars have coaches because the hardest things to do are: to keep them on track and to get out of their own way.

Even business owners who aren’t seemingly doing anything wrong can benefit tremendously from outside guidance, opinions and accountability.  An experienced business coach will highlight your strengths and weaknesses and be the key to helping you to assess what needs to be done to make your business stronger.

Our coaches are able to help with everything from sales and marketing initiatives to building your organization the way you want it to be.  We help CEO’s  win back the time to do the things they should be doing. We supplement their efforts in key areas to  help them run their  business in the most  efficient way possible.

The benefit of working with CEO Focus as part of a round table advisory group is that you have access to a powerful network of  top notch, motivated and experienced group of true peers.  CEO’s who face the same challenges you do but in diverse industries which allows them to bring true objectivity to the table.

Business Model Blunder or Net Flame-Out?

A series of Wall Street “Coke Moments”  has Netflix CEO  Reed Hastings showcasing his ongoing 20/20 hindsight .

After a market maneuver that forced them to reacquire shares at premium rates and a now text book classic botched attempt to re-engineer the company, Netflix was then forced to sell shares at a deep discount to shore up cash holdings.

The company is burning through cash at a time that his vendors and content owners are demanding exorbitant prices and many are getting ready to launch streaming services of their own.

Net result – management miscalculations have reportedly managed to destroy 2/3 of the company’s value in 3 months. Do all the king’s horses and all the king’s men even have a shot here?

Read More….

 

How To Run A Business Effectively

Fighter pilots will tell you that at high speed and altitude, it is actually quite easy to wind up flying upside down unless you have gauges to tell you what you are actually doing. Driving your business is no different.  Watching the numbers is not quite the adrenaline rush that the daily gunfight brings but in these uncertain times, it has to be a critical part of your business strategy and business growth plan! So what is the best way to start and run a business or simply to grow a business?

 

Best Business Practices

Like a car’s instrument panel, data presented in simplified graphic form is easier to evaluate than pages of financial statements.  Many large businesses view this as one of the key Best Business Practices.  As accounting systems become more accessible, an increasing number of small business CEO’s are adopting the approach of using a dashboard representing Key Performance Indicators (KPI’s) to manage their business.  This is also a great tool to present at a business round table, advisory board meeting or mastermind group since a consistent format will allow your group to quickly understand your situation and help you to make better decisions though giving you good business advice.

 

KPI’s sound grand and intimidating but these are simply aspects of your business that are critical and are best kept in plain sight.  For instance a plane has a fuel gauge where a business could have a gauge showing how full of prospects or contracts the sales pipeline is.  The implication is the same if either runs out.  Just knowing where you are and what the reading should be tells us a lot.

 

Cash flow sinks more small businesses than any other factor. For many businesses the balance is simple – track income vs. expenses, so why not track them on a dashboard?  A big part of what I do in my executive coaching sessions and the CEO groups is to push to develop these (and other) measures as KPI’s.  Putting them on a dashboard pulls all of this together and gives a great overall perspective in an instant.

 

Most CEO’s view KPI’s as relating to the current business’ operation and management information as being defined by their financial statements.  Since most of this information is retrospective, this is like trying drive a car at high speed using only the rear view mirror.  Truth is that like adding a GPS to the instruments, effective KPI’s are necessary for effective ongoing business growth and development through consistently realizing your strategic plans.

 

Business Growth

Knowing how your business is performing is fine, but knowing how it is likely to perform in the coming months or quarter is far more powerful.  Best business practices are therefore to develop some forward looking KPI’s that will give you the best possible visibility on trends that influence your business and that will raise all the right flags in good time to allow you to make the necessary adjustments instead of most small business CEO’s standard response – “What The Heck Was That?!”

 

Sales pipeline is what most CEO’s feel constitutes best practices.  And that does give some visibility but few businesses I know can really get a clear vision of more than 2-4 weeks ahead.  That is indeed a very foggy windshield, which in a volatile environment is nullified by the lag on the biggest part of your information system, so at best it really does nothing more than tell you what you already know. So you really do need to find a couple of leading indicators that you can track which will give you visibility on your likely market trends. Resolving your data into market segments also tells and interesting story.

 

Executive Coaching

A statement I get all the time from CEO’s is “That is great – BUT this does not work in my industry!”  And my reply is – that is most certainly does, but like anything worth having, you have to broaden your mind and work at it.  For instance cement sales are a good leading indicator of how the construction industry is tracking and I have seen it used as a KPI for a steel based prefabricated building company.  It may not be exact but if the correlation is good, it can (and is) be used quite effectively to track trends in just about any building related product market.  Often you can use a counter-cyclic trend or one that has a reliable lead/lag relationship like that between the commercial and residential property market.

 

You just have to be creative and seek things that run in parallel to your market.  For instance how many people would like to know what mortgage rates are going to do over the next couple of years?  If you look at the 30 year bond rate, it moves lockstep with mortgage rates. Since 30 year bond rate forecasts are quite easy to come by – there is a quick and dirty answer right there.

 

As far as real time KPI’s since we are the boss, we can have some fun and simply make KPI’s up and nobody has anything to say about it.  For instance I have a client whose business involves multiple deliveries of varying sizes. To measure the relative (cost and time) effectiveness of his drivers on various routes we tried tracking miles driven per revenue dollar delivered.  This effectively combined the sales order value with a productivity measure and related it to the variable cost base (mileage).  This showed up some really interesting trends.

 

The main thing here is not to rely on any one indicator and to work to find KPI’s that you can become confident is as giving a reliable indicator.  If you feel a KPI is simply not doing it for you, keep pushing to find something else that will!

 

Lastly in terms of leadership development, always remember that your job is actually to run the people that run the systems.  Delegate the compilation of the dashboard.  A big part of your job is to beware of becoming complacent and continually challenge the Status Quo (and data).

Mastermind Group

Something to think about: join a mastermind group.  CEO Groups bring an interesting dimension to managing a business.  However many CEO’s are not comfortable sharing their dashboard data with an open group. This is where being part of a professional CEO group or true peer group has the distinct advantage.  Members are in non-competing industries, are business owners like you, who are serious and interested to grow their businesses aggressively and most of all with whom you have developed a strong trust relationship.  Once they become familiar with you and your company, peer mentoring becomes a real force multiplier that can help you with your business growth and development.

Are we addicted to social spending?

In 2012 social spending will eat up 57% of our entire national budget.   This has grown steadily from an initial 1% in 1950 and as yet the trend does not seem to be slowing.  In the long run the U.S. will have to cut social programs and increase taxes, but in the short run the U.S. simply cannot adjust quickly enough. Bottom line is we no longer have a choice.  If the U.S. has to pay its debts and it can’t tax more, then it must borrow more. Well we continue to borrow more to try to fix the problem, and how and from whom we borrow is becoming ever more critical.

Why are foreign borrowings such a huge risk?

As we have seen graphically demonstrated in Greece, high rates of debt to GDP are the chief danger to any country’s economic future. Foreign borrowings of the United States currently present a clear and present danger to the U.S. dollar and to the U.S. financial system and we need to take it extremely seriously. We are not immune to economic aftershocks from our own or Euro Zone crises and even less so to a calculated attack on our currency.  With China spinning the value of their currency to their advantage, simply because they can, all we can do is sit on the sidelines and hope that they continue to see us as being too big to fail for quite some time.

How does the U.S. then try to counter the danger?

Traditional responses have been the weakening the dollar relative to stronger currencies.  Doing this with the Chinese yuan would previously have stimulated growth as relative labor costs sank in the US. But today, because of the shift in our economy to a service base, because of consumption, much of the benefit of this strategy simply passes through and leaks away to offshore manufacturing facilities.

Had our foreign borrowing been invested for roads, high speed railroads, new industries, cheap energy, airports, and to fund scientific research, the debt would self-liquidate. However like Greece, we used the borrowing to fund consumption so the funds are therefore liquid and currently kept in dollars a lot of which is with American banks.

Currency speculators are felt to be the least of Japans problems. That’s because when policymakers intervene to limit yen strength, as they did Monday, they square off against a formidable array of forces, including U.S. monetary policy, Chinese reserve managers and global investors from Texas to Tokyo united by one desire: to sell the U.S. dollar.

U.S. deficit back in focus

Market sentiment is turning against the dollar and it could get ugly in the months ahead, especially if there is a breakdown in the politically tense negotiations about how to shave $1.5 trillion from the U.S. budget deficit over the next decade. Failure to meet the November 23 deadline would trigger automatic cuts and, some fear, prompt another ratings agency to cut for the US.

If that happens, China and other large holders of dollars will likely increase efforts to diversify their foreign exchange reserves, placing considerable pressure on the dollar.

Potential dumping of U.S. dollars could all too easily start a run on the currency.  The ensuing financial panic would tip our already precarious economy into a deep depression. No matter how much currency central banks use to try to manipulate exchange rates, the market always has more.

What then is the prognosis?

The dollar is still the world’s reserve currency, but that advantage doesn’t make the dollar bullet proof. U.S. dollars can be converted to yen or to euros. On October 17, China took a key step to internationalizing the yuan and making it an alternative to petrodollars if not an alternative reserve currency; Hong Kong’s Chinese Gold & Silver Exchange Society now offers gold quoted in yuan.

We have to tread carefully from here on out for we are no longer the big dog in the fight.

Janet Tavakoli: http://www.tavakolistructuredfinance.com/CPD.pdf

Reuters: http://mobile.reuters.com/article/idUSTRE79U6GL20111101?ca=moto

We Don’t Need No Budget!

New Picture 1 We Dont Need No Budget!Realistic income and expense budgets are a great tool to help run a business properly. Operating without one is like going on a long journey to a little known destination without a road map or GPS.  You may well get there but you have no way of knowing if you took the most efficient route – and don’t complain if you crash a few times along the way Mr Magoo.

 

On its own having a budget is no guarantee that you will run efficiently.  Using one consistently will give you a way to know if you are on track to achieve your goals, in sufficient time to do something about it if you are not.

 

Now some businesses may be so lucrative that it does not really matter.  The CEO can get away with doing what they please and without much in the way of financial controls.   These businesses do exist but I have seen them get into serious difficulties extremely quickly, simply because they lack the basic operating disciplines to do consistently well in a volatile environment and do not even know they are in trouble till it is too late.

 

Some CEO’s avoid budgets because they feel they are not good enough at financial management.  Kind of; don’t ask the questions that you really do not want to know the answer to. Others because they are not good at sales and the foundation of any budget is a realistic sales forecast so they never get out of the starting gate or wind up guessing wildly. But both styles wind up gun slinging, which history shows is not a profession that has much longevity.

 

Budgeting is not fun because it involves a fair degree of application and rigor, tough choices and sacrifice.  What the gunslingers do not get is that it is actually worse without a budget, since you will get to make all the same choices but will be totally unprepared.  Managing reactively will generally yield a sub-optimal result since it builds a culture that actually increases the inertia in an organization rather than reducing it.  Being proactive reduces inertia and prepares the CEO and the organization to meet challenges based on a good understanding of what is playing out around them.

 

The US has enjoyed levels of unprecedented success and affluence over the last 40 years. CEO’s operated businesses and everyone made good money – often in spite of themselves. With the financial meltdown many previously successful business owners are struggling to figure things out.  The picture of “normal” or “success” that they have in their heads is in fact not normal at all and success was more of a happy accident.  Nice work if you can get it but the bottom line is that there simply is no normal and that the only guarantee in life is that things change.  All we really need is to be able to do is meet these changes with vigor and confidence.

 

Budgets definitely help us do that, but are in fact a manifestation of an attitude, a will and most importantly strategic intent, that are the real keys to success.  Good CEO’s are less worried about what they know, than what they do not.  If you are not where you feel you need to be in accounting skills – it just takes some application and work to get there.  You do not need to be an expert but you do need to know enough to have a meaningful conversation with your accountant and financial management team.

 

Using a budget is half the battle but I have seen far too many budgets that are merely lip service.  The hardest budget to meet is one that has large stretch goals on revenue.  We often set ourselves up to fail by doing this.  Just because it is on paper does not make it true, as much as you would like to believe it or have your bank manager believe it.  Setting unrealistic budgets nullifies their value the moment people realize that goals will not be met and there is no process in place or time available to address this.

 

Budgets are living things because success is relative.  Sometimes just staying level with last years numbers is a tremendous achievement since all around you companies are dropping out of the sky.

 

An Office Romance That Could Ruin You

Heart An Office Romance That Could Ruin You Small business owners are at the highest risk for problems from one particular kind of romance.

The relationship I am referring to is a business owner’s love affair with their inventory!  Not sure what you were expecting, but here it is – the ugly truth!

Eli Goldratt in his book, The Goal, argues that in accounting terms, inventory is wrongly classified as an asset. His contention was that it is in fact a significant liability.  His view lines up in many ways with another book of that era, called “The Machine That Changed The World” which may sound familiar since in the 80’s it pretty well spawned the “Lean” movement.

Your inventory is probably not worth close to the 50c in the dollar that you bank will lend you on it.  The only tangible value your inventory has is what you might get if you had to liquidate it all right now!  Goldratt argues that inventory could quite easily become redundant at any time through forces completely outside of our control.  Legislated changes, unfavorable macro-economic events or quantum shifts in competitive offerings which might leapfrog our own, could all make current inventory redundant in a stroke, leaving you at best with scrap value – and that is probably the best way to view it (at least in strategic terms).

So what does that mean in the life of a small business owner?

I have talked about the challenge of gearing a business so that your utilization is optimal. Larger businesses tend to gear more highly to run as light as possible on inventory. But then their challenge becomes that of feeding “The Beast”.  The irony is that they feel that this is about the only way they can compete with smaller, more nimble organizations such as you.  On the other hand, smaller organizations have an inferiority complex and are easily intimidated by the size and power of larger competitors and simply do not acknowledge or use their biggest advantage.

What the Lean movement found is that larger companies gear more highly from a financial perspective too, which means that their profits are far more susceptible to market fluctuations perhaps the prime motivator to even-flow throughput, which means that even though they have the capacity, they often build inventory to provide a base load for their facility.  A friend of mine who is a logistics consultant made an extremely good living putting logistics and warehousing centers next to Coke plants when they were on their zero inventory manufacturing kick in the 80’s and 90’s because although the plant had Just-in-time production and zero inventory on site, to feed the beast logistically required massive infrastructure just outside the fence.  The production control advantages of these philosophies are tangible but outside of that – who is kidding whom?

Problem comes in that most small businesses are not structured, motivated, disciplined or perhaps skilled enough to run Lean properly, so they default to seeking to even-flow their operation by building inventory too.

The chances are better than even that you are saying to yourself about now that his does not apply to you because you are in a service industry.  Service businesses are unable to store their product so effectively they only have two options.  The first is to queue their customers and the second is to gear up resources to meet the demand peaks.  For them the danger of getting it wrong is either leaving business on the table or over-gearing their capacity and carrying needless costs.

Your demand is perishable in the sense that if you cannot deliver when the customer wants/needs it, they will go somewhere else.    Having inventory is a means to ensure that you service peak demands, so in your case your staff and systems are your inventory.  So you gear up and pretty soon you are looking at ways to even-flow to feed the beast too.

The solution is to accept that your biggest advantage as a small company is the fact that you have a low inertia.  Whatever your industry, be extremely wary of building excess inventory.  Stretch goals are good and very necessary, but I would rather leave something on the table and know that I am running at optimum levels and let my competitors beat themselves up trying to cope with my little present to them – the joys of dealing with manic feast and famine cycles.

 

How To Cope With Business Cycles

saleschart How To Cope With Business CyclesIt does not matter how customer or service oriented you are, any business owner will tell you that as much as you try to even flow things, some law of the universe seems to dictate that business always comes in spurts. Welcome to the roller coaster ride of being a business owner. There will be dips and there will be peaks and one thing is for sure, the ride will never be boring so take your Dramamine and hang on to your hat.

Ideally you should not have much idle capacity so you need to aim at setting your business up to run pretty smoothly at between 75 – 115% of target capacity. This is generally seen as an operations management challenge but actually this is a strategic planning and management issue first and foremost. The real aim is to try to level out the bumps before they happen through strategic sales and marketing planning. The ideal would be to construct a portfolio of products which would be at different stages of maturity and use the cash generated by the cash cows to subsidize the growth of the emerging products.

Unfortunately small businesses by their nature tend to focus on a narrower range of possibilities based on their technical competencies, so they tend to compete more fiercely within narrower markets and rarely have the luxury of being able to construct a product portfolio. What they can do however is to seek diversity within product markets which may take the edge off but any options here are most likely subject to the same cyclic influences. If you are having difficulty dealing with the cyclic nature of the markets, you need to examine every aspect of your business model to find a creative solution.

Your business model is simply a map of all of the processes and resources required by your business in order to market, sell, produce, deliver and get paid for, what you do. Not forgetting that the aim is to make a profit when all is said and done. By looking at your business model it will give you a clearer idea of your core competencies, which are the combinations of skills, resources and processes, that generate a sustainable competitive advantage. Look for unoccupied market spaces that might offer some relief.

Regardless of your efforts to smooth out the bumps, all businesses have to deal in varying degrees with seasonal variances. For many the summer is a problem. Business slows down and things get funky because customers are on vacation and also your staff want to take vacation time too so they are getting paid but you are losing income and their contribution to the workload. If you plan is simply to complain about the slow times then you will not get very far. Your business plan has to take account of the slow times too, as well as the busy ones and it is your job to make sure that it does and that you have the resources to work through.

Your P&L breaks down into fixed and variable costs. Highly geared businesses are ones where the fixed costs are high and variable costs low. The total cost line will be high but relatively shallow – which means profit margins are high but a small variance in volume results in a huge variation in profitability. Low gearing is where your variable costs are high and fixed costs are low. Profit margins are much smaller but far less sensitive to changes in volume. The trick then is to see how we can balance fixed and variable costs to get a good margin yet minimize gearing.

So here are some ideas to deal with the problem:

1. Manage your customers better. The ideal situation we see every day is the customer queue. Your local McDonalds has a finite capacity yet experiences a huge rush around mealtimes. The way they deal with this is to queue the customers. This is fine as long as you manage their expectations – just look at what they do at Disneyland.

2. Discounting is also a great way to attract customers into off peak times however don’t be fooled. Your business base may well be finite and while you may attract additional price sensitive customers, what you don’t want to do is suck your sales pipeline dry at marginal rates.

3. For most small businesses their staff comprises a major part of their costs. In theory, staff are a variable cost but in practice it rarely works out that way. Hourly paid staff will fill their time with whatever work they have. At least half of your staff have to be directly involved in production of your goods or service so how about piece rates. This makes their costs directly variable.

4. Make employees share the pain. Really this is a continuation of point 1 but if you are up front about the variation and pay accordingly, it is then up to them to ensure that they can endure the slow times. This is also an issue in a general slowdown. Your mandate is to make a profit and most small businesses simply cannot endure any sustained loss. Plus you never know what lies around the corner so you have to work on the information in front of you and the knowledge that reacting sooner than later is better. Unpaid time off is a good temporary solution but if you feel that the downturn will be sustained it is far better to lay people off and keep the remaining staff as best employed and paid as you can. Staff will put up with a lot of adversity if the quality of the job is good – so that has to be your aim too.

5. Creative PTO banking. Paid Time Off banking is a concept that is gaining traction around the country. Many larger companies are faced with the headache of having to reconcile all of the different state’s labor law’s. Arizona has substantially less prescriptive labor laws than say California. The golden rule is that if you are going to do something, it has to be applied uniformly across your workforce. I know of companies in Arizona that have been running PTO banks but there are lots of nuances so you should check with an HR professional before getting too far down this road.

6. Many companies take additional counter-cyclic work to balance the load. For instance, if you are a roofing company or landscaper with a strong field presence, but things slow down in the dry season. You might consider an additional complimentary product that is counter-cyclic like pest control, to even out the bumps. The danger is that you are diluting your brand and as good of an idea as this sounds, the trick will be to manage quality in the broader sense. So unless you are absolutely certain that you can do both extremely well, this is not always the best option. It may be worth launching it as a separate service and brand or to form an alliance with another company already occupying that space but have your crews do the work to keep them busy.

Bottom line is that there are some cyclical factors that you simply cannot influence or work around. They fall into two categories: Ones that are bigger than you and ones that you are bigger than them.

The choice is yours as to which one you will let it be.