Chapter 4: Shaping Up Your Business
Becoming aware of how your behaviour and abilities directly affect your business can be enlightening. You are now painfully conscious that issues and problems in your business can be reflecting your own deficiencies in knowledge and skills. This knowledge may be disturbing, but it is also empowering. It is up to you to enact positive changes and lead your business to success.
Your position as an owner or CEO, can be compared to the captain at the helm of a ship. Despite the currents, winds, storms and calms, you must steer your business to your destination. Mistakes in direction that are not regularly corrected and revised doom your voyage to sure destruction on treacherous reefs, or stagnation in the doldrums. And yes, it is your responsibility. You must keep your eye forever on the horizon. Avoiding disaster relies on your ability to correctly interpret and predict changing market conditions. Simultaneously, you must anticipate other factors which can lead you to disaster. If you are burying yourself in the daily grind of business, your eyes cannot be on the path ahead.
Lifting your eyes from the clutter and work on your desk and looking ahead means that you will be ready for the future when it comes. Gazing into the future requires maneuvering into the best position to reach your goals. A natural result to looking ahead is planning for different business scenarios. You will be designing back up and contingency plans so that you are prepared for change and your business expects the unexpected. You will be steering toward success, not heading for failure.
What is strategy? Thinking strategically means looking ahead and concentrating on the long-term. It involves first understanding your vision. Then implementing plans for accomplishing your vision. Most businesses do not think strategically.
The diagram illustrates this concept.
Consider A as where you are now and B as your vision, or the way you want to go. Your strategy includes the overall concept of what you want to achieve and how you generally plan to accomplish it. The actual day to day methods you employ to reach your goals are tactics.
For example, if you decide to start an online marketing program this year to increase your sales. That is your strategy. Choosing to use Google Adwords to implement your online marketing campaign would be a tactic. You can use a number of different tactics to achieve the same strategic ends.
Many businesses fail to think strategically, but are mired in tactics. They are forever focused on putting out daily spot fires and are blind to the wider conflagration which is threatening to engulf them. They say: “What are we facing right now? What is that situation right now? Okay, let’s go and fix it.” They may be very good at dealing with spot fires, but the greater forest is left to burn. A business that constantly expends its resources on dealing with these daily crises cannot move forward, or react to change quickly.
Thinking strategically is about evaluating tactics and their contribution to the overall strategy for your business. You may consider an opportunity, but set it aside because it does not keep your company moving toward your long term goal. You may reconsider that opportunity at another time when it may contribute to your long-range strategy. Businesses which think strategically have a much greater chance of growing and becoming more profitable.
Strategic vs. Magical Thinking
To understand strategic thinking thoroughly, it can be contrasted to a concept called Magical Thinking. The practice of Magical Thinking involves relating certain results to causes that may not necessarily be interconnected. For example, you may know an athlete that has a routine they perform before starting a race or going to a game. They may wear their “lucky socks” or turn around three times fast before approaching the starting block. The athletes associate these behaviors with performing well in their sport. The unrelated behavior has nothing to do with the ultimate task. The ritual however, builds confidence in the athlete which may have a very real affect on the athlete’s performance.
Magical Thinking may build confidence for a performance, but has no place in business management. This same thinking translated to the business world can lead to failure. It means deciding on an action, and committing funds to a certain direction rather capriciously. Magical thinking in business involves taking only a cursory glance at the situation and proceeding to make long–range decisions. You can take this casual approach when addressing day-to-day tactics, however it has no place in strategic planning.
To set your long range focus for your business, you must fully understand your customer base. You should know:
Who are your customers?
What are their needs and wants?
What are their problems?
Can you solve their problems?
How much is a solution worth to them?
Are they willing to pay for a solution to their problem?
One of the ways to discover the answers to these important questions is simply to ask your customers. As obvious as this may sound, many businesses do not ask their customers about their problems. There are many very effective and discreet ways of obtaining this information. For instance, if you own a retail store, talk to the customers. Ask them what you can do for them and listen to what they tell you.
Never bombard customers with lots of questions. Restrict your questions to just a few. Don’t go the route of the Commonwealth Bank. This company recently sent me a ninety question survey. I have no intention of answering ninety questions. If they had asked me three questions, chances are I would have provided the answers, and so would most people.
One approach which has proven successful at obtaining customer preferences is to ask two questions a month. Customers usually respond well and are even happy that you are so interested in their needs.
I don’t find focus groups too useful. Larger companies sometimes like them, and they are often recommended by market research companies. My caveat is that they seldom come up with anything new. When designed to test a particular product, focus groups are useful. Otherwise, in my opinion, they produce very little useful information.
The concept of positioning your business is about how your market perceives your business and your products. Are you perceived as an expert in your field? Are you a low cost leader? Do you have niche appeal? You can position yourself to be anything you really want. Planning your business’s position involves considering issues such as:
How is your business perceived compared to others?
How do you address the problems and needs of your target market?
What makes you different, or better, or unique in your field?
Positioning your business is especially important in fiercely competitive, or crowded markets. Differentiating your business from the crowd becomes crucial.
To plan your position, first determine where you want your business to fit in your industry in the broad scheme of things. One strategy can lead you in a completely different direction than another. As you follow each positioning strategy through you need to consider the qualities of your business and products and what price category you want to occupy.
Next, tailor and fine tune your position. Identify any specific benefits your business or products offer your customers. These could be such qualities as reliability, safety, convenience, ease of use, etc. You can even choose two benefits and have a primary and secondary position.
To communicate your position, you need to develop a positioning statement. Properly developed, it should state in a single sentence or a few words the entire position for your business. This basic idea should exactly fit your business products and services. It should accurately reflect the needs of your customers and target your audience. A very direct relationship exists between choosing your position and communicating this position to your market and the success of your message. For example, don’t position your products and services to meet the needs of a high end market if your products are actually more appropriate for a lower end audience. In addition, once established, your company message should not change. You will be using it for your marketing messages, the design of your facilities, your web site and all your promotional materials. Choose your correct position carefully in the start and stay with it.
When creating the position for your business, you need to establish the identity or culture for your business. Your business culture combines your company’s vision, mission and position into a cohesive whole. Your culture should communicate everything about your company in your image and style.
Company Vision Statements
The story for your business or your vision statement guides your image and your contribution to society. This story is designed to evoke specific attitudes and images about your business in an emotional way. A great vision statement will enable your customers to understand exactly why you are in business and what you bring to the community. It should outline what you wish to accomplish with your business as well as your plans for contributing to and improving your market.
A very effective vision statement uses a story. It effectively communicates an identity and a history for your business in a unique and friendly manner. To create a story for your business, consider your actual facts. Did you have a dream that you made a reality? Do you have any specific training, experience, or background that you can incorporate as part of your story? Maybe you have a unique history or your business was handed down through your family from your great-grandfather to your grandfather, to your father then to you. Any of these make great stories. They appeal to customers, and build automatic relationships and trust. Customers identify with you and feel they already “know” you and your business.
Stories also have an educational factor. Clients like to be educated. They want to understand as much as possible about what they buy and from whom they buy it. This applies to every industry and every business. So, if you have a story, be sure to tell it. Make sure that your employees understand and can repeat it. If your story is less than compelling, look for ways to enhance it and build it into a better story. But develop your own unique history and company story.
Use Industry Statistics
When developing your company’s position you can use a number of methods and resources. One very useful method when finding your approach is to find your “Stadium Pitch.” The concept of a stadium pitch is described in a book called The Ultimate Sales Machine by Chet Holmes. The Stadium Pitch postulates the idea that an entire stadium, let’s say the Telstra Dome in Sydney, is filled with 80,000 potential clients or customers for your business. You are led to the centre of the field, given a microphone, and told you can say anything you want to turn them into buyers of your products or services. A daunting task for many, but what would you say? What would be the first thing that comes out of your mouth?
Here is how I think most people would start. “Hello my name is Fred Smith, and I am very pleased to be here. I just want to welcome you to the stadium. Blah, blah, blah, blah…” By this point you have spoken for 30 seconds and have said nothing of interest to your potential clients. Everyone is already completely bored and half of the people are getting up to walk out. What can you say that will keep the people in their seats? An effective way of immediately gaining people’s interest is to tell them something that they did not know. Remember, these people already have something in common with you. They are potential clients.
What if you told them, for example, some of your industry’s statistics? Let’s say you are in financial planning. You walk to the microphone and you say: “Did you know that in the next twenty years, seven out of ten people sitting in this stadium will retire with less than fifty thousand dollars in the bank?” If you were in the audience, what would you do? Would you leave at this point, or would sit there and wonder, “Wow, that is an interesting statistic. It is not very encouraging but it is interesting.” Would you want to hear more? Of course you would. Now you have your audience’s interest. You can then add, “for those seven out of ten people, there are five things that they can do over the next month to help ensure they have more than fifty thousand dollars in the bank. Number one, blah, blah, blah, blah. Number two, blah, blah, blah, blah. For more information and a free report on these five plus another five, call 1800 and blah, blah, blah, blah, and you are done.
Taking this approach, you have spoken for maybe five minutes, and have kept everyone firmly riveted to their seats. At the same time, you have likely interested many of your potential clients to ring your number. When they do, you will need to obtain their phone number and other contact details, to send them the reports. You have suddenly increased your mailing list of people interested in your products and services. From this list, you will very likely convert many of these leads to actual clients.
Whether it is a core story or industry statistics, if you have something interesting to say about your business, it is much easier to get and keep the attention of a potential client.
Become An Expert
Another position for your business in the market is to become an expert. Becoming an expert is deceptively easy; you simply declare yourself as one. You may feel this approach is unethical but consider, in your own business, you probably are an expert. As an expert, potential clients and customers look up to you and regard your word as authoritative. When gaining confidence this way, you consequently must back it up with your genuine knowledge and expertise in a field. Positioning yourself and your company as expert in your industry will generate more clients and more revenue.
To increase your standing as an expert there are several methods you can employ.
Use press releases to attract the interest of news radio, television, magazines, and newspapers. Being billed as an expert by these media venues will help you gain notoriety as an expert in your field.
Author A Book
Writing a book used to be more difficult. You don’t have to be picked up by a large publishing house to be an author. You can self-publish a book quite inexpensively and use it as a marketing and promotional tool.
Let us assume as an example that you want to write a book about ten ways to increase your superannuation. A book on this subject of approximately a hundred or so pages can be both informative and entertaining. All you need to do is provide basic information such as an outline or some notes and have a ghost writer write it. You can have the entire book edited, formatted and printed by professionals so that you end up with a high quality publication based on your concepts and ideas. It is amazing the amount of credibility that you get as a published author.
Another way to use a self-published book is as a giveaway in your store. This concept works regardless of the type of store or business. For example, if you have a fashion store, you can write a book about fashion. For a beauty salon, you can write about improving your image. For a mortgage broker, you can write about getting the best loan. Having the book for sale at your business can be an effective marketing tool, or you can give it away to clients. When potential clients see that you are the author, they will treat you with respect and buy from you with trust.
In addition, books have an element of longevity. If you send out a free report, no matter how nicely presented on A4 paper, it will likely end up in the dust bin in a matter of days. A book stays around in people’s homes much longer. People pass them around and may give them away, but they are less likely to be thrown away. Also, books are surprisingly affordable and inexpensive to produce.
The Customer Perspective
When you are working in your business, your focus is most likely head down, with an emphasis on getting work done as quickly as possible. You concentrate your efforts on making your business run efficiently. An efficiently running business does not necessarily mean that your customer is getting the experience you originally intended. . In fact, your business may even have a poor appearance from your customer’s point of view. One method that I often recommend to businesses that I assist in becoming more profitable is to pretend to be one of your customers. Look at your business from their view point. What do your customers see, hear and smell? How is your customer treated? Does your customer handling procedures and processes make sense? Are your employees and your environment consistent? Does your business have the look you intended? If you have restrooms, do they fit with the rest of your business and are they clean? Taking your customer’s perspective can be eye-opening.
Let us assume that you have a customer support area, where people call an 1800 number for assistance. Call that number, pretend to be a customer and see what happens. You could get a rude shock. Your staff might be well trained, they may even have systems and procedures that they accurately follow. Their attitude toward customers over the phone may not be courteous or appropriate. Even though some employees really enjoy working with customers, the majority do not. Often, employees with incomplete or improper training and monitoring will perform almost any work rather than deal with customers. They may even create projects in order to interact less with customers. This avoidance of customer support and service is surprisingly common.
Examine your business and client interface for an entire day. What would change about your business if you were that client? You can also ask your clients this question. Ask them: “If you could change something about the way we serve you, what would it be?” Listen carefully. Do not become defensive, or argumentative. Treat their comments as valid and important even if they say something that offends or shocks you. Take notes, clarify points you don’t understand and thank them warmly when they are done. Take all comments under serious consideration. Implement any changes which will address your customers needs and wants and improve your business in their eyes.
The planning process is hugely important. The output of your planning is less important. What do I mean by that? Taking time to plan your business activities, then writing it down can be regarded as just a method of focusing your thinking. In fact, the actual document you produce will be obsolete relatively quickly. Situations, circumstances, customers, and your market are all constantly changing. Therefore, planning is an ongoing process which you should consider monthly. Even if you don’t take the time to commit your thoughts to any sort of written document, you need to regularly and consistently think about where you are heading in your business.
Writing down your plans helps you focus. Word processing software such as Microsoft Word however is not a good choice for writing business or strategic plans. Use a program designed to condense your thoughts into important points. A program such as Microsoft PowerPoint can help you communicate your ideas quickly and easily, minimise text, keep to the key bullet points and focus on your important ideas I provide a downloadable template for a sample business plan at my site.
Despite the problems of written business plans quickly becoming obsolete, writing a more detailed business plan at set intervals is sound strategy. Depending upon the size of your business, you may also need operational or customer support plans. A regular business plan addresses your vision, and the implementation strategy for your ideas. Be sure to communicate your plans to your staff and encourage feedback. All ideas should be welcomed including negative comments and criticism. You need to fully explore an idea and all its implications in order to come up with the most thoughtful strategy.
Another important strategy which most businesses often fail to consider is an exit strategy. This is your long term goal for the “end” of your business.
Do you intend to retire from your business?
Are you planning on selling your business?
Do you want to hand the business down to your son or other family member?
Are you going to just close the doors and walk away?
Smart business people determine their exit strategy early. In many cases, they design their business to fulfill their exit strategy. This may seem like a backward approach, but this focus actually affects the design of your business. For example, if you start your business with the intent of selling it in three years, would you build your business differently? Would you run it differently? The answer is obviously, yes. The strategies you implement will be heavily influenced by your long term plan. Your goal will be to maximise the value of your business in every way possible.
If a business owner plans their business with the thought of retiring, they will realise the best price possible when they sell. However, according to statistics from Bird Cameron, a well known accounting firm in Australia, a majority of businesses do not have succession plans in place. They have no plan for the sudden loss of the owner, no instructions for a right-hand man to take over the reigns of the company, and no proper plan to sell the business. That is a huge mistake if you want to build the value of your business. You need a right hand person trained as your replacement in cases of emergency or as part of your exit strategy.
The Bird Cameron study also showed that, when business owners reach the end of the lifespan of their business, 30% of business owners simply shut the door and walk away. That means any value that was in the business is lost. Their business gave them a job with a salary. It paid the bills and provided for their family. However, they did not consider the business worthy of selling to somebody else. In many cases, they are probably right. Over the years, they haven’t bothered to maximise the potential of their business so that it is a saleable item when they decide to leave.
Most people don’t adhere to this philosophy in any other area of their life. For example, if you think of your business as a vehicle, what would you like to be driving? Would you like to be driving a beaten up Nissan Pulsar or a snappy Porsche? Does it make sense to regard your company as an old car that you will junk when you are finished with it? Instead shouldn’t you be working to appreciate your asset so that you end up with a top of the range business vehicle that you can sell? An exit strategy encompasses a plan to build your business as much as you can so that it is attractive to somebody else when you want to leave.
Part of a good exit strategy assumes that you have a business that is worthwhile to sell. That means your exit strategy should be closely interlocked with your overall business plan. In addition, that plan must be one that builds value in your business.
Investment Banking World
If your exit strategy includes plans for selling your business, you may want to reach this goal sooner rather than later. This often requires funding from outside sources to quickly maximise the potential for your business. One way of accessing additional funds is to attract investors. These are people who invest money in other people’s ideas. There are very specific formats which are considered acceptable to most investors. Approaching investors properly means being prepared. You cannot just arrange a meeting, show up with some promotional materials for your business in hand and expect to come away with enough money for your purposes. Investors look for opportunities which have the best potential for success. They primarily look for the following criteria:
A great management team
A great business concept
A dynamic growing industry
Only having one or two of these elements will seriously handicap you when seeking financial backing. Of these essentials, the most important is being in the right industry. If your industry is going places and you have the other two elements in place, you will have people falling over themselves to be an investor. Even if you have a top notch management team and a solid business idea, if you are in an undesirable industry, you may have to struggle to find backers.
Before they put money on the table, the investment world will ask some specific questions. They will want to know:
Your objective for your business?
Is it obvious what you have to do to achieve your objective?
Where is the real value in the business?
In answer to the value question, you will need to show the areas of your business which indicate what the investor is “buying.” You will need to identify beforehand which elements of your business hold the most value. Is the value for your business:
In the process?
In the intellectual capital?
In the customer base?
Once you determine where you value is located, you need to address some additional questions:
Where is the leverage to capture that value?
What can you do to multiply that value quickly? (For instance, if the leverage is in the customer side, can you market more effectively to amplify your customer base and use it as leverage for investment?)
How was the leverage built?
How are you going to use leverage and is it something that you know how to do?
What does the business ultimately own?
What does the business really earn?
Does the business have the mechanisms to create value or not?
Is everything done in-house or is some work out-sourced.
Are the processes and ideas behind the business able to be franchised? (If not franchised, is the company ultimately scalable?)
It is not necessarily just bricks and mortar and a sound business idea that accounts for the value of a company. Different prospective buyers have various reasons for assessing a certain value to a business. For instance, a great strategy for a small business is to target a market dominated by a big company, and deliver something much better than the big company. If they can capture a significant percentage of the market and annoy the big company enough, the larger company will want to buy them out. For example, this scenario happens a lot in the cosmetic industry. A new product from a small company grabs a slice of the market and the big company has no option but to purchase the smaller company. In such cases, an investor’s assessment of the smaller company’s value may be much higher than it would be under different circumstances.
One final question from the investment banking world is:
Can the value that is found in your company easily be converted to cash?
Investors want to know just how they are going to profit from their investment, and so you as the business owner need to be able to figure out how to get to the wallet of your customer. This again requires your unique in-depth knowledge of your business and of your customers’ needs and how to best meet them.
Take Action Exercises
Develop some ideas for a book that you can use as a promotional item or marketing tool. What topics interest you? What areas of your business would your client like to understand more?
Do some research on www.elance.com to see what it might cost you to have someone write your book for you.
Complete the One Page Business Plan for your current business using the sample business plan on the following page as a guide.
Sample Business Plan
The key to the one page business plan is to keep it short, sweet and to the point.