Friday, January 18, 2013

Running a company is easy when you don't know how, but very difficult when you do

Below are some activities that, when performed rigorously and consistently, tend to separate strong small business operators from those who are struggling. It is not intended to be a comprehensive list, and the list is not in any particular order. It is intended to provoke some self-analysis . . . to make you ask yourself if you are handling these activities as well as you should or if you might need to refocus on some of them.

Facing Your Problems - Do you accept responsibility for guiding your company through a changing competitive landscape, or do you blame your problems on external factors (the Chinese, the cost of energy, the economy, etc.)?

Focusing on Profit - Do you focus on top line sales growth to the detriment of bottom line profit margins? Do you excuse an erosion of your pricing with, "We'll make it up on volume," or "We're doing this to gain market share," or "We just need to get a foot in the door," or "At least we're covering a little overhead?"

Managing Cash - Is it King in your business? Do you carefully manage payables, receivables, and inventory to keep as much cash as possible in the business? Do your people understand the importance of managing cash and are they trained to do it effectively?

Planning - Do you have an annual plan? Do you use it throughout the year as an essential tool for managing your business?

Managing Profitability - Do you know which products (or services) are the most profitable and which are the least? Do you know which customers make you money and which do not?

Delegating Effectively - Do you surround yourself with talented people? Do you give them important responsibilities and the authority to exercise those responsibilities?

Making Decisions - Is there a decision making process in place that prevents "analysis paralysis" and assures that important decisions will be made without needless delay?

Studying Financial Statements - Do you study your financial statements each month and thoroughly understand the story they are telling? Do you share appropriate financial information with your key managers?

Using Key Performance Indicators (KPIs) - Do you use them to keep a daily/weekly hand on the pulse of the business? Do your key managers know and understand the KPIs you're watching, and are they watching them as well? Do you chart them using a 12-month trailing average?

Communicating Effectively - Do you hold weekly 1-to-1 meetings with your key managers? Do you regularly communicate with the rest of your organization through memos or newsletters, all-company meetings, individual department meetings, or "brown bag lunches?"

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Monday, July 19, 2010

“You can’t manage what you can’t measure.”

“What gets measured, gets done.”

Those are two complimentary management axioms, and they both happen to be true.

Take the first, “You can’t manage what you can’t measure.” It’s pretty hard to argue with that. For instance, how could we manage our receivables without a measurement of some kind. We couldn’t. So we manage them by “days outstanding” . . . 30, 45, 60 days, or whatever the standard for your company is. You can’t manage to a specific result unless the result is specific and measurable. Or consider how you manage your payroll. You might have a target for how much overtime will be allowed for any given pay period. Or you might want to keep your total payroll below a certain percentage of sales. Again, there must be a specific, measurable goal.

Then take a look at the second axiom, “What gets measured gets done.” Without specific measurements, goals become fuzzy and lack commitment. Let’s say, for instance, you announce that you want the company to grow next year. That’s great, but without a specific target, that could mean anything. Are we trying to grow by one dollar? By a million dollars? By 20%? And obviously, the goal has to be tracked and communicated regularly. If you aren’t telling your people where you are against the goal you have set, they will assume that you’re not tracking the goal, that you’re not paying attention, or that the goal just isn’t all that important. Besides, if they aren’t being told regularly how they’re doing against the goal, how can they possibly help you achieve it?

Some goals can be tracked straight off your standard financial reports. Others may require a more creative approach. This is where Key Performance Indicators (KPIs) can be very useful. For example, if you’re a service company, you might want to track the number of complaints you receive per $1000 of revenue as a quality control measure.

The point is, if something is important enough to be set out as a goal or objective, then it is important enough to carry specific measurements of success, and important enough to regularly communicate those measurements to your people. Otherwise, what you’ve got is not a goal at all . . . it’s just a wish.

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Monday, June 28, 2010

Fully Utilize Your Technologies

“Wealth continually grows from multiplying existing resources using existing technologies.”
-Paul Pilzer

Paul Pilzer is an American economist and best-selling author who promotes the notion that economic progress and wealth are driven by technology. New technologies will continue to feed economic growth, but in Pilzer’s view, a lot of growth can come from properly utilizing the technologies we’ve already got.

Most technologies used in small business are vastly underutilized, particularly where software is concerned. We tend to learn what we need to learn in order to accomplish a certain task. We don’t look any further to see what else the program might do for us. Then, when we are faced with a new task, we whip out our trusty software manual and figure out how to do that. So we tend to use our technologies in small bites without understanding their full potential.

How might you improve efficiency and productivity if you more fully utilized the technologies you’ve already got? How might you use those technologies to better serve your customers?

Here’s a thought. Let’s say you’re using some very common software products like Word, Excel, PowerPoint, Outlook, ACT!, and QuickBooks. In your Accounting Department, even if you have only a single bookkeeper, challenge him or her to find one new thing in QuickBooks each month . . . a new tool, utility, or capability that would benefit the company and/or your customers. Find someone in the Sales Department who likes techie stuff and challenge him or her to do the same with ACT! And so on with all the technologies the company uses. Obviously, when something new is discovered, it needs to be taught and passed along to the other users of that technology.

The technologies we have available to us today are so powerful and so versatile that they can help drive a business forward more quickly and more sure-footedly than ever before.
Pilzer teaches us that these technologies are resources we should not ignore . . . that we should embrace them and use them to their fullest potential.

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Monday, June 21, 2010

What Causes Sales?

Just about every business tracks its sales in some way or another. But not all of them track what causes sales. Curious, don’t you think? If we know what causes sales, we can do more of that (whatever “that” is), and our sales will go up. So why wouldn’t we want to track what causes sales?

In some cases, it’s pretty easy to see what causes sales. A company that relies heavily on telemarketing knows that if a salesperson makes 100 calls, he or she will reach the correct decision-maker 35 times, and of those, 10 will result in an appointment. Of the 10 appointments, 4 will result in a sale. So it’s simple. Calls cause sales. So if you want more sales, just make more calls.

Another company, in the construction business, consistently wins 16% of all the bids it submits. Want more sales? Just submit more bids.

A gourmet restaurant noticed that whenever a newspaper or magazine gave them a favorable review, their reservation calls surged. So they redirected money from their advertising budget and hired a public relations firm.

But what causes sales is not always so apparent.

Consider a business that advertises heavily in a variety of different mediums but can’t track which mediums are working and which are not. As a department store mogul once famously said, “I figure only half of my advertising works for me, but I don’t know which half.”

Or worse yet, consider the business that depends on referrals to bring customers to its door. Typically they will say, “We don’t know. People just come to us.” What they should be saying to themselves is, “If we’re a referral business, how can we drive referrals?” Maybe they should intensify their networking activities, or maybe they try offering an incentive of some kind for past customers to refer new business.

The point is, we can’t drive sales unless we know the root activity that starts the sales ball rolling. What causes sales is different for every business, and in some cases where the sales driver is not obvious, it may take some creativity and effort to find it, but it can always be found. And once you find it, you will have the tool you need to set a sales pace that’s appropriate for your business.

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