2014-05-26



It pays to have business skills under your belt.

That’s true whether you are a small business owner, working in a big company, or simply apply business skills to life.

Business acumen is a key to your personal effectiveness.

Business skills help you make smarter decisions about how you invest your time, earn a living, and use your strengths, passion, and purpose to create unique value for the world.

There are many principles, patterns, and proven practices for business growth you can fill your toolbox with.    It helps to have an inside look from a business turnaround specialist on what actually works.

Here are 10 big ideas from Business Techniques for Growth: More Tools for Small Business Success, by Thomas Gray, a Certified Turnaround Professional.  He helps owners save and grow their businesses for a living and his real-world experience shines through.

1. Start with Strategy

Strategy will help you focus your time, energy, and resources on a path.  Strategy starts with vision.  Work backwards from the end in mind.

Via Business Techniques for Growth: More Tools for Small Business Success:

“First figure out where you are.  Ask yourself and your team what kind of company are we, who do we serve, what differentiation makes them want to buy from us, and what are the trend we and our competition face?

Then ask, ‘What kind of company do we want to become/?  Establish a vision for three years in the future.  Define it in a multi-faceted way, so we know what to manage toward.   Describe the platform of technology and capabilities we will have then.  What customers and product families can we use it to serve?  How will we get the resources to do that?

Now that we know where we are going, we can consider products to get us there.  This also means we will reject products that take us elsewhere.  Call this ‘strategic fit.’”

2. Ask, “Is My Business Worth Doing?”

Just because you can do it, doesn’t mean you should.  You have to check if it’s worth it.  Remember to value your time and your capabilities.

Via Business Techniques for Growth: More Tools for Small Business Success:

“‘Is my business worth doing?’ Stop and reflect, look in the mirror, and answer that difficult question.  Maybe your spouse is asking it too, ‘Why are you doing this (to yourself)?’  Is following your dream a good idea financially?   Will people pay you enough for working on what you are passionate about?  How much is enough?’  How much are you putting into your business, and what are you getting out of it in return?  Could you get the same profit from another activity with less effort or risk?”

Think Through the Compensation and Profit

Compensation is what you earn IN your business, while profit is what you make for working ON your business.

Via Business Techniques for Growth: More Tools for Small Business Success:

“Your business pays you wages or a salary for working IN the business.  It also earns a profit for you.  Think of this as payback for working ON the business.  The company profit is your ‘return’ for the risk of investing your cash and effort to build the business.”

Aim to Be Paid Your Market Value

When it comes to compensation, aim for market value.

Via Business Techniques for Growth: More Tools for Small Business Success:

“You should be paid as much for your time as someone else would pay you, net of taxes — not the best salary you ever had, but the pay you could get today if you seriously tried to find a good job but did not hit the jackpot.   This is the market value of your time.  For example, assume your net pay is 2/3 your gross.  If the salary is $60,000, the net is $40,000, or about $20/hour for 40 hours/week.

Don’t get caught up in counting hours spent working at your own company vs. the hours spent if you worked for someone else.  Just figure they are both full-time jobs.  The extra hours you put into your own business are the trade-off for the benefits of being your own boss, working close to home, avoiding office politics, etc.”

Target 20% Profit

When it comes to profit, aim for 20%.  This helps balance your risk with the reward.

Via Business Techniques for Growth: More Tools for Small Business Success:

“Return is shorthand for return on investment, the profit opportunity that compensates for the risk of making an investment.  Financial investments can provide returns or profits of 3 to 10% without many hours of effort.  Typical returns to little guy investors:

3-4% return on an A-rated corporate bond; hardly any risk.

9-11% return on the S&P 500 stocks since 1900 (lots less since 2000, but more since 2009); some risk, but if you diversify and do not buy/sell on dips, you have a good chance of earning this return.

6.5% return on a portfolio that is weighted 50/50 for the above two investment types.

If investing in a Fortune 500 company earns you 10% return with much less risk than running your own business, your small company should generate a higher return due to higher risk.  20% is a good target.  This is 20% annually on the cash and debt you used to start and run the business, not 20% on revenue.”

Example of Checking Is It Worth the Effort

Gray shares a simple example of Susan who was laid off and needs to figure out if opening her own boutique would be worth it.

Via Business Techniques for Growth: More Tools for Small Business Success:
”Susan was laid off from a $90,000/year job.  She thinks she could make $60,000 as an office manager somewhere, which is $40,000 net.  Instead, she wants to open her own boutique in her town.  The business plan calls for her to invest $50,000 cash, and take out a business loan (personally-guaranteed) of $150,000.  What should she earn from her business to make it worth the effort?

When the business is mature (perhaps in year three), her salary should net her $40,000 based on her own market value as an employee, and the annual business profits (after interest but before repaying principal) should be another $40,000, based on $200,000 invested  X 20% return for risk.”

3. Pull the Right Levers of the Business Growth Machine

When you want to grow your business, you need to ask which levers do you pull first.  Time, uncertainty of results, and risk of failure increase as you move further down the chain of growth levers.  That’s why so many people focus on what’s right in front of them and try to do more with less, or try to make things better, faster, cheaper, versus growing their customer base or their product portfolio.

Via Business Techniques for Growth: More Tools for Small Business Success:

Operations you control

     Current customers / current products

          New customers / old channels / current products

               New customers / new channels / current products

                    Old customers / new products

                         New customers / old products

                              New customers / new products

 

4. Grow Revenue from Current Customers

Your current customer base is one of your best sources to grow revenue.

Via Business Techniques for Growth: More Tools for Small Business Success:

“Current customers are a pretty fast growth opportunity because you know how to reach them, and you can be fairly sure they will pay attention when you communicate.  You know what products, features, and services they like.  You know where they like to buy, and how much they normally spend.  More knowns means less risk, and less time required for trial and error marketing.  your relationship with these customers offers more ‘control’ than trying to reach new customers.”

Gray provides a short-list of techniques for growing revenue from current customers:

Loyalty club: more purchases, larger buys – Name the club, define the threshold for membership, and create some offers to show the value for joining.

Retail merchandising – If you have your own retail location, arrange the store to show high margin products near the front and staples near the back so customers see the high margin items as they move in both directions.

Bundles of services – Package your laundry list of features and services into three tiers designed for common needs.  Price them good, better, best.

The special combination – Apply your knowledge of how the customers use your product to create a combination of services they cannot find elsewhere in a single offer.  This sets you apart from competitors, cements customer loyalty, and brings them back again and again.

Lower unit price for higher-volume package – Sell a larger package for a lower unit price while maintaining good margins.

Temporary promotion – All promotions are temporary.  Create an offer that generates more revenue than the additional variable cost.  The resulting sales margin boots profit.

5. To Attract New Customers, Change Something

If you want new customers, then change something.

Via Business Techniques for Growth: More Tools for Small Business Success:

“If they have not bought yet, whatever you are doing is not working.  Don’t expect different results from doing more of the same thing.”

Gray shares ideas on how to attract new customers by changing something:

Is your offer different enough to make them want to start solving their problem or switch service providers?  Consider your differentiation, your benefits statement (positioning), your product offer, your pricing, your accessibility, and your communications of all these.   Remember that your benefits statement or positioning addresses the value to the customer of your solution.  Express is in customer value terms.

One technique is to select a subset of prospects who share the same need/application of your product (“segment”), and target all the changes at them.  For example, a special offer for seniors, or families with students, or people with older homes.

Once you have a great offer, consider your credibility.  Why should they take the risk of dealing with a new provider?  Build your credibility with a guarantee, testimonials, referrals, free or discounted samples, trials and introductory offers, and be visible helping people nearby.  Visibility tactics include press releases, participation in community associations and their events, and local sponsorships.  These build networks and relationships.  It’s just natural to feel that ‘the company I know is less risky than one I don’t know.’  Find out what media they pay attention to, and when, and be there. Make your message stand out from the clutter.  Deliver the message using a speaker they can identify with, solving a problem they share.

Invite a response.  Your message must include a call to action.  A limited time offer is a good trigger, but it must motivate them to take some kind of action: call, reply, mail, email, website visit, free consultation, etc.

The final step to get them to buy is there experience when they reach out to meet you, come to your shop, visit your website, or call for more information.  Take special care to design this experience especially for the new customers with that particular need.   Build in a feedback loop.

6. Make Every Hire Count

A well thought out job description can help you find better candidates.  Fit works both ways.

Via Business Techniques for Growth: More Tools for Small Business Success:

“When you decide to hire, your first question is usually ‘where do I find someone?’ Instead, it should be ‘exactly what do I need this person to do, how well do they need to do it, what skills / experience are crucial, and what other skills are nice to have?’

In other words, you need to write a job description, define their role in your process, decide the level of performance that is acceptable, and define how to measure it.  Thinking through these criteria will help you choose someone with the best chance of being the competent contributor you had in mind.”

7.  Develop Leaders

You can grow new leaders through immersive experiences and by creating a culture of learning and growth.

Via Business Techniques for Growth: More Tools for Small Business Success:

“People learn effective leadership by watching other leaders, by practicing, and by reflecting on what works, what doesn’t, and why.  Formal training can supplement this process, but experience is much more important.  As management theorist Mintzberg said, ‘Leadership, like swimming cannot be learned by reading about it.’”

Gray shares ways to develop and grow new leaders:

You explain to them why you led the way you did, and discuss other leader’s styles (models) as well.  Learning from models is the best way to train for effective behaviors.

You help them reflect on which leadership skills are crucial at various levels of the business: hands-on demonstration and follow-up as a foreman; hands-off coaching when you are managing foreman; collaboration across functions at more senior levels.

You assign them work where they must exercise higher level skills, often as part of a team.  You coach them as they work on the project, and reflect with them about effective behaviors during and after the project.

Then you assign more developmental projects.

Soon you can assign them wider areas of responsibility, where they can ‘learn by doing’ in their own area.  Again, the techniques to ensure their development are coaching and reflection.

8.  Have Breakthrough Conversations

A simple conversation can reveal all sorts of ways to change the game, and do things better, faster, and cheaper with more impact.

Via Business Techniques for Growth: More Tools for Small Business Success:

“To get the best from people, you need to understand their work challenges. Only then can you understand their obstacles and remove them.  How many bosses understand everything their people do?”

Gray shares a simple process for having breakthrough conversations:

Show me how you do that?

What gets in your way? What makes doing that harder than it needs to be?

So which of these problems seems to be the most important obstacle to doing this better and faster?

How does that obstacle prevent better performance?  (what could the employee do if nothing was change)

Why do you supposed we do it that way?  Why did we think that was good for us, at some time in the past?  (try to understand the objectives so you can achieve them in a better way)

What would be a better way, so you could do your job better and faster?

How should I measure the change in your performance, so we know that removing the obstacle is worth doing?  (If the change is quality, will I see fewer complaints or less rework or more return customers? Roughly how much or how many? Can we agree that if the change is quantity, the time you take to do this operation will change by how much?)

9.  Master the New Product Development Process

Having a process for new product development can help you cover your bases, save time, and waste less effort.  With a process, you can put more effort into the actual product, and less trying to figure out the steps of creating a new product.

Via Business Techniques for Growth: More Tools for Small Business Success:

“Trial and error has led to a well-developed set of models for new product development, designed to balance the cost and risk of failure with the opportunity for successful growth.  All the models have stages, separated by gates.  The gates are go/no go decision points, to decide if the idea deserves more resources for further development. “

Gray shares a well-established process for new product development:

Ideation: brainstorming ideas

Idea screening, to identify the ideas with the best potential and strategic fit.  What are your criteria to accept an idea for more development? You must be willing to use the same criteria to reject ideas.  You cannot change tangents with your limited resources! Now decide whether to drop the idea or continue.

Concept development and market research is next.  This stage estimates the marketing and operational requirements, and tests the idea with potential customers.  You may prefer to skip the market research, but doing so adds risk.  What if customers don’t see the value like you do?

Now it’s time for some numbers.  The business case stage writes it all, estimating resources needed and profits expected.  This becomes the standard for measuring success. Now, decide whether to drop the idea or continue.

Following a ‘go’ decision on the business case, the next stage is detailed design, prototype, and market testing.  Here is where you see if you can really do it, and whether people will buy it.  Usually this process results in a list of changes you’ll need to make! Now, decide whether to drop the idea or continue.

If the market test has good results, the company will spend the resources to make it happen.  This involves most of the organization’s functions, so the new product team must include a representative from each.  Functional areas include production specifications, technical or software changes, manufacturing training and test runs, field operations, procedures and training (e.g. retail, sales force, and installation/maintenance), and value chain readiness: suppliers and distributors.  Now decide if you are ready for launch.

Finally it’s time for the Launch stage.  Logistics, marketing, and training issues dominate here.

Tracking follows launch.  What worked and what didn’t? Are we meeting objectives from the business case? Why not? if you learn from your mistakes, you can improve not only the product, but the whole process as well.  This reduces risk when launching the next new product.

10.  Link Vision, Strategy, Performance, and Compensation with a Management System

With a simple management system, you can link strategy with execution, and fire on all cylinders.

Via Business Techniques for Growth: More Tools for Small Business Success:

“A management system that links Vision, Strategy, Performance, and Compensation helps everyone knows what they need to do, and what results they need to achieve.  It helps alignment and gets everyone paddling in the same direction.”

Gray maps out the components of a simple management system that links Vision, Strategy, Performance, and Compensation:

Vision

Gap Analysis

Strategic Projects and Strategy

Owners for strategic projects, processes, and perhaps vendors

Project Plans and Biweekly Status

Key Performance Indicators (KPIs)

Annual Plan and Budget

Individual One-Page Plans for accomplishments and measurements

Monthly measurements

Quarterly and Annual Rewards based on one-page plan targets, modified during the year

Business acumen comes with time by paying attention, asking the right questions, and experience.

By filling your toolbox with proven practices you have a big head start for both wining in the game of business and mastering the business of life.

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