What Should I Be Doing Now? Advice to Business Owners Who have Survived this Long

What should I being doing now? This is a question I have been fielding a lot lately by the “survivors” - the business owners who had sufficient cash and made the necessary adjustments to their business practices to survive the current recession thus far. Though folks in Washington, DC want you to believe the recession is officially over, it will be some time before a true recovery is felt by business owners and consumers alike. So, what you should be doing now is position your company for that recovery. Here is some of the advice I have been giving my clients:

1. Plan and prepare for the new economy. This recession has rocked both businesses and consumers in a significant way. It will be a long while before they return to old spending habits. The businesses that will thrive in the new economy will have recognized this and adjusted their product offering and business practices accordingly. Strategic planning here is crucial. Identifying your business’s strength and weaknesses, and the external opportunities and threats (SWOT analysis) is an essential element to crafting your plan. As one would never fathom making a movie without a script, transforming your business for this new economy without a plan is equally absurd. I would caution this is not something you do on your own as it requires someone to challenge your assumptions to make certain you are not drinking your own bathwater by building a strategy around a company strength that really isn’t. There are too many examples of companies who have made this mistake and expeditiously and efficiently strategic planned themselves right over a cliff.

2. Continue to be conservative with cash. I recommend labeling all cash expenditures in one of three categories, (a) Value-added, (b) Non-value-added but necessary, (c) Non-value-added - scrutinizing the latter two more closely. Value-added expenses are those that directly contribute to the value and/or quality of the product or service (skilled employee, machining tools, raw material). Your customer would not hesitate to pay this line item if he/she saw it on an invoice. Non-value-added but necessary are expenses required to do business and thus cannot be eliminated (business license, tax preparation fees, business planning). Your customer will acknowledge and recognize these very limited expenditures as the cost of doing business. Non-valued-added are all cash expenditures which do not contribute to the quality or value of the product in the eyes of the customer (office furniture, company cars, copy paper, Blackberry). I am not suggesting you do not spend the cash - regardless of the label, but that you make a conscious decision about each expenditure knowing it burdens the cost of the product and/or the profitability of the company.

3. Resist the temptation to return to old habits and practices. These fundamental changes in spending habits by businesses and consumers are here to stay - at least for the foreseeable future. Personal savings and retirement accounts have been hit hard by this recession. Any extra money that is made as we emerge from this economic downturn will be used to re-supply those accounts not only to the levels they were but with additional padding. Having an actionable plan and holding yourself and employees accountable to that plan is the single biggest deterrent to returning to the less disciplined approach of running your business. The plan - especially when shared with all the employees - will also help set the new tone for the company both in the way of personal expectations and instilling confidence in the future.

About the author: Mike Gomez is the President of Allegro Consulting, an Atlanta-based business growth specialty firm. Allegro provides operating advice to businesses and organizations on a wide range of management issues that effect growth, such as strategic and organizational planning, marketing, sales and business process improvement. www.AllegroConsultant.com

What Venture Capitalists Look for in a CEO - a Model for Any Business Owner

I attended The 2009 TAG/GRA Business Launch Competition Finals, hosted by IBM, where three high-tech start-up companies were competing for $100,000 in funding and another $200,000 in professional services. Prior to the finalists’ presentations, the audience had an opportunity to address questions to the judges’ panel made up of leaders of nationally recognized venture capital firms. One of the most interesting answers was in response to the question, “What characteristics do you look for in a start-up CEO?” It was no surprise the attributes they identified for the CEO of a start-up company are exactly the same as those for an owner of an established business. Take a look at these characteristics and see how you compare.

Ability to focus - In the day-to-day life of a business owner, it is easy to get distracted by the internal fire drills of the day, external market forces, and actions by your competitors, suppliers or customers. Before you know it, three, six, nine months go by, and you have failed to do any of the strategic actions you cited were necessary to keep your company on a growth path. The business owner’s ability to stay focused on those critical actions is paramount to any growing company.

Be disciplined with capital - Cash flow is the life-blood of any business. The tone for how cash is spent in a company starts with the business owner. Do you know where your cash is going? One test for fiscal discipline is to evaluate spending as a defendable direct charge to your customer. You may be amazed by the amount of money spent on non-value added activities and items.

Connect “outside” with “inside” - The ideal CEO is one who is able to connect internal developments and activities with the outside marketplace. They accomplish this by responsibly delegating internal roles so they have sufficient time to stay connected with their market and customers. It is all about balance.

Ability to recognize when additional management talent is needed - In the words of one veteran venture capitalist, “CEO’s are the biggest impediment to growth by failing to build out the right management team.” In these cases, the CEO either fails to acknowledge he needs help, or he makes bad hiring decisions. Failing to meet specific goals is one clear indicator that help is necessary. The latter can be addressed by having a well-written job description with specific performance expectations and qualifications.

Be coachable - As the business evolves, so must the leaders - especially the CEO. The first step here is to acknowledge you don’t have to be the expert in all fields; and second, there are folks out there with the experience and knowledge to advise you on new business processes and approaches for growing your business. How receptive are you to these two facts?

Transparency - no surprises - Garnering the confidence of investors, banks, board of directors and employees alike is critical to the long-term growth of a company. This confidence comes from backing your words with specific actions, ideally those consistent with a written plan, and disclosing early when critical milestones won’t be met with a plan for how you intend to recover. Surprising your employees or investors is a certain path for losing the essential support needed for growth.

Be nimble - Don’t be so caught up in your business model that you are unwilling to deviate from the plan when market forces are telling you that you should. History if full of examples where business owners insist the market will eventually come around to buying their product or service.

About the author: Mike Gomez is the President of Allegro Consulting, an Atlanta-based business growth specialty firm. Allegro provides operating advice to businesses and organizations on a wide range of management issues that effect growth, such as strategic and organizational planning, marketing, sales and business process improvement. www.AllegroConsultant.com

The Threat in S. W. O. T.

I was given the privilege of being the Chairman of this year’s Selection Committee for the next recipient of Metro-Atlanta’s Small Business Person of the Year Award. It was quite an experience as there were several outstanding candidates. The announcement of the top five finalists and winner will occur at the Metro Atlanta Chamber on May 21st during an event-filled Small Business Day.

What was interesting to discover in this process of selecting the winner was the variety of answers we received to the first of three, and the only business related question asked during the personal interviews. The question was: “We know the importance of strategic planning in facilitating the long term growth of a company…. the basis for building a strategic plan rests with a thorough SWOT analysis....and one element of the SWOT is Threats. Other than the economy, what is the single biggest threat to your company’s future growth?”

We asked this question to get a sense of how well these small business owners truly understood their business and did they, in fact, have a plan for growing their company.

Before reading further, what would your answer be to this question? Write it down.

Now read on.

Here is a quick recap about SWOT. SWOT is the acronym for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis is usually done as a prelude to building a Strategic Plan. It drives you to look at your business both internally (Strengths and Weaknesses) and externally (Opportunities and Threats). With this analysis completed, you have the material necessary to craft a Strategic Plan - a plan that should address how you intend to enhance your strengths, minimize or correct your weaknesses, exploit the market opportunities and counter the threats.

Though this may sound simple enough, surprisingly very few small and mid-sized companies undergo this assessment. Worse yet is they perform this appraisal but fall into the trap of drinking their own bathwater by believing, for example, something is a Strength when in reality it is simply a minimum customer expectation. “Our people” or “our customer services” are the most common Strengths I hear from business owners that fit this - bathwater - category. You have to have some highly credentialed (PhDs...) staff or be constantly providing ultra-extraordinary customer service experiences to make either of these legitimate business strengths.

So what are legitimate Threats to a business and why is it important to identify them? First, as far as a SWOT analysis is concerned, a Threat is an external force - never internal. Second, accept the fact every business has real Threats which should be acknowledged and guarded against. Third, failure to identify these Threats and take action to counter them can bring a business to its knees.

There are numerous case studies of businesses large and small that either failed to acknowledge a Threat (“we have no threats”), or failed to change course to counter a threat. Imagine being that company producing tube televisions because you didn’t think LCD - flat panel technology - was legitimate or the mighty internet company (Yahoo) who produced the first marketable online search engine yet failed to believe anyone could make a better product (Google).

As a business owner you should clearly understand the threats to your future growth. Whether it is technology that makes your product or services obsolete (digital camera vs. film), a new trend (Facebook) which renders your product (MySpace) passé, or a competitor who is marketing a better “mousetrap” (iPod), it is incumbent on you to not only be aware of these Threats, but have a strategy in place on how you are going to thrive despite them.

About the author: Mike Gomez is the President of Allegro Consulting, an Atlanta-based business growth specialty firm. Allegro provides operating advice to businesses and organizations on a wide range of management issues that effect growth, such as strategic and organizational planning, marketing, sales and business process improvement. www.AllegroConsultant.com

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Downsizing the Right Way

Well, it was just a matter of time before this topic came up. Even the best run companies - those that plan well, hold their people accountable, and make prudent investment decisions - may still have to resort to “downsizing” as a means to stave off unbearable financial losses. Though most state and federal laws allow an owner/CEO to make these decisions without prejudice it may be prudent to seek some professional HR guidance beforehand. The topic I would like to discuss here is how best to reallocate tasks and responsibilities to those who remain.

I know of two Fortune 500 companies who, because of slumping sales were forced to lay-off a number of their sales team. They told those who remained they were expected to service not only their original clients but a portion of the clients previously serviced by those who were let go. No expectations were changed with regard to the quality of work, number of sales calls or internal reporting, and no pay adjustments were given to these remaining salespeople. Does this sound familiar? It is by far the most common approach taken my most CEO’s and, in my opinion, one of the worst.

Let’s analyze this.

I start with the assumption that prior to the downturn each and every salesperson was gainfully employed with challenging goals defined, clear written expectations set, qualifications identified and fair compensation for their services agreed upon. That is afterall how successful companies operate. There was no slack in the workforce, no dead wood, no one not pulling his or her weight; because if there were, you, as the CEO, would have dealt with it immediately.

Then the economy slows. As a result, demands on your sales force increases exponentially as it takes that much more creative effort to reach deal closure. These increased demands likely include internal reporting, more frequent status meetings, miscellaneous administrative duties (expense reports, etc...) and the need for more frequent customer calls. If anything, under these conditions, a well managed sales force is working harder than ever. Their plate is full.

Then the lay-off occurs. And, without any change in expectations or compensation you pile the workload from those laid-off onto those few who remain. Sounds kind of silly when you read it in print doesn’t it? How well do you think your clients will be served under these conditions? What impact will this approach have on your remaining talented workforce?

Here is how some owners/CEO’s explain away this action.

“Hey, you don’t understand, the work still has to get done.”

Or, “you don’t understand, they should be grateful they still have a job.”

Or, “you don’t understand, everyone has to make sacrifices.”

Though I fully understand things still must get done in tough times, I challenge whether sufficient effort was made to examine all tasks and determine which fall into the “critical must” category versus the “not as important”. Secondly, I will never agree with the notion of being “grateful for a job” - as if a job is some sort of charity. This is demeaning and insulting. A job is a business contract between an employer and employee trading compensation and benefits for an agreed upon service and performance expectation. Which leads me to the matter of “sacrifice”. Yes, sacrifice is and should be reasonably expected from everyone equally for an agreed upon period of time. It is when this “sacrifice” becomes the expected norm that the term exploitation comes to mind.

So what is the “right way”?

Have a plan and communicate it. Be honest with your workforce. Let them know the real story and share with them your plan for survival and recovery. Your employees are more perceptive than you think and are more likely to embrace your request for sacrifice if they know you have a plan. By doing this you instill confidence as their leader but more importantly you set the finish line or timetable for when things return to “normal”. Like distance runners who understand the importance of pacing and the timing of their “kick” to the finish line, your remaining employee’s can and will increase their pace as long as they know where that finish line is.

Be respectful and realistic. It is neither respectful nor realistic to tell someone he must fulfill his 40-hour assignment and that of the laid-off employee(s) with no adjustments to expectations or duties. Prior to any lay-off, take the time to analyze work expectations and decide what tasks are “must have” versus “nice to have”. Eliminate those you can so the remaining employees will concentrate on the important duties. Better yet is to bring the employee into the discussion. By doing so you may discover tasks you have imposed that have a much larger impact on their time than anticipated.

Finally, acknowledge their “sacrifice”. Let them know how much you appreciate them stepping up to the plate to take on the additional work (typically with no additional pay or benefits). Encourage them (and be sincere about this) to come to you if the burden gets to difficult. This will assure you have the opportunity to move work assignments around or take other measures to adjust workload before your customers or the internal operation is under-serviced.

About the author: Mike Gomez is the President of Allegro Consulting, an Atlanta-based business growth specialty firm. Allegro provides operating advice to businesses and organizations on a wide range of management issues that effect growth, such as strategic and organizational planning, marketing, sales and business process improvement. www.AllegroConsultant.com