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).

 

Unintended Consequences

Business agility demands that a business be ready to react quickly to their environment in order to take advantage of change. However, there are times when a fast change results in unintended consequences. Many are the stories of plans gone awry, even when well researched and grounded in fact. All the more reason not to make snap decisions that can take your business in the wrong direction. Here are some questions that can help you discern the difference.

Are we equipped to handle the change? There are many companies that are the victim of their own success. Something that seems like a good idea turns out to be a great idea, to the point that the company is unable to keep up with demand. Before making a change or introducing a new product or service you need to ask several questions. The first is about volume, do you have the infrastructure to keep up demand? The second is about resources, do you have the people to keep up with the demand.

What would we do if demand was 2 times what you predict? 10 times? 100 times? Using hypothetical numbers allows you to analyze what effect different scenarios might have on your business. You may discover that up to a certain point, you can handle the new business or increased volume that a change may foster, but nothing beyond that point. If that is the case, you may want to introduce the change or new product to a smaller segment of your clients or the market.

Is the change based on fact or a hunch? It is true that there are those that can study a market and get a “gut-level” sense of what is going on. Generally speaking, I would not believe that of myself, and you should be skeptical as well. Is your hunch based on research and data, or is it based on anecdotal evidence but not supported by more extensive research? Getting to market with a new product or service includes doing a certain amount of research to back up the hunch.

Do you have a Plan B? If the new product or service does become successful beyond what you can handle, do you have a Plan B in place? Plan B can include outsourcing on a temporary basis, or using temporary staff to fill in. Be ready for success beyond what you predict.

These simple questions can help your business avoid unintended consequences on the road to success.

DuPont Analysis: The Numbers Don’t Lie

Over the years that I have been working with small businesses and entrepreneurs, I have discovered that there is no better way to judge the health of your company than through financial analysis. As the title of this blog states, the numbers don’t lie. A good financial analysis can lead you directly to the source of any problems within your business. Yet, many small business owners and entrepreneurs don’t spend a lot of time on financial analysis, or only do so superficially.

In my experience, one of the best ways to analyze you business’ financials is based on a method developed early in the 20th century, the DuPont Method of ratio analysis. The method was created by F Donaldson Brown, an employee of the DuPont Company, as a way to manage General Motors . The DuPont Method was considered the standard until the 70’s, although I still find it a very useful tool.

The DuPont Method introduces a pyramid of ratios with Return on Equity at the apex (click here to download a file). At each level of the pyramid, the method deconstructs ratios into their constituent parts. For example, Return on Equity is composed of Return on Capital multiplied by Leverage. Return on Capital and Leverage are then decomposed into their constituent parts and so on.

The key highlight on financial ratio analysis is to see how financial operations drive value. Some finance people refer to this model as the value drivers model; others, as the financial levers model. The former see value drivers as the explanation of how an entity makes money and increases its value, hence the term “value driver.” The latter view financial ratio analysis as the method for identifying the triggers of financial results, hence the term “financial levers.”

There are three different types of ratios within a DuPont analysis: profitability ratios, activity ratios and solvency ratios. Profitability ratios analyze whether or not you are making money, and why. The question why is the most important part of that inquiry. Many are the occasions when an entrepreneur or small business owner will say to me, “According to my Profit and Loss statement, I am making money. Why is my bank account empty?” Profitability ratios will help to answer that question.

Activity ratios will help you understand how efficiently your business is operating. For example, if your business turns over its capital 3 times a year, but your competition does so 5 times a year, you could be at a competitive disadvantage. In other words you will find it harder to compete because the competition used its capital more efficiently.

Finally, solvency ratios will tell you whether or not you have the financial wherewithal to stay in business. There are many businesses that are the victim of their own success. A business that has a great product or service that others want to buy may expand so rapidly that they don’t have the capital resources (money) to keep up with the expansion. Solvency ratios will help you understand where you are in terms of capital resources and how fast you can grow.

So, tune in for the next three weeks as we take on the DuPont Method.

i Project Management Accounting, Callahan, Stetz & Brooks, John Wiley and Sons, Hoboken New Jersey, 2007
ii Ibid.

Customer Service Personified

Last Saturday, my wife and I were on Navy Pier waiting for the fireworks when I ran into my good friend Joseph, who I believe to be the personification of Customer Service. The lessons he teaches by his actions are worth reviewing, so here is a repeat of that Blog from last year.

This past week, I took my wife for lunch at the Union League Club in Chicago. While I was there, I saw my good friend Joseph. Actually, he saw me first, as Joseph is a member of the wait staff at the club. By the time I had my soup from the buffet Joseph had placed my favorite soft drink at a table in the corner that he knew I preferred. As I approached, he caught my eye, flashed his signature smile and held out his hand to greet me, saying as he always does, “It’s good to see you!” My wife shares my opinion that Joseph personifies customer service.

Now, the award winning Union League Club in Chicago has many outstanding employees who give great service all the time so that it is easy to say that the club administration is doing all the right things to encourage their employees. Many of their employees have been on staff for years, indicating that they enjoy working at the club, and it shows! All the same, there is something special about Joseph; you can’t just teach somebody to be the way he is, although others could learn from his example. After thinking it over for a while, I concluded that there are four qualities that Joseph personifies: pride of ownership, personal warmth, attention to detail and enthusiasm.

Pride of ownership: It does not matter in which of the clubs restaurants you see Joseph; he always acts as if he owns the place. I mean this in a good sense, that he wants people to enjoy his restaurant and he will do everything possible to see that you do.

Personal Warmth: I believe that there are few people who can go to one of the club’s restaurants more than a couple of times that don’t know Joseph and consider him a friend. He consciously works at getting to know you and what you like. His efforts include more than just food and drink; in his unobtrusive way, Joseph gets to know about you as a person and remembers what he learns.

Attention to Detail: Joseph is always moving, seeing what is going on and who needs something. He is able to anticipate what you need next almost before you know it. As I mentioned above, my favorite soft drink will appear on the table before I get there with my food. Grab a dessert and he will be there with a fork before you sit down.

Enthusiasm: It is obvious that Joseph loves what he does. His underlying enthusiasm for his work shines through as he surveys the room and does whatever needs to be done. At the same time, Joseph has a great sense of timing, knowing how to take care of something without becoming the focus.

Recently, I took my granddaughters to the club for lunch for the first time. They were in Chicago, and I felt were ready for the experience. I was sorry that Joseph was not there that day, as I had prepared them in advance to watch him as an example of how to approach life with a great attitude and the spirit of great customer service that anyone in business should possess.

Worn Down by Your Business? Beat a drum!

I am writing this on Sunday morning of the first vacation I have taken in 2 years. There is so much to do that I don’t know how I can take a vacation right now. I am sure that many if not most entrepreneurs and small business owners often feel this way. Yet, if I allow myself to be completely burned out, my business will suffer. So, here is an idea to help you sustain yourself during busy times. Beat a drum!

Well, maybe not literally, although in my case I do mean so. Several years ago I attended a fund-raiser for a friend’s dance company (Chicago Dance Inc., if you are in or near Chicago, it would be well worth it to catch a performance). I bought tickets for a raffle, and won a free class at the Old Town School of Folk Music. Being of Irish descent, I have long been interested in Irish and in particular the bodhran, a Celtic drum. I enjoyed the class and took another. After the second class, I decided to try my hand drumming at an Irish music session in a pub, where I met my current teacher, John Williams.

I now spend a half an hour practicing every day and 3 hours on Sundays playing the bodhran at a pub. The physical exertion of playing the drum has helped to reduce my stress levels and be more relaxed. The camaraderie of the other members of the music “session” and our common love of Irish music has given me an outlet for conversation that has nothing to do with business, so that I am able to focus on something completely different. As well, playing music in a session is just plain fun! How many of us small business owners and entrepreneurs ever do something just for fun?

Now, I don’t think that every entrepreneur in the world needs to play a drum, but taking up a hobby of some sort, even for a few minutes a day, will help you increase your energy and clear your mind so that when you return to your business you will do so with new enthusiasm. My Irish mother in law used to have a saying, “A change is as good as a break!”, meaning that it can be just as restful to do something different as to do nothing at all. I highly recommend it.

If by chance, you would like to hear some great Irish music, stop by Tommy Nevins Pub in Evanston, Illinois any Sunday between 3:00 and 6:00 PM. You might even spy the Bulldog beating on a drum!

Here is a quick update to my Blog last week “Beat a Drum”, last week I participated in a great bodhran seminar with Mairtin de Cogain at Milwaukee Irish Fest. Mairtin is a well known Irish musician who is currently using Kickstarter to finance a DVD project including video, lyrics and music about the County of Cork, Ireland. Check it out!

On Being a First-Time Small Business COO

Many small companies grow to the size where the owner can no longer run the business entirely by him or herself. In some cases, the owner never realizes that the business is beyond a single executive/manager and the consequences are dire. In others, the owner is cognizant of the need and recruits an experienced COO, or perhaps promotes from within.

In the latter case we have a newly minted COO (or VP Operations, or some other title) who has been with the business for a while and knows it well but is now asked to take on an executive role for which they might not have a great deal of experience.If you are in the latter category, here are four recommendations to help you succeed.

Know the Owner’s Mind: It is crucial in your new role to understand how the owner thinks about the business and what their expectations are for you. The real challenge to the new COO is to become the crucial link between strategy and execution and in order to do so you must understand both. Frequent well-planned meetings are a must. Some of the meetings should focus on strategic subjects and others on operational detail.

If you have been working at the business in a different capacity, then you should be able to leverage your knowledge, but do not presume to understand the owner’s thinking without serious, ongoing discussions.

Know the Business/Financial Model: Understanding the Business/Financial model comes down to a simple concept: do you know how the company makes money? Actually uncovering the model may not be so simple. First, you must understand what your product or service is and why the client buys. In other words, how does the company create value for the client? Second you must have an intimate knowledge of the business processes that create that value. Finally, you must understand how the business process affects business finance, in particular cash flow.

Even if you have been working at the company for an extended period of time, as a new COO you must gain process knowledge. Review any documentation, if it exists. As is often the case with small business, documentation will not exist, so work quickly to document basic processes as soon as possible. In addition, study the company’s financial statements so that you will understand how the financial model is affected by business process.

Set Up Feedback Loops: Once you know the crucial information that you need to understand operations and finance, set up feedback loops that will continuously provide you with the information that you need. In addition to information from operations and finance, the third feedback loop that you will want to establish early on is one that reports to you on what is happening in the marketplace. You need to know how the current economic environment is affecting the business, as well as what your competition is up to.

Find a Mentor: If you are new to the COO role, particularly in a small business, finding a more experienced person to mentor you will help you establish yourself in your role. Use your business contacts and network to find someone with sufficient experience to guide you as you grow into the role. Even if you don’t currently know a COO, you would be surprised how many of them would be willing to serve as a mentor. Work at finding someone with whom you can communicate well and who is willing to work with you on a regular basis.

If you find yourself in the position of being a new COO in a small business, you have exciting times ahead of you, so step up to your new reality with enthusiasm. Welcome to the world of the COO!

I’ll Just Do It Myself

We have all experienced it in our small business, time is tight and a crucial task must get done. You have explained it (you thought) to an employee but the task is not getting done. Or worse, it is not done the way that you want it done. In order to cope with the frustration, you decide that it is just easier to do it yourself. Then, you wonder why you are working 16 hour days, staying longer than any employee.

I am sure that most of you have been in this situation on many occasions. The problem is that if you can’t find a way out of it, not only will you continue to work those long hours, but it will be very hard to grow your business. You just can’t do everything yourself! What to do? Here are three ideas that may help: concentrate on your strengths and delegate your weaknesses, document well any process that you will delegate, outsource any business process that is not in your businesses’ core competencies.

Concentrate on your strengths and delegate your weaknesses. We are all better at some things than others. Some of us are detailed oriented and well organized, while others work well with the overall themes and direction of a company. The former will probably be better at operations and the latter at setting strategy and guiding marketing campaigns. One of the keys here is to completely honest with about what you do and don’t do well. It is hard to assess yourself by yourself, so don’t be afraid to call on a trusted advisor to help.

A useful exercise when you are trying to determine your role in your company is to create a diagram of the “buckets” or areas of work that you do. You might be surprised by what you find! Once all of your buckets are defined and the activities they include are outlined, you can review more objectively what you are good at and what might be delegate. Doing this exercise with a trusted advisor will add to the depth of understanding that you may gain.

Document any process that you will delegate. Since you have created most of the processes in your company, you know it really well. However, our tendency is to assume that when we explain a process to another, they will catch the nuances without a great deal of detail. I once helped a business owner that thought that a 15 minute explanation of a process that had been honed over several years was all that was necessary. Proper documentation, including the steps of the process, perhaps a diagram of the process flow and a list of the meaning of the terms used form the basics.

There are many useful tools to use when documenting process. Personally, I like to use the different tools that originated in lean concepts are helpful.
Outsource any process that is not among your company’s core competencies. In a small company that is starting to grow, there are many processes that are not among the core competencies. As the company grows, it becomes harder to perform some of these processes with internal staff that are not specialized. Payroll, human resources and benefits come to mind for many companies.

Using these three ideas can help you delegate work more effectively and find more time for yourself.