Filling the Entrepreneur’s Skill Gap

In a past Blog, I have written about making sure that you surround yourself with a team that covers any areas that are not your strong point. As an entrepreneur, you have many skills and the drive to succeed, but rarely do you have it all. Therefore, is crucial to find people to help you with those areas. Many entrepreneurs find this difficult, for different reasons. One reason that is often cited is lack of funds to hire employees.

The reality is that you do not need full time employees to do everything that has to be done, and hiring contractors for critical elements of your business process can work, and often are less expensive than you might think. While it might be a challenge to come up with funds to pay the contractors, it is well worth the effort when you see the outcome.

For example, I am engaging in a sales campaign for another enterprise in which I am involved. We are doing it the old fashioned way, sending out letters with a real ink signature and following up with a telephone call. I do not engage a full time person to do sales for this particular company, at least not yet. How did I find my sales caller? In this case, I used the site Elance and found a person that had the skills that I needed. I then interviewed her by phone (a great test of someone’s phone skills), and finally had her do a few test calls. Based on the results, she has been making sales calls for 9 months now.

Another example would be using a service to make your work look professional. Last year, I conducted a survey in the same industry as the company mentioned above. The results were significant and very interesting, but the resulting white paper looked kind of blah. I then used a graphic artist who took the content and formatted it with typesetting and graphics that brought immediate attention to crucial information and conclusions of the report. I never could have done that on my own.

The lesson taken is that an entrepreneur/small business owner will never have the skills to do it all, so don’t be afraid to hire a contractor to fill in those skill gaps.

Question: do you have any examples of how you used outside help fill in skill gaps. Also, do you have any suggestions on where to find the help you need?

Did Someone Say Competitive Advantage? A Great New Book on Strategy

Did Some Say Competitive Advantage? A Great New Book on Strategy

“Did someone say competitive advantage?” In a booming voice, Dr. Chuck Bamford started his class on strategy, a capstone piece in the Notre Dame Executive MBA program. I was fortunate to follow this class with Dr. Bamford, and it has made a big difference to me.

Now Dr. Chuck has written a book entitled, “The Strategy Mindset”. In creating this pared-down tome, Bamford has distilled his wisdom on strategy to its essence. The book is easily read, but more importantly, presents a clear, logical and winning formula for doing strategy right. I know, because I have used this formula with several companies, always to great success. I have been waiting for Dr. Chuck to create this volume for some time now.

The author is a straight talker, and begins with some myth busting. He pulls no punches when he takes issue with a number of ideas about strategy, including some of the more common myths of the day, such as trying to be the low cost leader. He not only takes issue with these myths, but cogently explains why they don’t work.

In the rest of the volume, Dr. Chuck takes you step by step though strategy, presenting an overview of the model that is both strong and easy to understand. He begins with the importance external analysis. Many a business has been started with an idea, but if that idea is not based on a sound understanding of the market, its’ players and dynamics between them, the idea will probably not come to fruition.

The author then turns to an internal analysis of the company in order to understand what about the company makes them stand out in the marketplace. This is not a “My people are my advantage exercise.” Rather he seeks an understanding of what within the company creates the advantage, in order to focus resources on those facets.

The next stage of Dr. Chuck’s process is the creation of a one-page strategy map that make crystal clear what each person in a company must do for all to achieve success. To those that protest at the simplicity, Dr. Bamford insists that with proper preparation, if the exercise of creating a strategy takes more than two days, you are doing something wrong. The elements of the strategy map are:

  • The Value Driver: what creates value for the customer.
  • Stakeholder Statements: what you want the stakeholder to say about the company.
  • Need from the company: what we need to make this happen.
  • Must do individually: what I need to do to make this happen.
  • Metrics: how we will measure success.

I don’t often make endorsements, but I cannot speak highly enough of this book. You need to acquire a copy of The Strategy Mindset by Dr. Chuck Bamford today!

Be Thankful for What We Have

Several days ago, my wife was sworn in as an U.S. citizen in a ceremony in Chicago. Having dealt with the government bureaucracy throughout, we did not have high hopes for the occasion, but were pleasantly surprised by the ceremony that took place. Along with the 140 other new citizens and several hundred friends and families, we sang the national anthem and recited the pledge of allegiance. We watched a video about immigrants and also a music video with the song, “Proud to be an American”. The new citizens recited the oath to their new country.

For me, the highpoint of the ceremony was when the new citizens came forward to receive their certificate of naturalization. Of course, this is the digital age, so there were several new citizens taking selfie-videos of themselves receiving the certificate.

The person that impressed me the most was a gentleman in his 60’s, who really looked the part of an immigrant; neatly dressed but somewhat grizzled, with the rough hands of one who had done manual labor for many years. When he received his certificate, he held it aloft in both hands as high as he could reach to show it to friends and family across the room, and then began jumping up and down in a dance of sheer joy, a wide smile on his face. This was an important moment in this man’s life!

Of course, bureaucracy was on display that day as well. It took longer to check in the 141 prospective citizens than the actual ceremony. The Bulldog noted several quick changes in process that could have cut the time in less than half, but I kept my peace that day.

Afterwards, my wife told me about a comment that one of the bureaucrats made during the checking in lineup. Seeing the long line waiting to check in, she asked how many were there. When she was told that it was 141, she said, “Wow, why so many? Are they giving something away for free? I want some!” My wife had the right thought, but she did not verbalize at the time. I will now, “Ma’am, you’ve already got it, and you don’t even know!”

What the bureaucrat had was the liberty and blessings of being an American citizen. Unfortunately, at least at that moment, she seemed to have forgotten that fact. Many do, including myself from time to time. The freedom to live as I would like, to be an entrepreneur and build a business that supports my family and my community. The freedom to express myself and my ideas. We often take these things for granted, and often it is immigrants who remind about these freedoms.

To quote Churchill, “”Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” (From a House of Commons speech on Nov. 11, 1947).

 

Sustaining Growth – A Practical Example

In last week‘s posting (Sustaining Growth), I introduced a model that would allow a small business owner to understand how fast their company may grow without external financial inputs. In other words, how quickly can your business grow without running out of cash and without infusing new cash from equity or loans. In addition, the model also allows a small business owner to see how other changes and improvements might

The Allowable Growth Rate model that I introduced last week is:

AGR = Net Profit Margin x Rate of Retention x Asset Turnover x Leverage

Let’s take a look at an example: a small business has sales of $900,000, with Cost of Goods Sold (COGS) of $350,000, Sales and General Administration (SG&A) costs of $400,000 for a Net Profit of $150,000. In addition, the company’ owner pays a dividends $100,000 to investors. The business has Capital of $450,000, of which $300,000 is debt and the rest equity.

 AGR   =   16.7%    x    33.3%   x   2   x   2   =  22.2%

AGR     =     $900,000     x     22.2%     =     $200,000

Simply put, with retained earnings of $50,000 (after dividends), the company turns assets over 2 times a year, and has leverage of 2, meaning that internal operations will allow the company to turn the $50,000 of retained earnings into $200,000 of new sales without external funds.

Supposing, however, that the product or service that the company sells has made a hit in the marketplace, and sales could grow much more quickly than that. If the company expands more rapidly, they will be pinched by a lack of capital to sustain the growth.

If it is possible to make improvements internally, you should try. For example, if the company can decrease Cost of Goods Sold, Sales or General Administration Expenses, each dollar saved would be another dollar to be reinvested into the business, all things being equal. For example, a decrease in COGS and SG&A of just 5% would increase Net Profit and AGR as follows

AGR   =   20.8%   x   46.7%   x   2   x   2   =   38.9%

AGR     =     $900,000     x     38.9%     =     $350,000

You could also analyze other operations. What if the company could use its assets more efficiently, thus increasing capital turnover? This would allow them to create more sales with the same assets, thus increasing AGR, again without external financial inputs. The following example assumes that the company is able to increase asset turnover from 2 to 3, increasing revenue to $1,350,000. We also assume that COGS and SG&A will increase by roughly 1/3, as would dividends. The resulting equation for AGR is

AGR   =   27.8%   x   65.3%    x   3   x   2   =   108.9%

AGR     =     $900,000     x     108.9%     =     $1,470,000

Of course, not every company is simply going to increase asset turnover by 50%, but this illustrates how internal change can have a significant effect on financial performance. In reality, you would always want to look at improvement in internal operations as a way to increase AGR, before looking at external financial inputs, such as debt or equity. If you were to seek external financing, a good investor or bank partner is going to want to look at improvements anyway.

 

Effective, Efficient, Repeatable Processes

There are times, when dealing with different situations in business, when I remind myself that patience is a virtue. I ran into one of those times recently, though I will not release any names in order to protect the guilty! In this case, not only is patience a virtue, but the creation and maintenance of effective, efficient, repeatable and most of all, documented processes could have saved a large amount of virtue expended on my part!

Whether your business is large or small, when you reinvent the wheel with every new business opportunity, you are wasting precious resources. Even worse, when process is informal and undocumented, you could be wasting the precious time of a client or a vendor. This is essentially what happened to me. Had I known what was expected of me when interacting with this vendor, we could have been much more efficient. Imagine what might have happened if vendor employees had known what to do as well.

The first quality of a good business process is to be effective. In other words, the process is intended to accomplish something specific and is designed to do so. Forgive the old adage, but if you don’t know where you are going, you are very likely to wind up there! When designing process, always begin with the end in mind, and be certain through testing that the process actually accomplishes what is intended.

The second quality of a good business process is to be efficient. This means that the process should only include only those inputs, outputs and steps that are absolutely necessary to accomplish the end in mind. Many of us have a natural tendency towards complexity and we must resist at all costs. When you are creating business process, ask at each step along the way, “Is this really necessary?”  Think of the other person, be they client or vendor, carrying out the process; will they be muttering under their breath as to why they must perform this action?

The third quality of a good business process is to be repeatable. As mentioned above, the height of inefficiency is to do the same thing a different way every time (or was that insanity?). A process that is repeatable will gradually build up a body of experience that will help to increase efficiency and reduce performance time.

The fourth quality of a good business process is to be documented. What others don’t know they cannot follow! If a process lives only in someone’s mind, then there will be a constant battle to get the process done well. Of course, there are those who would like to preserve their position by keeping control, but that rarely works in the long run.

A final lesson here: a truly agile business will also have a process that handles exceptions to the rule. When an effective, efficient, repeatable and documented process produces an unexpected result, business agility requires that another process be available to handle the exception.

These simple, common sense ideas can keep all of us from expending too much of the virtue of patience!

Resolve to Follow Your Cash Flow

I saw an interesting saying on a sign the other day, “New Year’s Resolutions, they go in one year and out the next.” That is my philosophy as well when it comes to New Year’s Resolutions. Yet, as a business owner, there is one resolution that ought to be made for the coming year: pay attention to your cash flow.

Most small business owners review their Profit and Loss Statement (hereafter P&L) more or less regularly, but often forget that the bottom line of a P&L is an accounting number. That is, the net profit on a P&L does not take into consideration the timing of cash flows. The business owner will look at the P&L and see a great number, then look at their bank account and say, “Where’s the money?” There are a number of reasons why those numbers may be different.

First, take into account the credit you extend to your customers, also known as receivables. If you have booked sales in a given month, but the actual payment is coming 30, 60 or 90 days in the future, your bank account will not reflect that fact. If you picture your sales as coins flowing into a bucket, any sale made on credit actually has an IOU on it instead of a dollar sign.

Secondly, take into account the credit your suppliers and vendors extend to you, also known as payables. For example, If you look at a P&L that contains cash that will not be paid until 30, 60 or 90 days into the future and do not take that into account, your cash on hand will be inflated beyond what it really is. If you spend those committed dollars on something else, such as payroll, and then have a problem with cash inflow, you might not be able to meet those supplier and vendor obligations when they come around.

The best way to avoid this problem is with a Cash Flow document that takes into account the timing of cash flows. The cash flow document will not register sales for a given month, but the actual cash inflow. The document will not register purchases of goods or services, but the actual cash outflow in a given month. The Cash Flow document should also show the recurring monthly cash outflows for payroll, rent and other expenses. By creating a cash flow document that moves into the future at least 6 months, you will be much better able to predict what cash you will need in any given month in order to cover all of the cash outflows.

Resolving to follow your cash flow in 2013 is one resolution that you can’t afford not to make!

Great Customer Service is No Accident

Nothing brings out the bulldog in me more quickly than poor customer service. Recently, the bulldog has had too many occasions to come out! In one case, a company website where I was trying to pay a bill was not working. The site was quite rudimentary for a $6 billion dollar company, with no help function at all. When I called the only number listed on the site, I went through the “pass you on” routine, with lots of hold time during which I was told how important I was to their company.  Finally, I reached the office of the right person to talk to, but she was on vacation. I sincerely hoped that she would make it back from vacation else I might never be able to pay my bill online (or anyone else, for that matter).

In another instance, a well-known delivery company left me a form to sign to have a package delivered on the second attempt. I even called the company to let them know that they could leave the package in the foyer and that I would sign the form. The next day, I found a second form next to the first. When I called this time, the customer service person could not tell me what happened and passed me on to the local terminal.

After a couple of tries, and more messages about how important I was, I reached the terminal manager. The manager explained to me that company regulations did not allow them to leave the package in the foyer of my condo. To put a quick end to the story, about fifteen minutes later when I removed my teeth from his leg (figuratively, of course), he agreed to have the package left as I had requested.

Customer service should be in the DNA of every company, and it does not happen by accident. Based on my experience, both as a customer and as a service provider, here are some guidelines to great customer service:

  1. Every employee of a company is potentially a customer service agent. Even amid the myriad choices in a company’s voice response system many people get through to one employee or another. Therefore, all employees must be trained and ready to handle customer service at a triage level, that is, be able to understand the problem and get the customer to the right place the first time.
  2. There should never be a circumstance where the only person who can solve the problem is not there. When there is a technical problem, multiple experts must be on hand. For a small company, this may mean having experts on call. With today’s technology, reaching a person who can solve a problem should not be a problem.
  3. Customer service representatives must be given reasonable authority to solve a problem. Repeating company policy is not a solution. Nor is saying, “My supervisor is not here right now, he will call you back.”
  4. At the very least, customer service representatives, supervisors and managers must learn how to ask questions and listen, not only to understand the problem, but ascertain what the solution is that the customer wants.

Finally, a suggestion to all companies: please stop using the “your call is important to us” routine!