The Danger Zone - Pat O'Brien

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Pat O Brien, a B2B CFO partner talks about The Danger Zone. How does this affect you as a business?

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  • Today, I’m going to talk about what we at B2B CFO have observed in small businesses over the last twenty years.I’ll organize these observations into 3 sections:
  • Today, I’m going to talk about what we at B2B CFO have observed in small businesses over the last twenty years.I’ll organize these observations into 3 sections: Business Fundamentals Life Cycle of a Business “NOW WHAT”?
  • The ‘typical’ entrepreneur has these traits[ASK THE GROUP – Do any of you have othersyou’d like to share?]Risk - he recognizes it like everyone else but feels he can control it
  • Why do entrepreneurs start businesses? Our observations are that they want…REGARDLESS of the reason a business is started….. [CLICK]
  • How does the business building process start…
  • Stages of business development:Infrastructure Development, Infrastructure Peak. Out-Growth of Infrastructure, The Danger ZoneWe will discuss each of these stages briefly, give you a quick overview of what happens during each stage and touch on how the business-owner reacts in each stage.We call this period Infrastructure Creation.Costs are not high, revenue more than covers themCash is growing faster than we’re needing it.Life is good. [CLICK]
  • How is the owner spending his/her time?Exciting time for him[CLICK] [CLICK][read][CLICK][read][CLICK][read][CLICK][read]This is an exciting time and the owner is getting a lot of gratification out of his business. Right? [CLICK]
  • Infrastructure Peak is the “Honeymoon Period” for the business.Available cash still exceeds cash needs. Typically gives the Finder a false sense of security.But pretty soon, . . . [CLICK]
  • For a time, things are good. But …notice the last bullet.
  • The owner is usually spread so thin at this point, the customer suffers and the business suffers.[CLICK]
  • Companies that experience significant growth. Both in sales and the volume of transactions, typically outgrow their infrastructure.Reason: The Finder has been so busy bringing in sales that no attention has been given to the foundation (infrastructure) of the company.At this point, the business how outgrown its infrastructure.Cash needs increase and available cash decreases.The business starts to struggle.[CLICK]
  • As the business spirals downward, it heads for THE DANGER ZONE
  • [CLICK][read][CLICK]
  • Three organization charts,1. The traditional organization chart . . .2. The one they told you about a few weeks after you joined3. THE REAL ONE, which is ……
  • We want to look at the REAL organization chart. This chart exists for every company.[CLICK]And it looks like this. The company is made up of one or two Finders, a few Minders, and mostly Grinders.[CLICK]
  • [CLICK] Finders…[CLICK] Minders …[CLICK] Grinders…
  • Another observation about these folks is:[CLICK] Finders…[CLICK] Minders …[CLICK] Grinders…
  • [CLICK]From FINDING to MINDING.[CLICK]
  • Let’s look again at how the Owner is now spending his/her time.[CLICK]Notice that the owner’s activities have shifted[CLICK]
  • The Owner must return to Finding.[CLICK][CLICK] Stop…[CLICK][CLICK] Rely…[CLICK][CLICK] Return…[CLICK][CLICK] RefocusLet me emphasize:the Owner must return to Finding and let OTHERS do the MINDING.[pause][CLICK]
  • The Danger Zone - Pat O'Brien

    1. 1. DANGER ZONEThe Danger Zone Pat O‟Brien Partner B2B CFO®
    2. 2. The Danger Zone Business Life cycle of a fundamentals business• Common illusions • How a business starts What do we do • How a business grows about it? • How we get to The Danger Zone
    3. 3. Characteristics of the entrepreneurLive in the future; pull others into the High ethical and moral business core Creative, visionary, innovator, dreamer Relationship builder Risk manager future values
    4. 4. Why do entrepreneurs start businesses? Freedom Provide Create Innovative Moreto “run the superior value for product income show” service the future
    5. 5. How does it start?
    6. 6. Infrastructure Creation
    7. 7. Build an infrastructure Bankers Vendors Lenders/leasin g companies Employees
    8. 8. Build an infrastructureMachinery/equipmentAccountants/attorneysProcedures/processesOfficespace/buildings
    9. 9. Owner‟s Activities Causing Delegating Building sales and Creating tasks torelationships cash to relationships employees with come into with vendors or customers the associates company
    10. 10. Infrastructure Peak
    11. 11. Business GrowsAs a result of Infrastructure Creationis Infrastructure Peak.Company runs “lean and mean” Personal Low sacrifice by the overhead Founder Few customer complaints Short cash collection cycles High customer service
    12. 12. A Shift in Perspective A result of running lean is......1. Burn-out – of owner and employees – who have been doing the 100-yard dash for 100 miles2. This „extra‟ cash leads to thoughts like:
    13. 13. Result of Shift During infrastructure peak Less thought is given to the needs of the customer“lean and mean” is no longer the mantra of the company.
    14. 14. Outgrowth of Infrastructure
    15. 15. Symptoms of outgrowinginfrastructure
    16. 16. CustomersComplaintsincreaseOrders decreaseProblems increase
    17. 17. ProductivityQualitydecreases Inaccurate information More meetings
    18. 18. Employee Higher turnover s Increased theft of time Increased cost of benefits & training
    19. 19. CashCash shortagesReceivablesincreaseMore deadinventoryOwner lendsmoney to coveroverhead
    20. 20. VendorsDelay deliveriesRelationshipssufferTime is spentfinding newvendors
    21. 21. Result? The Danger Zone The Danger Zone is created when the cash needs of yourbusiness far exceed the cash available to meet those needs
    22. 22. Owner‟s New Activities• Endless meetings, with staff, bankers and lenders, attorneys, accountants...• Analyzing cash flow• Deciding which bills can be paid• Hiring or firing staff• Writing checks
    23. 23. But …• They hate doing it• It‟s not their skill set – not good at it• They don‟t know what they need, or how to go about filling those needs They need to realize that: A business is more than just getting customers They need complementary skills – more than currently exist within the company
    24. 24. Traditional Organization Chart
    25. 25. Real Organization Chart
    26. 26. Real Organization Chart Finder The entrepreneur, the visionary, the leader, the idea generator and the catalyst for future change. Minder The administrative, accounting and operational staff of the company. Grinder The people who do the physical work of the company. Grinders may be construction workers out in the field or telemarketers at a desk or the sales staff in a company.
    27. 27. Different Life Time Zones Finder Works in the FUTURE. Minder Works in the PAST. Grinder Works for TODAY.
    28. 28. Finder Becomes a Minder
    29. 29. When the Owner‟s Activities Shift BEFORE • Building relationships with customers • Creating relationships with vendors • Delegating tasks to employees or associates • Causing sales and cash to come into the company AFTER • Endless meetings with bankers and lenders, attorneys, accountants • Deciding which bills can be paid • Hiring or firing staff • Writing checks • Analyzing cash flow • Making collection calls • Purchasing computers
    30. 30. Owner Must Return to FindingStop trying to solve allthe problemsRely on others forMinding• Find someone who is good at it• Bring in someone Finder can trustReturn the focus tofinding new customersRefocus on product andmarket factors
    31. 31. Let the Minder Find the Cash ‘Liberate’ cash tied up in A/R, Inventory, fixed assets……. Re-negotiate credit facilities based on: • Clean and timely financial statements • Acceptable key ratios • Evidence of improving cash flow Find alternative sources of credit • Bank • Asset Based lenders • Subordinated lenders
    32. 32. Pat O’Brienpatobrien@b2bcfo.com 214-536-3095
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