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Business Owner\'s Guide to More Money, More Time and Less Stress

Business Owner\'s Guide to More Money, More Time and Less Stress

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  • 1. More money More time Less stressThe business owners’ guide to creatinga profitable, sustainable business thatrewards you richly in time and moneyJohn RoslingVISIT US AT www.shirlawscoaching.com
  • 2. “Your motivation is never money, money is only an end result. Your motivation is more likely freedom.” Simon Sinek Acknowledgments This book would not exist without the business insights and knowledge of Darren Shirlaw and the development team at Shirlaws, the international business performance and coaching organisation of which I am UK CEO. Darren is one of the world’s most highly regarded experts on what makes a mid-sized business succeed and what makes the owners and CEOs of these businesses achieve their goals and ambitions. Both as a business owner who has implemented Shirlaws’ principles in my own business and latterly as a member of the Shirlaws team, I am deeply indebted to Darren and all the partners and coaches at Shirlaws in the UK and all around the world. They are a remarkable group of people who change the lives of business owners every day. www.shirlawscoaching.com www.shirlawsonline.com2
  • 3. In this bookSECTION 1: STEPPING UP TO A LEADERSHIP ROLEChapter 1 - Understanding contextChapter 2 - Understanding the power of ‘why’Chapter 3 - Understanding your role as leaderChapter 4 - Leadership in action - creating the whySECTION 2: UNDERSTANDING YOUR BUSINESSChapter 5 - Understanding your business cycleChapter 6 - Understanding risk in a strategic contextChapter 7 - Becoming a great communicatorSECTION 3: CREATING REVENUE TODAYChapter 8 - Product - the foundation of your businessChapter 9 - Your intellectual property - the rocket-fuel in your businessChapter 10 - Positioning - your key focusChapter 11 - The salesforce that never asks to be paidChapter 12 - Driving energy in relationshipsChapter 13 - Creating revenue – A final thoughtSECTION 4: GETTING YOUR BUSINESS TO WORK FOR YOUChapter 14 - The fully functional businessChapter 15 - Capacity planning - The secret of controlled profitable growthSECTION 5: BUILDING EQUITY VALUE AND EXITING YOUR BUSINESSChapter 16 - What really drives equity valueChapter 17 - Leaving your business in good handsSECTION 6: MANAGING YOUR OWN ENERGYSECTION 7: ABOUT SHIRLAWS AND THE AUTHORAPPENDIX: THE RECESSION AND WHAT TO DO ABOUT ITThe five mistakes of a recessionThe five growth opportunities of a recessionThe five ways to prepare for the recovery 3
  • 4. “There is more to life than increasing its speed.” Mohandas K Gandhi4
  • 5. Shirlaws works with hundreds of mid-sized, owner-managed businesses in 26countries around the globe. Our job is to help business owners and CEOs to achievesuccess for their business. Our goal is to see our clients’ businesses reward themrichly in wealth, time and fulfilment.Our clients own and run successful businesses. Yet the most common things we hearnew clients say are “I want the business to work for me, not the other way round”, “I’mnot making the money I want”, “I want less stress”, “I need to scale”, “I want to exit”.It is to address these issues that we have developed, over the last 12 years,knowledge, experience and unique business frameworks and techniques.The purpose of this book is to share this approach to business management with you.I hope this will help in getting your business to work for you (not the other way round).And to give you wealth and choice about how you spend your precious time into thefuture.Whilst we see hundreds of SME and owner-managed businesses, and every onethinks the issues they face are unique, what is remarkable is that almost all the blocksto a businesses’ progress can be traced back to a few key issues.My belief is that if you can address these “source” issues you can unblock almostany business to achieve its potential – and the dreams of those who founded andrun the business.My intention in this short book is therefore to examine each of these source issues andoffer some perspective on how we help businesses overcome them. In doing so I hopeI can help give you some valuable insight and perspective on your own business.If you are interested in learning more about Shirlaws you’ll find more information aboutus in the back of this book. If you are interested in having a chat and a coffee, you’llfind my personal email address at the back of the book too.John RoslingAutumn 2010 5
  • 6. STEPPING UP TO A LEADERSHIP ROLE “There is no map. No map to be a leader.” Seth Godin6
  • 7. CHAPTER 1:UNDERSTANDING CONTEXT“The main thing is keeping the main thingthe main thing.”German proverbAs CEOs of small and medium sized businesses, most of us have had the experience ofbeing so firmly embedded in the day to day issues of running the business that it is difficult tofind sufficient time to grow the business.We can get stuck in the detail with the result that the single greatest impediment to the growthof our businesses and the realisation of our dreams can be ourselves. This is not a commenton skills or capabilities (although we could probably all do with constantly learning new skills)but it is a comment on what we choose to focus our time and energy upon. It is a commenton the belief we have created that we have to manage everything because no one will do itas well as we do.The challenge, if you ever want to have your business deliver the wealth and leisure you setout to achieve, may be to find a new way of working. A way of working that really successfulentrepreneurs who have built vast and complex businesses - but still seem to have time forballooning and boat racing - have learnt to do instinctively.You have to find a way of working that manages your business not in content but in context.Context is that which brings meaning. It provides a common language within the businessprocess. It gives clarity to all the content and allows a business conversation to unfold,resulting in aligned decision making and understanding.Imagine a conversation between three directors of a business. Let’s imagine the discussionis about fruit; which is the best fruit between apples, bananas and oranges. Without anycontext to give meaning to the word “best”, imagine how long that conversation could last 7
  • 8. and how much energy, management time and focus it could use up. Now imagine the same conversation if a clear context of “Vitamin C” was agreed. How long would the conversational have to last? It is a simple analogy, but how many of us have the experience of management or team meetings where issues become muddled and decisions are difficult to reach. I find working with boards and teams that if they can set a clear context, decision making can be remarkably accelerated - and relationships improved. In fact, most problems in business stem from the fact that there is normally plenty of content, but no context. Context is the wood, content the trees. The context you choose to run your business, project or meeting is, of course, down to you and what you are seeking to achieve. As an example, we are working with a fast growing business that has chosen to work with a context of “learning”. Having this context supports decision making in how the business treats its people, takes decision, and invests money. The result is an ambitious and creative business where mistakes are not a cause for blame but for learning and where the team is motivated and productive. It’s also a great place to work. Context is one of the three key skills that all effective leaders have learnt. So how do you get context into your business? The first and primary piece of context in your business is called “why” and I’ll look at that in detail in the next Chapter. TOP TIPS • Learn the trick of the greatest entrepreneurs; manage in context and leave the content to your team.8
  • 9. CHAPTER 2:UNDERSTANDING THE POWER OF “WHY”“Knowing the why can inform your actionsas a brand, your brand voice, its character,and everything else that helps build itinto something people want to have arelationship with.”Simon SinekWhen I took over as CEO of Shirlaws I was fortunate in that I inherited a well managedbusiness. But it was one that had just lived through the worst recession in 80 years.The first thing I focussed on wasn’t revenues or internal cost structures – the content.My first priority was to refocus everyone in the business on their core belief in the busi-ness – the context. I reasoned that if this core belief was strong and shared by all, thecommercial success of the business would follow. It would also be a fun place to be.Belief is context because belief in the why makes sense of the what.All business understand “how” they do what they do (their manufacture, sales, delivery,service, admin. etc.), and most (but not all) truly understand “what” they do (the funda-mental intellectual property and rocket juice that sits at the heart of the business, whatmakes them famous and what customers “buy” (rather than what they sell). But veryfew businesses really understand the “why”.Which is a pity because the “why” is where the power is. 9
  • 10. Why What How If you think about all the most successful businesses, the ones people would most like to work for, they all have a strong and well understood “why” in their business. It’s this “why” that staff buy into figuratively - and customers buy into literally. Simon Sinek explains this brilliantly using Apple as an example. Apple understands why it exists in its bones and has invested huge amounts of time in instilling this belief in its staff. This “why” is distinct from “what” it does. Apple believes that everything they do challenges the status quo. It believes in solving problems for people through great design. Making and selling computers is just “what” it does. This fundamental belief in a “why” drives everything the business does – it creates the context for all the decisions the business makes. Go into any Apple store and you’ll see the outcome in a powerfully motivated staff who love working there and believe passionately in the product they sell and communicate that passionate belief to customers. Sinek draws the comparison with Dell, a company with a clear understanding of “what” it does but not “why” and shows how this limits Dell. Since Dell has a clear “what” (make and sell computers) and Apple has a clear why (solve problems through great design) customers will only buy comput- ers from Dell whilst they’ll buy computers, music and telecommunications from Apple. And they’ll make every purchase decision when buying Dell partly on price (since it’s a rational “what” choice) but price hardly features when buying Apple, which gives Apple a very healthy margin and a massive valuation. This is the power of position which I’ll cover in detail in Chapter 10). The key reason behind Apple’s success is that people buy values and beliefs over benefits. That applies to the customers you want to attract and the talent you want to10
  • 11. employ and it is as true in the corporate and B2B market as it is in the SME and B2Cmarkets. I’m sometimes asked why I joined Shirlaws when I already had a reasonablysuccessful business and a comfortable life. I had had the experience of applying Shir-laws coaching in my own business and had seen the tremendous commercial return.But what attracted me was the strong “why” I saw in the organisation – the clear intentto help change the lives of business owners through coaching and the transfer of skillsand knowledge.It doesn’t of course mean the “what” isn’t important. The quality, effectiveness, andvalue of what we supply and how we do it is vital - we all make rational (what) purchasedecisions every day. It’s just that the “why” is often forgotten in the content-driven, busyworld of the SME. And by forgetting it we are missing a major trick.Incidentally, there is a strong and compelling practical reason why people make mostdecisions in a why (values) rather than what (benefits) mode. To be simplistic ourbrains are effectively an evolutionary map of development – almost analogous to treerings. The core or “limbic brain” (sometimes called the “crocodile brain”) was formedbefore the development of language and what we consider “rational thought”. It is inthe limbic brain that “feelings” reside and key decisions are made. The outer layers(“neo-cortex”) are used for language, rational thought, processing etc. So, simplistically,relationship choices (with people and “brands”) are made at a “feeling”, pre-languagelevel and then post-rationalised to satisfy our thinking mind.Clearly, this is highly simplified and everyone is different (which has spawned a wholeindustry from Jung to Myers Briggs and beyond - we’ll look at this in Chapter 7). But forus, as business owners, it is important to note that beliefs and values are vital for creat-ing effective and valuable customer and staff relationships – far more so than facts onwebsites, price promotions, or the prospect of pay bonuses (all of which could play asupporting “rational” role). As a bonus you’ll get a fun place to work and marketing andsales will be easy giving you spectacular revenues as well.We’ll look at how this impacts on buying behaviour – and most interestingly our abilityto create effective referral networks in later Chapters.So if you want powerfully motivated staff who will take your business to where you wantit to go, allowing you to stop “running” your business, you need to create fundamentalbelief in the “why” in your business. 11
  • 12. The “why” is about vision and dreams and possibility – not about logical strategies. When Martin Luther King stood in front of a quarter of a million people on Washington Mall in August 1963 he didn’t say “I have a Plan”. So how do you create a “why” in your business? We’ll look at that in more detail in the next Chapter. CASE STUDY: APS When Brian Armstrong and I started APS (www.aps-advance.com) in 1998 in Australia & the UK it appeared to most that it was just another software company to provide prac- tice software around the individual business requirements of accounting and consulting firms. We had both worked in, and left, a more established organisation that was a toxic envi- ronment for employees and clients. We were clear that APS needed to prove that it was possible to build an ongoing and sustainable business in our chosen market place that was truly successful from both a cultural and commercial perspective. That was and is our “why”; the question we asked of ourselves and one which con- tinues to govern our business model today. To us, life is a journey not a destination so we continue to focus on the ‘why’ – as do our teams in the 3 countries in which we now operate – No one is perfect and to say that we have attained a 100% score and maintain it would not be truthful. It does however remain our Intent to never lose sight of this purpose. But for us it was not just the “why” part of the conversation – we also had to get clear about “what” we were going to do to achieve that and “how” we were going to execute it – both culturally and commercially. Culturally our strategy is quite simple – FAMILY – a context that binds core values, we recruit people who are aligned with these and want to be part of this structure. Similarly we form relationships with clients who want the same thing – to be a client not just a12
  • 13. customer as is so often the case.Commercially our strategy is also simple – what we do is implement systems that giveprofessional service firms the Information they need to serve their clients and to runtheir own business. Key to this outcome is developing and maintaining a sustainableRelationship.How we do that is through the provision of Software, its Implementation, ongoingConsulting, Support and regular software Upgrades. Fundamental to this provision ofsoftware and client service is the shared and agreed values that are part of our everyday language & behaviour – internally and externally – to be Caring, Flexible, Open,Passionate, Safe, Honest – To have the 100% conversation within our team and withour clients.But, for us, understanding the “why” set the whole context and purpose for our busi-ness and enabled us to agree the “what” and “how” easily and with focus. Thesehaven’t changed.Brian Coventry, CEO, APS.TOP TIPS• Find the fundamental “why” in your business - and create a strong sense of belief around it. 13
  • 14. CHAPTER 3: UNDERSTANDING YOUR ROLE AS LEADER “While Management is operationally focused, setting priorities, allocating resources, and directing the execution, Leadership is more forward thinking, more about enabling the organization, empowering individuals, developing the right people, thinking strategically about opportunities, and driving alignment.” Randy Komisar People who run businesses use various titles but you’ll have noticed I use the term Chief Executive or CEO. That’s because I believe it is your role is to be the Chief – to Lead and not to Manage. That’s why I prefer not to use the title “Managing Director”. If you want to grow your business and have it working for you and not the other way round your role should evolve so that you are not “managing” the business at all. In other words you live as much as possible in “why” and less in “what”; more in belief and less plan; in context not content. Therefore in my own business I am CEO not because it sounds grander but because it describes the role I do and how I want to see it develop.14
  • 15. So what is that role? At Shirlaws we believe that the role of the CEO of any business –including SMEs – can be described in three simple concepts:• Set the context• Manage the energy• Coach don’t playSet the context means it is your job to understand the “why” and know where you aregoing. You create the dream. It means you are “above” and often 6-12 months “ahead”of the business, allowing your team to run the today. It also means you hold the contextso that every decision in the business is simple to make in a contextual not content-driven space. It means you understand where you are in your Life Cycle, understandand hold the business to the contextual choices you have made in terms of Risk, Mar-ket Position, Product etc. All these will be covered in later Chapters.Manage the energy means it is your job to create the belief in your why and create acompelling vision for your team. You sit above the business and your job is “feel” yourbusiness like an organism and know when things are not right. It is to support the en-ergy and enthusiasm of the team and the key relationships you have outside the busi-ness. I think about it like this. All employees in the business possess a certain amountof energy that can be devoted to progressing the business. If this energy is aligned and“flows” easily through the business there is a greater chance of success. Alternatively ifthe energy gets dissipated, for example in managing processes that are not working orwhere departmental heads have different contexts and hence work against each other,energy gets expended inside the business and is not channelled into activities that willresult in the growth and success of the business.Coach don’t play means you’re not on the field any more. Your job is to build the con-fidence and skills of your team (over time) so that they have the ability, belief and aregiven the responsibility to play the game – you create the big picture and then support,observe, and encourage. You coach. That way your team runs the operations of thebusiness and you get to grow the value and scale of the business.You’ll notice that none of these says “run the business” or “deliver the bottom line”.That’s because to have your business work for you, you will need, in time, your seniorteam to do these management tasks for you. In fact my whole theme so far (manag-ing in context, setting the why) has been about getting your business into the positionwhere it is bigger than you and is not dependent on you. That means your role changes 15
  • 16. to the fascinating and stimulating role of entrepreneur - and not manager. For many SME owners that may not seem possible right now but if you follow the ideas set out in this book I believe it will become possible. At any event you will have the choice of how much day to day management you want. CASE STUDY: YRM YRM (www.yrm.co.uk) is an architectural company with offices in London, Vienna and Bucharest. Established in 1944 YRM has completed over 800 design projects in 37 countries. YRM is renowned for high quality functional and durable design delivered to agreed budgets and timescales. John Clemow joined YRM in 1978 and leads the fourth generation of YRM’s leadership. “In mid 2007 as the economic storm was looming, I heard Peter Harford of Shirlaws speak at a seminar about sluggish leaderships, succession fall out, and underperforming businesses. It felt like I was the only person in the room, with a laser dot on my forehead. Our top table was an operationally circular partnership model and, as Managing Director, my role was mainly cleaning up the mess left behind by the owner-managers enjoying their own games. I recognized I was in the classic Managing Director position of being well and truly stuck in the content and I brought Peter in initially to coach the Board. We realized we needed to operate as a proper company Board, with a CEO supported by a business structure with defined functions, lines of communication and delegated decision making. I realized I needed to act differently if I was to be a genuine CEO, to take more of a leadership role; to be “in the context” as Peter would say! Peter helped me understand, implement and ultimately enjoy my CEO role. To get the leaders focused and on track, we needed to develop and crystallize our vision and strategy which was both motivating and enjoyable. This gave me a positive framework16
  • 17. for dealing with some difficult problems to reverse our trajectory. I selected emergingleaders to prepare strategies for some priority areas of the business. I saw my primaryrole in energizing and supporting these rising stars. Great work was done whichcontinues on the next set of issues to tackle. Our conversations are mainly on howthese strategies tie in to our vision and overarching strategy.It took two years of hard work to embed the changes in thinking, action and attitude.There is inevitably some occasional backsliding which means I have taken my eye offthe ball. The panic and frustration that I and my colleagues felt has been replaced bycalm determination and a clear sense of purpose. I wake up in the morning knowingwhat I need to do today and looking forward to the steps needed ahead. We haveweathered the storm so far, and I only occasionally need to do a bit of light cleaning”.TOP TIPS• Set the context; manage the energy; coach don’t play 17
  • 18. CHAPTER 4: LEADERSHIP IN ACTION – CREATING THE WHY “How do you get people to come together around a goal and objective and be great? It’s establishing a sense of common purpose. Greatness doesn’t come from a tactical sense of execution. Greatness comes having a vision that goes beyond yourself and even beyond the organisation” Randy Komisar “When people believe in what you believe in, they work with their blood, sweat and tears. When they don’t believe in what you believe in, they work for your money.” Simon Sinek18
  • 19. We have established that having a strong “why” in the business is fundamental to cre-ating spectacular success and a satisfying and rewarding environment for everyone inthe business. “Why” businesses are great businesses – and great places to be. In thissection I’ll look at the key elements that create the “why” and how you can build themin your business. We’ll look at “what” and “how” themes in later Chapters.i. CultureAs CEO it is your job to build and nurture the culture of your business. This isn’t somefluffy bolt-on but is fundamental to your success. It is the reason talented people willwork for you, stay loyal to you, and create wealth for you. It also makes your businessa fun place to be. It’s a fundamental building block to your market position (see Chapter10) which is what ensures customers continue buying from you and pay more for yourservices than that of a competitor.ii. IntentTo create the culture you need to know very clearly in your own mind the fundamentalpurpose or intent of your business - why your business exists. People want to feelpart of something with a purpose more compelling, more important, than just makingmoney. Making money is the outcome of doing what you do brilliantly. The source ofgetting everyone to be brilliant is rooted in an aligned purpose. It’s vital to understandwhy you get out of bed every day and come to work – and it’s equally vital to discussthis with your key team to get agreement as to what the intent of the business is. If youfeel daft doing this, get some external facilitation.iii. ValuesA common and aligned intent can be an incredibly strong motivator for everyone in thebusiness. But it needs to be supported by a very strong set of shared values. I meetbusinesses all the time who have their values written down and filed somewhere. It’s awaste of time. If no one knows what the values of your business are, how can they beused to create a powerful culture? How can those values be used to align your peopleinto a powerful force to deliver brilliantly?Why do most businesses fail to leverage their values – to create value from values ifyou like? It isn’t because they don’t have values. In my view, it is because they misun-derstand what values are for. Your values are not to bung up on a website to demon-strate that you are a business with integrity. They are the building blocks of your sharedculture, and they support your intent. They are the common principles that drive your 19
  • 20. business and all your people to success. And the secret of unlocking this potential sits in three simple steps: • You have to agree, as a team, what your shared values are (and review these choices annually). These are not your values to impose on the business (remem- ber the plan is to get the business working for you). And ideally you shouldn’t have more than three. • You have to make them real. You must associate each value with a set of behav- iours that you will use to check-in that your values are being lived. • You must consciously live by your values, publish them and use them, making them integral to the business. With these three steps you will create values that will genuinely support the cultural and commercial success of your business. iv. Vision Having founded your powerful culture on a shared set of values and with a common intent, your job as CEO is now to paint a picture of where you are going as a business that is so compelling and exciting that everyone in the business will buy into and carry your business to where you want it to be. I have a dream, not I have a plan. Of course, almost every business has a vision. But very few ever get there. In my view, that’s because no one in the business really believes in the vision or feels the vision to be theirs. As with values, if the vision of your business is your vision and is not shared and owned by your team, then the business will always be dependent on you and can never reach your ultimate goal (unless of course that goal or vision is pretty modest). So how do you get your team to own the vision, to hold it as their own and drive your business towards it? The vision has to be compelling. “To be the premier widget manu- facturer in the West Midlands” is an intention (or a mission, if you insist). It is unlikely to get your team champing at the bit on a Monday morning. You need to find a vision that they will immediately understand and buy into. Then, here’s the trick, you have to take them to that vision and get them to really feel it. What it would smell like and taste like to be there? If the vision is powerful enough and relevant enough to them, once they have experienced it they will want to get there and enthusiastically work towards that goal.20
  • 21. If all this sounds like a lot of work when you are just trying to run your business thenyou have made my point for me. If you really want to grow your business and have itwork for you, you need to (progressively) stop managing your business and start lead-ing it. Culture, vision and values are vital elements of leadership. It will create a power-ful “why” for your people and your customers.Have you ever reflected on how officers get their soldiers to put their lives in extremedanger? The answer is that they don’t “get” them to. They lead. The army, the regi-ment, the platoon create a strong culture based on a shared set of values and intent.The officer or NCO then sets a clear vision or “objective” and the unit, literally, goesthrough fire to achieve it. That is exactly what you are trying to do. But with fewerbangs and less bloodshed.A final wordCulture and vision are not easy things to achieve. Most businesses fail to create eitherin a way that will really drive value in the business. In my experience, the only way todesign and build intent, values and vision that everyone really, really buys into is toinvest in some outside help. An outside perspective helps ensure everyone is able andcomfortable to express themselves and be heard.Leadership needs constant work. Culture needs your constant attention. “Manage theenergy” is your day job. Checking in with your people, doing little things that will keeptheir energy positive (see Chapter 12). This is important because it’s the only way youwill reach the goal you have set for yourself.Your intent is likely to stay the same but the business needs to be reminded of it. Yourvision needs to be kept fresh and alive to your people. Your values need to bere-visited about once a year.An absolute cardinal rule of leadership in an ambitious business that really intends togrow is to get the senior team off site and out of the business at least once a year andpreferably twice. This is your Strategic Retreat and is the time to review and refreshyour vision and values and work on the key strategic initiatives that will fundamentallygrow your business.How are you ever going to have time for all this? That we will cover in Chapter 14. 21
  • 22. CASE STUDY: UnLtd UnLtd, The Foundation for Social Entrepreneurs www.unltd.org.uk is a charity which supports social entrepreneurs - people with vision, drive and passion who want to change the world - by providing funding and support to make their ideas a reality. The UnLtd Ventures team has a strong sense of its purpose which they were finding difficult to articulate succinctly. The team felt pulled in many directions and was somewhat unfocused. They were aware they were not communicating as effectively as they could with target clients and unable to share agreed criteria on whom to support. UnLtd Ventures asked the Shirlaws Foundation for help and together we worked on clarifying what the team really needed to achieve, the values the team shared, and the clear intent or purpose around which they could align. Nynke Brett of UnLtd remembers the problem was not articulating their values. The challenge was they had so many. “We knew it was important to get these clear as a team so we could focus effectively on helping our clients but we all felt overwhelmed. For us it was incredibly useful to have a knowledgeable facilitator to steer the conversation. I remember the breakthrough came when we were asked “if you were “unlimited”, what would you be?” and it suddenly seemed so easy – that’s when we agreed on our values of “fearless, caring and chal- lenging”. These values were then built upon to create a compelling “intent” for the team, with an agreed purpose or context, in their case “to transform how business is done (one entrepreneur at a time)”. Nynke concludes “Having these values and an agreed intent has been incredibly important and helpful to us, and using them has changed our behaviour and effectiveness as a team”.22
  • 23. TOP TIPS• A strong culture will drive your success by recruiting the best people and most loyal customers. Culture comes from a discussed and agreed intent based on shared values.• Leadership is about creating the dream – the vision thing is your job.• All successful Leadership Teams get away on a Strategic Retreat every 6 months.• Get outside help. 23
  • 24. UNDERSTANDING YOUR BUSINESS24
  • 25. CHAPTER 5:UNDERSTAND YOUR BUSINESS CYCLE“We reach quite inexperienced thedifferent stages of life in spite of thenumber of our years.”Francois de la RochefoucauldIn Section 1 I have set out some broad principles of managing in context and not content andhow being stuck in the detail of our businesses is often both stressful and unproductive. Buthow much detail you should have in your in-tray obviously depends on where your businessis in its lifecycle and on its size.A CEO of an early stage business has a very different job to one running a mature business.Your role changes year by year and to understand your priorities at any one point it’s vital toknow where you are and what’s coming next.All businesses have a natural lifecycle and go through clearly identifiable growth stages.These stages are not based on set periods of time, but rather on “energy” within thebusiness. It is this energy, or ‘feelings’, of the key players in an organisation that will dictate atwhich stage a company is and when it moves from one stage to another.At Shirlaws we have worked closely with hundreds of businesses all over the world and usingthis experience have created a model of this progression we call the “Stages model”. Thismodel applies to every company, regardless of size or sector. 25
  • 26. 3 es tag Advanced S 1. 2. Positioning Distribution growth s” ? ling 3. Functionality “fee 4. Capability rou d p 5. Succession 4 Plateau 2 Growth 5 Decline 1 Start-up day 1 time Lo Ex fr in g pa fr st di st ve oo sil an us re cit y d st lus ss tr ba tic ed tim at ion ck ion es ed Protected by Copyright © 2007 Shirlaws This is a somewhat simplified version of our model. It shows each stage or phase of the business’ development and the feelings at each phase shown in red below the timeline. These feelings are a remarkably accurate indicator for precisely where the business lies on this timeline. Using data drawn from thousands of businesses we can then support our clients in understanding how they can navigate their business along this cycle and exactly what the business should be doing at any point to maximize returns - both commercial and cultural. The first stage is the ‘Start-Up’ phase which begins on day one of the business. Remember how you felt on that day? Excited, nervous? Your energy levels were high, you were doing everything in the business; working long hours – it was frantic, but you loved it. You were investing time, energy and money into the company. If you hadn’t invested so much and worked so hard, the company would have failed quite quickly because that initial phase is tough; you need to win clients, get a reputation, and establish a cash flow. That hurdle is what we call the ‘First Brick Wall’ and to get through it you need to make that investment . Because you work hard, the business begins to fly, and you get to the second or ‘Growth Stage’ when the company is doing well, turnover is growing and you begin to feel good about26
  • 27. how well everything is going. These are the good times when you begin to reward yourselffor all your hard work in establishing the business. Perhaps you move house, buy a secondhome, a new car or boat – you deserve it after all. It’s payback time.But now you still seem to be working seven days a week, taking work home, going in atweekends - and the business is not growing at the same rate. There are more people in thecompany, so more day-to-day problems to solve. You are doing everything you did before– and more. At this point your feelings can best be described as frustration and stress and,eventually, disillusionment. You are at, what we call, the ‘Second Brick Wall’.Now this is a crucial stage for any business. There are three options: you can get through thewall and take the business forward, the business will plateau or it will decline.The crucial element to get you through is further investment, and this time it needs to beinvestment in skills. The business has changed and, unless you had a planned strategy forgrowth, you need to assess what your role should be (you shouldn’t still be responsible forrunning everything in the business) and assess the roles of everyone in the business – howwell are you delegating responsibility? You need to reassess how the company is positionedin the marketplace against the competition and customer expectations. Sales methods needto be reviewed. Are there the right skills in the organisation for the business you now are?And what about your plans for the future – do you have a planned succession strategy?If you recognise the needs of your business at this stage and invest in putting the rightstrategies in place, then you move into ‘Advanced Growth’ and start to feel contented withwork and will have achieved a good balance with your life outside the office. In fact mostbusiness owners simply say they feel enormously “proud” at this point. It’s the feeling thatsuccessful serial entrepreneurs have. They have worked out how to get their business towork for them.So, how does your business feel today? Is it an excited and frantically busy place? Calm andrelaxed? Or stressful and increasingly frustrated? Understanding that will tell you what youshould do now and what is coming up in the future.How do you feel? You may be in a different stage than your business or your key team.Understanding that will help you know how to manage your relationship with your team(manage the energy) and give you an insight into what skills you might personally wantto develop. 27
  • 28. Naturally, the capabilities and skills needed to shift through the Second Wall can be planned into the business as you accelerate up that growth curve. The more of these you build in while times are good, the less painful the Second Wall will be. Culture is also hugely important, as businesses with a strong culture and a clear vision avoid much of the stress and disillusionment. But to really invest in these core long term capabilities you need some genuine perspective – to be ahead of and “above” the business. The trouble, of course, is that in the good times phase we are all too busy in the content, focused on clients and revenue creation (and having a good time), and as we move towards that Second Wall we are still in the content but now too busy fighting fires. That’s why managing in context is so important (and difficult to achieve). In the next two Sections we’ll look at these skills that need to be developed in more details and outline the behaviour required by the company and its senior manager team to move the business forward and recapture that excitement of the early days. But first let’s look at a couple of other tools to help you better understand your business today. TOP TIPS • Know where you are in your business lifecycle and plan ahead. • Know where your key Directors or Partners are and understand how this impacts on your relationships and decision making. • Build in now the skills and capabilities your business will need to grow in the future.28
  • 29. CASE STUDY:A couple of years ago we were asked to help a UK Phoenix printed circuit boardmanufacturer. The company had started again with the same shareholders/directors andthe same staff. The issue they faced was of a deeply divided board and shareholding thatthreatened to destroy the business before it was fully established.When we started coaching the directors we talked to them all individually and it became clearthat two of the directors were excited and energised about the opportunity to start again andthrew themselves into the startup phase enthusiastically and were producing results, whilethe third director/shareholder was, privately, just not energised by the phoenix opportunity.This unspoken reluctance was driving an increasingly wide rift between the directingshareholders.This needed addressing before we could help the business progress any further. Thechallenge was to create an environment and a framework where an honest conversationcould occur without it descending into blame and recrimination. Our approach was to workthrough the business cycle model Stages examining where the old business had been beforeit was closed and where the new business was on the Stages cycle. We also then talkedabout where the individuals were on this cycle. Within half an hour there was an honestacknowledgement from all around the table about the differing places and the impact that hadon them working together and building a new business together.Within a week a new arrangement was agreed which essentially gave a part of the businessto the third Shareholder to run on a small scale – leaving the two energised directors withthe shared vision with the bigger business to scale appropriately. All were delighted with theoutcome. 29
  • 30. CHAPTER 6: UNDERSTANDING RISK IN A STRATEGIC CONTEXT “Take calculated risks. That is quite different from being rash.” George S. Patton “There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.” John F. Kennedy The concept of Risk/Return is well understood in investment circles; the higher the risk the higher the potential return (and importantly but normally forgotten by the investor; the higher the risk the higher the potential losses). For the CEO, risk is often the “hidden variable” in many business decisions. Risk touches on every area of a company’s operations and yet the case of “cost versus return” is considered by the board and yet the variable called “risk” is often not discussed. The term “Risk Profile” is also heavily used in investment circles. The Financial Adviser will want to measure a client’s Risk Profile before investing their funds. It is often a score out of 10; with zero indicating highly conservative and 10 indicating ‘willing to take any bet’. Equally, an Executive Team can have a Business Risk Profile that they can measure and use as a strategic and contextual metric to manage risk-based decisions in the business.30
  • 31. This can be a vital measure. It can create a contextual understanding when serious divisionsat board level occur. And it can help create a benchmark to support decision making whencircumstances change. For example, most businesses experience a severe drop in riskprofile after a serious economic downturn just at the moment when the business needs to bedecisive and proactive.In the first instance, let’s look at debilitating differences of opinion within the senior team,for example between the CEO and the CFO. We often see boards where the CEO mighthave a Risk Profile of 7 or 8 but other members of the team have a profile of 4 or 5. But thisknowledge is hidden without a metric to measure it. All that shows up is that the board thinkthe CEO is impetuous and he feels frustrated and constrained.The same can occur at different levels in the business and even between businesses; asupplier/customer relationship for example. How useful would it be if you had a way tomeasure the relative risk profiles of yourself and your bank manager for example – and asensible basis to have this conversation?And what of the impact of a serious change in circumstances? More often than not during adownturn the entrepreneur or CEO reduces their Business Risk Profile without being awareof it. When the market starts to move the CEO needs to aggressively start to reinvest intothe business to get the uplift in the next phase of the market. But many will hold off until themarket has moved. The fear (called lower Risk Profile) that they may invest too early causesthem to hold off on investment and therefore they don’t get the revenue uplifts. The languageused revolves around “when the market improves then I will…” It is these fears that naturallyevolve from the recession that ultimately holds the business back.So how do you fix this? How do you create a metric to measure the risk profiles of yourkey team to aid alignment and understanding – to create the context that leads to quickdecisions? And how do you create awareness of the business risk profile so that you can usethat to benchmark vital decisions such as when to invest in the cycle?Firstly, be aware of risk and your relative attitudes to it. Be aware of how that may havechanged. If you want to measure the board and entire management team’s personalBusiness Risk Profiles, you can do that at www.navitasip.com.Then, as part of your Strategic Retreat agree a Business Risk Profile which you will use tobenchmark all your significant decisions. Openly discuss where the conflicts in the businessare likely to show up relative to each other and to that agreed Business Profile so that youcan manage these in the future without argument and misunderstanding. 31
  • 32. TOP TIPS • Benchmark the Risk Profile of your key team and openly discuss the implications of these. • As part of your Strategic Retreat agree a Risk Profile for your business • Have the Board mandate the Business Risk Profile and Risk Management processes to ensure that all future decisions are made by looking at cost, return and business risk.32
  • 33. CHAPTER 7:BECOMING A GREAT COMMUNICATORAnd why 60% of your communications could be misunderstood...“If there is any great secret of success inlife, it lies in the ability to put yourself in theother person’s place and to see things fromhis point of view.”Henry Ford“Give me the gift of a listening heart.”King SolomonCommunication is a lead issue in most businesses today. Most people freely admit that theywould benefit from more effective communication. They also admit they do not have a clearunderstanding of their communication style. They do know that they are often misunderstoodwhen they believe they have been quite clear in their communication.Yet becoming a great communicator is actually pretty simple. There are two main principleswhich underpin this skill.The first is awareness; awareness of the differences in communication and processing stylesbetween you and the person you are communicating with.The second is to be an effective listener, being calm and creating enough space to listen andabsorb what is being said to you. If you are too busy talking and preparing what you will saynext, how will you know what is really being said to you? 33
  • 34. We found a long time ago that, if we were to help business owners and CEOs become highly effective business operators, we had to focus a lot of attention on the way people transmit and receive information. There is a huge amount of science around this subject and dozens of products and systems on the market that help businesses communicate more effectively. But we found them to be complex and difficult to use effectively in a small business or team. So we created a simple tool which we call Think Feel Know, which has proved to be highly effective in supporting our clients to understand and improve their communications. Think Feel Know is a simple framework which creates understanding about the ways in which individuals prefer to process information. It acknowledges that there are three ways in which to process information: thinking, feeling and knowing. There are only 3 rules: • Each of us has a natural, preferred style of communication • No one style is better than the other • We use all 3 all of the time The thinking style is all about data, rational argument, processing and balancing options. People in whom thinking predominates like to take Think time and get their facts straight before making a decision. They need to be presented with facts and options to make a decision. The feeling style involves stories, anecdotes and colour; and lots of human interaction. People in whom feeling predominates make Feel decisions based on how they feel and enjoy reaching decisions in consultation with others. They like to be presented with a visual argument (pictures and graphs), not just data. The knowing style involves intuition and instinct. Communication Know is short and efficient. Decisions tend to be made quickly without necessarily getting into too much detail or looking at the data. Protected by Copyright © 2007 Shirlaws34
  • 35. A simple story might illustrate this. Consider a family eating out in a restaurant. The fatherlooks closely at the menu and at each item and analyses what he will choose based on whathe had to eat recently, the price of the dish, and whether he thinks this will represent value formoney in this particular restaurant. The mother talks a lot about what she feels likes eatingand looks at what other tables are having – even asking people if they’d recommend it. Thedaughter hardly glances at the menu, asks for something that isn’t even on the menu, andgets irritated that the others are taking so long. The father is a thinker, the mother a feeler andthe daughter a knower.It’s important to understand that we all use these different ways to communicate and processto a greater or lesser extent but each of us has a natural preferred style (or balance betweenthe three). No one is better than the other. Having the ability to recognise and understandyour own style and the style of others allows you to adapt your communication and connectwith others more effectively through verbal and written communication.It can impact how business teams communicate, particularly where individuals have a strongpreference of style. A strong knower may find a strong thinker frustrating while the thinkerfinds the knower impetuous and can’t understand the rationale for decisions made. Greatteams have a balance of each – and have the knowledge and awareness of their profiles sothat argument and disagreement can be avoided.It can also influence the relationship between businesses and suppliers and customers.A surprisingly high proportion of entrepreneurs and business owners are strongly skewedtowards knowing and feeling (they are intuitive, creative, and driven by why not how). Yetmany of their advisors (accountants and bankers) are predominantly thinkers. This suggeststhat if you want to achieve real influence over the people you do business with it wouldserve you well to understand and adapt your communication style. If you have advisors orpeople in your team who are predominant thinkers, adapt your communication (verbal andwritten) to include more data and information than you might normally do – and offer optionsand choices. If you have a strong feeler in your team communicate with them using visualmaterial, stories and anecdote.This doesn’t mean you have to change everything you do or that what you do now is wrong.But having an awareness of this can help so that if you have a particular individual with whomyou don’t quite connect you could adapt your communication style. 35
  • 36. So what do you do with mass communications – websites or public presentations? It is a good idea to review all your materials and consider whether the balance is right and whether you have elements that effectively communicate in each style including data, imagery, and short summarised bullet points for example. If you don’t, it’s likely that you are simply not talking effectively to around 60% of your audience. CASE STUDY: UK entertainment company A large household name UK entertainment company was finding that each of its departments worked as a silo with conversations between departments often misunderstood and too much communication left to email. This was having a serious impact on the productivity and cultural integrity of the business. Through a series of individual interviews and workshops employees and managers were exposed to Think Feel Know as a discipline and given the opportunity to express observations, concerns and beliefs. The outcomes were that each employee had a greater awareness of themselves and the people they worked with and the whole business learnt a common “language” to understand and connect with people from all over the globe in the form of a quick and easy tool to apply immediately and see instant results. The client commented “This is far simpler and more effective than many of the profiling tools available on the market today. We now have a common language to use with all of our territories. Learning about this has been fun and the light bulb has gone on many times during the session; now I understand why sometimes when I speak to people it is as if I have hit a brick wall!”36
  • 37. TOP TIPS• Listen to the questions being asked, take a moment before you respond• Ask yourself what state/style the person speaking to you is in• If the person asks you a “how” question they are in Think, a “what” question they are in Feel, a ”why” question they are in Know.• Get yourself and your team profiled. It costs less than £25 and is both fascinating and incredibly valuable information (www.navitasip. com) 37
  • 38. CREATING REVENUE TODAY You may recall right at the start of this book I made the slightly surprising claim that not all businesses really understood what they did, although all businesses understood how they did it. Of course, all businesses know what they do – but do they really understand it? Do they understand the true and full potential of what their business does for customers? In looking in detail at the “what” of the business let’s first look at product, then turn our attention to the mysteries of intellectual property, and then market position. Finally we’ll look at effective commercial relationships.38
  • 39. CHAPTER 8:PRODUCT – THE FOUNDATION OF YOUR BUSINESS“Make your product easier to buy thanyour competition, or you will find yourcustomers buying from them, not you.”Mark Cuban“The essence of a successful businessis really quite simple. It is your ability tooffer a product or service that people willpay for at a price sufficiently above yourcosts, ideally three or four or five timesyour cost, thereby giving you a profit thatenables you to buy and to offer moreproducts and service.”Brian TracyWhat you sell - be it a product or service - is the foundation of your business. Most of uswould accept this unquestioningly. But for most smaller businesses their product is a givenand the board doesn’t spend a lot of time thinking really strategically about what else thebusiness could do to leverage its resources (intellectual and financial) to drive more revenuemore profitably. 39
  • 40. For a start, many small and mid-sized companies have one product or service – let’s call this P1 – and distribute it to one channel or type of client or “distribution” base (see Chapter 11), which we’ll call D1. But what is obvious is that the more products and distribution channels you can build the more profitable and valuable in equity terms your business will be. What is key is that when you introduce another product (P2) to the same customer base, you are lowering the cost of that sale because you already have the loyalty of customers who know you and will be ready to accept the product. You are therefore able to get a higher margin on your P2 products. Sometimes organisations think they have diversified in a market when in fact they haven’t. For example an accountancy practice may think it has three products (P3) ie tax returns, audits and a company structures and advice service, but as far as its clients are concerned these are all seen to be the same thing, just one product. If however, the accountancy practice establishes an IFA division selling financial services to the same customer base, then it has developed a second product. P2 IFA Services sold to Accounting Clients P1 A client we recently worked with is a distributor of organic vegetables and it was looking for ways to expand its business. Stocking a few more varieties of vegetables would not constitute a multiple product range – selling vegetables is what it did. To develop real, profitable growth it needed to look for something else it could sell to its existing customer base, many of whom were catering outlets. Its solution was to set up a training section teaching chefs new ways to cook vegetables, particularly the more exotic varieties. It had already established credibility in providing quality produce and had loyalty from its existing customers, so the new training division proved successful quite quickly.40
  • 41. Of course, it’s a strategic choice for the business whether to focus on building a range ofproducts and sell into one distribution channel or to have just one product and developmultiple distribution channels for it.If you pursue the first strategy of multiple products and develop five quite distinct productofferings we would say your business model is P5/D1 (ie. 5+ Products/1 Distribution channel). P4 P3 P2 P1 Protected by Copyright © 2007 ShirlawsAn alternative business model might be to have just one product and to develop a variety ofdistribution channels across which to sell it. We would call this P1/D5. D4 D3 D2 Protected by Copyright © 2007 Shirlaws D1A third model would be to develop multiple products and sell them across multiple channelswhich we refer to as P5/D5. 41
  • 42. Which business model you choose has implications for the value of your business. In terms of building equity these models rank like this (from most valuable to least valuable): 1. P5/D5 2. P1/D5 3. P5/D1 4. P2/D1 5. P1/D1 Obviously, a multiple product and multiple distribution (P5/D5) growth plan for an SME business would be a fairly long term strategy and one that would need careful implementation. The key point is that if you are currently a one product, one customer base (P1/D1) business then introducing a second product will positively impact on growth and profits and hence the value of your business. So, what else could you do to drive the value of your business from the foundations up? You could usefully reflect on what your product or products look like. Your product can be defined as what customers give you money for. It sounds obvious, but for most of us our product is a whole bundle of different offers some of which we charge for and some of which we give away. By getting really clear about what it is that customers are actually paying you for you may be able to unbundle your product and charge very profitably for the bits you currently give away (advice or consultancy for example). You may of course choose not to charge for these services as you derive value in other ways from giving them away but this needs to be seen within a strategic framework based on your position (Chapter 10) and your client servicing policy (Chapter 12). The opposite approach, of course, is to bundle a set of products together, to create a competitive advantage to capture share and increase the volume of sales. You’ll see McDonalds following this strategy with “happy meals” for example and will recall that is what Microsoft did with Office when competitors offered word processing and data packages separately. It’s a good idea to look carefully at what your main competitors are doing – and consider adopting the opposite approach to create competitive differentiation. This is of particular importance as the economy moves towards a recovery phase as it’s42
  • 43. exactly the right time to be innovating product. I’ll look at this in more detail in Chapter 9.A simple exercise can be very helpful in understanding how you can innovate your productpackaging to react to changing market conditions. The reality is that it is hard work andexpensive, generally, to create completely new products; but relatively easy to repackageyour existing offer.If you haven’t significantly repackaged your offering over the last two years, using thediagram below may be helpful. Product Package Outcome 2 Years Ago (boom) PRODUCT PACKAGE OUTCOME Now (recession) 2 Years Ago (boom) Now (recession) 2 Years Time (boom) 2 Years Time (boom)Insert a description of the product you have been selling over the last two years, how youhave packaged it, and what the customer is really buying – what the outcome of the purchaseis for them. For example customers of a training company may have wanted to get as anoutcome staff development and better team alignment two years ago.In the next line start by describing what your customers really want today as an outcome. Inthe last two years this is very likely to have changed. For example the clients of the trainingcompany now want cost savings and efficiency – so they want training that delivers that orthey won’t invest in it at all.You can then describe how you could package your product to meet this demand. Thetraining company will have to repackage what they deliver and how they deliver and chargefor it. For most businesses who have not repackaged their product in the downturn thechances are they are selling a boom proposition in a bust market and are likely to be driven tocompete on price which will obviously undermine margins. 43
  • 44. While you are about it, you might also look to the future and consider the output your customers will seek in two year’s time – hopefully as markets are back in growth - and how you might repackage to meet that demand. A proactive strategy to product development is key to any growing business. By looking at your Product Portfolio you will enable your business to grow its customer base and span wide-ranging markets, a necessary requirement not only for immediate profit but also a strategy to develop longer term equity. CASE STUDY: La Playa Insurance La Playa (www.laplaya.co.uk) an insurance company operating out of London and Cambridge asked Shirlaws to work with them to design their product extension strategy. The starting point was to understand the business from a Product / Distribution perspective. At the time they sold a huge variety of insurance policies and programmes, some bespoke and some off the shelf, to four different markets; Private Client, TV and Media, Agri-Business and Technology. The list of products sold to these four markets amounted to around 27 (P27/D4?) which felt complex and difficult to manage. Through coaching the business the approach to Product was simplified and it was agreed that they were actually P1/D4; they simply sold general insurance in differing forms. This enabled the CEO and Board to clearly define what product extension opportunities would be attractive and appropriate for the business (Financial Services, Accounting, HR, Recruitment etc) and what other markets they might over time want to move into (Yachts, sport and leisure, bloodstock etc). The next stage involved the business writing a detailed strategy with Shirlaws’ support. In the short term this defined exactly how each distribution channel should have full access to all of the product menu, which proved a good revenue generator building on internal referrals. In the longer term the strategy created an implementation plan for future product roll out with budgets and RoI so that the business could genuinely focus on how to get there.44
  • 45. TOP TIPS• The more products and distribution channels you can build, the more profitable and valuable in equity terms your business will be.• It’s a strategic choice whether to focus on building products to sell into a single distribution channel or to develop multiple distribution channels for a single product.• By getting really clear about what customers are paying you for you may be able to unbundle your product and charge very profitably for the bits you currently give away. Or take an opposite approach and bundle a set of products together to create a competitive advantage to capture share and increase the volume of sales.• Look carefully at what your competitors are doing – and consider adopting the opposite approach to create competitive differentiation.• Innovate your product packaging; it is hard work to create completely new products but relatively easy to repackage your existing offer. 45
  • 46. CHAPTER 9: YOUR INTELLECTUAL PROPERTY - THE ROCKET-FUEL IN YOUR BUSINESS “Our value is basically our IP and its deployment.” Rob van der Meij “The traditional business designs a product and sells it to create a major product stream. But the more advanced business model is built on intellectual property (IP) to generate much higher value than the traditional “product only” business.” Darren Shirlaw In the previous Chapter we considered the importance of strategically examining the potential product, packaging and distribution opportunities available to create profitable growth in your business. In this Chapter we’ll look at an allied concept and one that supports this activity and can free up tremendous creativity in your approach to product. That concept is Intellectual Property – or IP. The IP in your business differs from your product; it is the set of fundamental skills, knowledge, expertise, experience, relationships and physical resources that supports your position and allows your product to exist. It is the fundamental rocket-juice of your business46
  • 47. and it is what makes your business unique. For a lot of businesses it can be an elusiveconcept – but well worth getting to thoroughly understand.IP is your company’s “know-how”, it’s what you build your reputation around. Let’s take ahousehold name as an example, McDonald’s. What they sell is hamburgers – but whatis their IP? Are they known for being good at building hamburgers? No more than anotherhamburger company. So what in particular does McDonald’s do well? McDonald’s IP,or know-how, is around franchising – it’s what sets them apart from other hamburgercompanies. McDonald’s actually makes money from franchising, which gives them muchhigher equity value.By contrast, Manchester United reportedly has over 75 million fans around the world– and so they must have some IP. But have they worked out what it is, and are theyleveraging it? Or are they stuck with only making money from the original product (gatesales and sponsor’s cash).Companies make more margin from commercialising their IP than from their originatingproduct. It’s like making more money out of your second, third and fourth product thanyour first.To pin this difficult idea down, an example of its power in action may help. I was recentlyasked by a large accountancy practice to advise a client of theirs who had come to themfor help in selling the business. The company concerned was in the asbestos removalbusiness; the business owners felt trapped in their business and wanted an exit; the marketwas in decline, margins were under strong pressure as competitors brought in foreignsub contractors and had additionally been strongly impacted by the recession. This wasa classic P1, D1 business which was additionally very reliant on the business owner (seeprevious Chapters!). The valuation the accountants were able to place on the business wasconsequently not attractive which trapped the owners in the business. The accountants feltwe might be able to help.When we met, I asked the business owners to describe their IP - what was uniquely valuablein the business. The initial answer was that the IP was “asbestos removal” but this, of coursewas the Product IP. After considerable discussion the owners of the business began toarticulate the genuine IP and came up with an impressive list that included: the removal andtransportation of hazardous waste, the profound understanding of complex legislation andcompliance with European and UK regulation, Health and Safety Training, the recruitment 47
  • 48. and deployment of specialist trades people, strong relationships with local government and agencies, project management in a complex regulated field..... The next step was to ask the business owners that, if they came across a business with those attributes but with no idea of the product the business sold, what product would they imagine such a business could deliver. The answer (which ranged from specialist consultancy, through Health and Safety and other specialist training, recruitment and specialist transportation) gave the business a huge choice of new product (P2, P3 etc) ideas based on their own IP and therefore highly likely to succeed. It’s a great idea for businesses to carry out an exercise like this with or without outside support. The diagram below will help with the process. IP Output PRODUCT IP OUTPUT In understanding your own IP you need to get very clear about what makes your business really unique amongst your competitors whether it’s your systems and processes, knowledge, intellectual resources, people or relationships; or a unique combination of these. This knowledge will help power your innovation strategy and drive profitable growth and burgeoning equity valuation. And what became of the asbestos business? It was clear simply repackaging the offer would not solve the fundamental problem. But understanding the IP allowed the business to create a whole new, and highly profitable, product suite away from asbestos, or even the building trade, in the collection, transport and disposal of low hazard council waste, leveraging the existing relationships the business had and the unique proposition contained within the company IP. The business goes from strength to strength and the owners are revitalised having re-examined position and functionality strategies and planning an exit in about five years. They are on a roll.48
  • 49. TOP TIPS• Know your “IP”; it is the fundamental rocket-juice of your business, what makes your business unique and is the source of profitable growth through product innovation.• When you’ve articulated your IP, take yourself out of your own business and ask yourself what a business with this unique set of attributes might theoretically do (what products would it sell). It’s a good idea to get external help with this as you are probably too close to your business.• Understanding and leveraging your IP will create a fundamental building block to accelerated equity value of your business. 49
  • 50. CHAPTER 10: POSITIONING – YOUR KEY FOCUS “In almost any industry, the big winners are companies that consumers instantly associate with a single highly-focused concept - like Heinz and ‘ketchup’, Volvo and ‘safety’ and Federal Express and ‘overnight’. ” Ries and Trout The stronger your position or brand, the easier it is to attract the best talent to work for you; the more other organisations want to be associated with your company and importantly, the more you build customer loyalty, which in turn makes any new offerings you introduce attractive and desirable. There is a market understanding that words like positioning and branding sit in a marketing space. This can certainly be the case in many businesses but, in my view, for most midsized business, the purpose of positioning is to get laser focus on what the business is all about – what it is famous for in the eyes of its clients. In other words it is the strategic conversation that takes place before any operational marketing activities. Positioning your business is a strategic activity which impacts the whole of your business model. So, the key question behind any positioning strategy is an understanding of what you stand for - who you are. Being able to answer this succinctly enables you to move into a contextual explanation about your business – fast tracking sales opportunities, distribution50
  • 51. channels, and identifying potential acquisitions, mergers and joint venture opportunities.Ask yourself what would your business look like if it had a laser like focus on what you werefamous for?As business owners we often start off with a clear focus which is shared by all the foundersand first employees. As the business grows, new people join, new ideas are tried, andunexpected customer desires are met (who says no to revenue at this stage!), that focus canbegin to fade and eventually blur.In the growth phase of the business – and particularly as you near that Second Brick Wall(see “Stages” in Chapter 5) - it is therefore vital to review your positioning. This involves youas CEO, with your key team, making a number of contextual choices:• Should we be a Distribution company or a Product company (see previous Chapter).• What is our primary position and should we position ourselves around Market, Service, Product or Price.These choices can be visualised below.Protected by Copyright © 2007 Shirlaws 51
  • 52. The product or distribution choice is a very strategic one. Of course, all companies do both operationally and therefore if you approach this choice from an operational or content view point then it will be hard to draw the distinction and be clear what to really focus on. Have you ever wondered why many large corporations continually restructure their businesses? One answer is that they will often find it hard to understand the strategic focus of their business. • A Distribution company has a focus on developing relationships with its market place • A Product company has a focus on product research and development This key strategic choice of your primary position informs the whole of your business model. Once you are clear on your focus you can create a further choice. Are you focussed on market, service, product or price? Lets examine this in more detail. If you have a Distribution foundation to your business you could choose a primary position of Market or Service. A Market focused business (“who you serve”) tends to be strongly identified with a market category, strong at building markets, or a business whose partners would have a strong sense of belonging to “my market”. Saga is a good example of a business that developed a primary Market position. They have a business model based on their knowledge of the needs of a particular market demographic and have chosen to focus on this market and build the asset base of the business by developing P2,P3,P4 into this market place. Saga started with a single hotel and is now as much a financial services and media business but still within a single market. A Service focused choice (“how clients experience what you do”) tends to provide a lot of extras to the client base, have an over-riding service (as opposed to a sales) ethic, and focus on the customer feeling well looked after. This is about being famous for how you do something, more than what you do or who you do it to. The choice informs the whole P&L, driving where investments should be made and what priorities should be given. Harrods has a clear primary Service position. A company with a Product foundation tends to make a choice of either Product or Price as their primary position.52
  • 53. In a Product focused business (“what clients get from you”) the product may have potentiallya higher profile that the company itself. It is often first-to-market, a business investing heavilyin product research and development, and attracts “me too” product offerings from othermarket players. A company such as Coca Cola is an example of a business with a clearProduct position. They jealously guard the product recipe and traditionally outsource thedistribution and client relationship to joint venture bottling operations.Finally, in a Price focussed business the focus is upon providing value as well as ondeveloping a strong supply chain and a business model to support economies of scale.Budget is a good example as are EasyJet and Ryanair. At the opposite extreme, Rolex alsohas a clear Price based strategy.Once these key strategic choices have been made it is important to draw comparisons withother players in the industry to map where your position fits relative to the competition youface in your industry. Expensive Box 1: Box 2: Box 3: Box 4: Box 5: Box 6: Box 7: Box 8: Relationship Product Box 9: Box 10: Box 11: Box 12: Box 13: Box 14: Box 15: Box 16: CheapProtected by Copyright © 2007 Shirlaws 53
  • 54. A simple grid can be used to instinctively map your industry and all the players. This will tell you how you sit in comparison to your competitors and more importantly it will show up any industry gaps that you could choose to fill. There’s an old marketing adage of “cherchez le creneau” (find the niche or gap) – that is often where the easy wins are. In the 1950s, VW noticed that all the car manufacturers in the US were in the same market area and moving in the same direction – big and flashy with fins and chrome. The creneau was in a small car and they positioned the Beetle with the phrase “think small” neatly capturing an overlooked market sector and associated the brands with intelligence and discretion. The power of a clear position understood by customers and lived by staff is vital for profitable growth and equity valuation (see Apple). And although it’s easy to use corporate brands we are also familiar as examples, the lesson is the same for any business. Years ago, I worked in brand development in a large spirits business. We undertook some research asking 50 brand loyalists of our main competitor’s brand to switch for a month to our brand and visa versa. In product and price terms the two brands were essentially indistinguishable. We paid them a modest amount plus their bar bill. After a month every single consumer returned to their preferred brand. But what was really interesting is that we asked the customers not to reveal to anyone the reason for their change in brand. Within hours of the research starting we had participants begging to be released from the trial because they felt so uncomfortable with a different brand and not being able to explain why; one man’s wife thought he was having an affair! All very interesting and you may feel it is far removed from your business, but let me ask you this; if I paid your best customer to switch to a competitor who matched you on product and price, and paid the costs of the service, how likely is it that customer would be begging me, within hours, to return to you despite the cost? That is the power of positioning. The key to positioning for mid-sized businesses is to understand that it is all about focus. But it is your choice what you focus upon given the capabilities of the organisation, the nature of what you do and, critically, the competitive situation. A client said recently that he was really engaged with innovation but didn’t want to be a Product company – his answer was to develop a focus around innovating the Service he offered his clients – he is loving it.54
  • 55. CASE STUDY: Craster WoodworkingCraster Woodworking (www.craster.com) started out in 1992 as a family joinerybusiness. When Alex Craster took over the business from his father in 2004, following acareer in corporate business, all of a sudden he found himself running a small businesson his own for the first time and it felt lonely at the top. He had no external assistanceat that time and was running around doing everything in the business and uncertainabout where he was going with it or how to get there. Alex was introduced to Shirlawsby a contact of his and was immediately attracted to them. “They were different to anyother consultant firm I’d experienced before and my coach had great energy that I feltwas the right match for me,” he says.Early on, the coaching focused on what the business was known for in the market place andmore importantly what it wanted to be known for. By getting clear on where Alex wanted totake the business the coaching helped him clarify how to get there and got him and his teamto focus their time and energy on the activities that built the position he wanted the businessto occupy in the market.The result saw a huge increase in the product range the business offered its clients. It alsoresulted in an acquisition – the first the business had made in its history - . which allowedthe company to further boost its product range, enter new markets and take on new andprestigious clients.A key output was the launch of a digital product development platform which provides buyerswith a secure login system where they can see what’s being designed for them and keep upto date with the progress of their orders. It’s helped the company build stronger relationshipswith their clients which supports where the company wanted to be, moving from being amanufacturer to being a partner working with clients to design bespoke hardwood productsthat define the hotels they serve. This helped Craster build their own unique brand identity – ahigh value proposition in such a competitive market. It has also seen revenues more thandouble and margins improve too. 55
  • 56. TOP TIPS • For mid-sized business positioning is about getting customers and employees focused on what the business is all about – what it is famous for. Being able to answer this succinctly enables you to fast track sales opportunities, distribution channels, potential acquisitions, mergers and joint venture opportunities. • Understand your primary position - If you cannot get the distinction between Distribution and Product then get some assistance from outside. • Know whether you are focussed on market, service, product or price. Come up with words that define your market, your service, your product, your price. Get it down to one word per area and then one single word that positions the whole of the business. • Cherchez le creneau….56
  • 57. CHAPTER 11:THE SALESFORCE THAT NEVER ASKS TO BE PAIDHaving examined strategies around product portfolio and positioning we obviously need tolook at gaining more customers or clients. Clearly your business already has a successfulmarketing and sales strategy and this will be specific to your sector or market (and if not thereare many advisors, not least my own firm, who can support you in developing these skills). Inthis Chapter I’ll therefore concentrate on other routes to winning profitable new business.First, let’s look at “networking” as an approach to winning profitable new business. Referralsare often the best source of new customers so it makes sense to look at maximisingopportunities from networking and from existing contacts. The hardest parts of a sale –creating awareness and credibility in your company, products or services – is already takencare of when someone is referred to you by a third party that they trust. Plus a referral is “presold” – they are coming to you because they genuinely need what you offer.Yet, despite this, surprisingly few businesses take a truly strategic approach to developingtheir network of contacts into a fruitful source of revenue. Networking and a pro-active referralstrategy will quantifiably contribute to your bottom line - if you are prepared to devote seniorresource to it. This is a strategic activity and may well fall to you to lead. You need to developa plan of action with set targets that you are prepared to monitor actively and to which youhave committed sufficient resources.The first step is to identify the type of new business you want to attract. Should you takeon any business that comes your way? Most of us accept that there is some business thatis more profitable than others. Your referral strategy can proactively develop these moreprofitable clients and the way to recognise them is to develop a planned approach to clientmanagement. The initial task is to analyse your client list to identify those clients that producethe most ongoing business revenue and then agree and design a profitable client rating andcategorisation system.Everyone connected with the sales process needs to understand what a profitable clientlooks like in terms of minimum spend requirement and level of servicing required and anyother particular determinates.To give you an example, one company that sells IT hardware found it was unable to 57
  • 58. sell profitably to the SME sector. It carried out some research to understand how SMEs purchased IT and identified that the critical factor was not industry, company size, system or applications, but rather the presence or absence of a full-time IT manager. Businesses with a full-time IT manager spent between three and five times as much on IT as a business that was identical in every way except the use of a part-time IT manager. The question on the full- or part-time status was added to the start of every sales and marketing contact activity to ensure that expenditure was focused only on potentially valuable prospects. You will see that you will have to spend some time on researching your data in this area, understanding the criteria for new business that will help you grow and then formally setting it out by size sector, value etc. You can then list those of your established contacts that can offer suitable introductions to this type of business. Individual directors and managers within a business often have their own relationships with potential contacts and these need to be transferred from the individual to the company database. In addition you can look at organisations outside your known contacts that could open up the right type of opportunities for your business. As well as setting up your own network of contacts you should also investigate established business networks in your area with member companies that match your criteria. Good networking organisations will have an emphasis on referring business and monitor how effectively the organisation is operating. When looking at another company with which you could jointly refer business, it’s important to ensure there is a similar ‘energy’ in both the businesses. Are you both in a similar growth phase – or in a comparable stage of your lifecycle (Chapter 5)? If you are then there will be a momentum on both sides to build business together. If, for example, one side is in a platform state after a period of growth or close to the Second Brick Wall while you are early Growth then the ‘high’ energy will be one-sided - that is with you - and the relationship will probably stagnate. The starting point for any network relationship is an open meeting between both sides to discuss joint opportunities and benefits, and assess energy levels. But it is also the time to be completely honest about any fears. To build a successful distribution strategy - that is a programme of increased sales through referrals - then you have to fully understand what58
  • 59. fears exist, and there always are some, and look at ways to alleviate them. No matter howgood the benefits appear, unless you remove the fears – the reasons for resistance –on both sides, you will never really move forward.Here’s an analogy of how fears can jeopardise successful distribution: imagine you producea brand of cornflakes that are full of vitamins, low in calories and without artificial additives.The consumer who buys them gets the benefit - a healthy food product that tastes goodand is an excellent addition to their diet. However, as the manufacturer you have to get theproduct to the customer through distributors such as supermarkets. The supermarket willhave a number of fears: will the product be of a consistently high standard, is the packagingacceptable, can the manufacturer supply enough product, and so on? The supermarket’sfears will outweigh any of the benefits of stocking the new line. Unless the manufacturercan address the supermarket’s fears the consumer is never going to see the product on theshelves and get the benefits it offers.This analogy highlights the issue you will face in creating a relationship with a “distributionpartner” – in this case an organisation with strong existing relationships with the customersyou would like to serve. Like the supermarket you will need to really understand the fearsheld by the distribution partner and then ensure there are clear benefits to both in referringcustomers to each other. KelloggsDistribution Client Relationship Supermarket Customer Customer Customer Distribution = the source of the businessProtected by Copyright © 2007 Shirlaws 59
  • 60. It’s often assumed that the only benefit that would make a third party refer customers to you is the receiving of a commission. But there are many reasons the right partner will refer ideal customers to you. I refer customers to other firms and have never sought a commission. I have a network of exhaustively researched and matched partners to ensure I can make the perfect introductions if a client would benefit from it. Our focus is on a happy client with a growing business, and if other firms (accountants, banks, lawyers, marketing companies) can help achieve that our “benefit” in referring the client to the right advisor is in terms of client loyalty. We also learn a great from our at distribution partners so an exchange of knowledge and expertise can be another powerful motivator to refer. It’s important when developing potential relationships to fully understand how that relationship will benefit the other party. But not before overcoming their natural fears. Typical fears centre on whether the two potential partners can genuinely trust each other, whether the other will deliver consistent excellent quality to important customers the partner might refer, and whether by referring customers to the other, the partner may lose a sense of control over the relationship with their customer. To take this partnership seriously and genuinely overcome these fears is clearly going to take time in engaging in a series of open conversations to establish if you have the potential for a relationship, understand what reservations or fears each party has and look to address them, understand the benefits to each, agree written guidelines so both sides understand what is expected from the relationship and monitor and revisit the relationship on a quarterly basis, keeping a check on the value of new business that is coming from the relationship. The reason referral relationships usually don’t deliver is because fears are never properly resolved (or even discussed) and not enough time in regular meetings is given to the relationship. When I take my boys to rugby on a Saturday I’ll often get chatting to another Dad. Imagine we meet again on a subsequent Saturday and the other guy asks us all back for tea. And the following Saturday we reciprocate. Maybe after a few of these convivial occasions he might suggest he picks up my boys one Saturday to save me turning out on a cold winter morning and I may very well accept. But imagine another scenario in which I meet that Dad and at that first game he offers to collect my boys the next weekend. Would I agree?! Yet the only difference is in the time it has taken to overcome fears of trust, “quality” and control. It’s obvious in social relationships but we disregard it in professional ones. For most of us our customers are perhaps not quite as precious to us as our kids – but it can be a close run thing.60
  • 61. Of course, this is a significant investment in your time. But the reward can be a network ofpartner businesses that understand the value that your business can offer their customers(based on your culture values and position) and are actively and regularly referring pre-sold, profitable target customers to you. I cannot stress enough the value of this. Before Ijoined Shirlaws, I owned an outsourcing business and, under Shirlaws coaching, I created afocused distribution strategy for the business. We doubled revenue in nine months and I wasable to re-task my sales team away from direct sales and into professional relationships. Ifound I already had an unpaid sales force.TOP TIPS• Set down the criteria for potentially profitable clients i.e. what type of business is going to grow your company profitably?• Explore which companies might offer mutually beneficial relationships. Check that both of you have similar ‘energy’ levels.• Rigorously explore fears and benefits and ultimately formalise guidelines on working together and monitoring progress.• Review the relationship in terms of profitability. If it isn’t providing business for both parties it’s not worth wasting resources on it.• The more distribution channels you can build, the more profitable and valuable in equity terms your business will be. 61
  • 62. CHAPTER 12: DRIVING ENERGY INTO CUSTOMER, DISTRIBUTION (AND STAFF) RELATIONSHIPS “Here is a simple but powerful rule - always give people more than they expect to get.” Nelson Boswell “There’s a place in the world for any business that takes care of its customers- after the sale.” Harvey MacKay I’ve already talked a lot about relationships in business; with your key team and staff, your customers and your distribution partners. We have explored techniques to understand and better manage these relationships at different points of the business lifecycle and how to communicate more effectively whilst developing shared values. In this Chapter we’ll look specifically at driving energy into these relationships – and I’ll focus on customer relationships primarily. Business is, after all, about establishing relationships and managing those so they are mutually beneficial to both you and your customers. For a start, every company should be monitoring customer satisfaction as an ongoing business function. If your surveys show there is dissatisfaction or if you are losing business to your competitors then look first at the type of service you are providing.62
  • 63. Managing the “expectations” of your client base is key to developing robust enduringrelationships. One way of explaining this is to look at your current contact with customersin one of three categories: ‘up’, where you are exceeding customer expectations; ‘neutral’,where you are meeting expectations; or ‘down’, where you are failing to meet expectations. Inthe diagram below the red arrows indicate the likely outcomes when you meet, exceed or failto meet your clients expectations.Protected by Copyright © 2007 ShirlawsWe find the majority of customer relationships in companies are either operating in the downor neutral position. But by fully implementing a customer service strategy that is focusedon putting client relationships in the up position - that is continually exceeding expectations- you will increase sales and create a positive differentiator between yourselves and thecompetition.In developing such a strategy it helps to understand a bit about how a customer buys. Ourresearch shows that if you can get a new customer to buy from you once, then the probabilityof them buying from you again increases with each purchase. After the first successfulpurchase, there is a 50 % chance of them buying again from you rather than choosingsomeone else. This increases to 70% with the second purchase, 85% with the third and ifyou can supply four separate services you have a “client for life” with a 95% chance they’llkeep buying from you. 63
  • 64. No. of Services Customer for life 1. 50% 2. 70% 3. 85% 4. 95% Protected by Copyright © 2007 Shirlaws So, we say that you should be aiming for four satisfactory ‘touches’ with each customer, or four opportunities to develop an ongoing relationship. Controlling that relationship requires understanding and managing the customer’s expectation (standard service) and then looking at ways in which you can exceed that expectation (extra service). Your first step is to plan a strategy where you agree exactly what you are prepared to offer as the standard service and then develop an ongoing programme of ‘extras’ to make your customers appreciate you and build loyalty. Extras don’t have to be expensive but should be something personal and that your customer will value. Indeed they can be free – actively looking for business to introduce to your clients from your own network can create huge loyalty (see previous Chapter). Or simply asking your clients about their business and listening to them with no expectation of making a sale. As we covered in the previous Chapter, for most businesses, you should segment your customer base to recognise and put resources into the highest value or highest potential category of clients. Most importantly, you then have to ensure that your customer understands when you are giving him something over and above your standard service level. The trap many businesses fall into is to over-service clients, so that eventually their expectation of standard service includes that added level of service. Once an activity64
  • 65. becomes an expectation, it is perceived as part of your standard service. If, for example you,tell your customer that because of their loyalty you are giving them a three day delivery timeinstead of five, then eventually the three day service becomes standard rather than extra.Then you have to give them something else to maintain that loyalty building effect and makethem feel special. This obviously has implications for your costs.If you are giving your customer something over and above your standard offering, whetherthat is additional time, if you are a consultant; a value-add gift; a discount; or a quickerdelivery time, you need to let your client know that is what he is getting – a special recognitionof his loyalty to you.For example, if for the past three years you have been taking your key clients to an importantrugby match, then they will be expecting to go in year four. Your expensive extra has becomea standard. And what is worse, if you then stop inviting them you’ve created down energy!By creating an element of excitement about the extra activity you create more energy in therelationship and make every promotion really work in the process of building customer loyalty.This means you have to be more creative in thinking about ways to make your customers feelspecial and ensure your customer service strategy accommodates the need to continuallyupdate your offering. It also means you need to consider how to build the cost of developingnew value-added offers on an on-going basis into your budgets.Exactly the same principles apply in distribution and in staff relationships. A strategy ofextras should be part of the culture you build in your business. As part of culture it requireseffort and above all consistency but it will reward you with a loyal and productive team –and a more fun place to work. Again, extras don’t have to be expensive but you do need tothink the implications through; a client of ours baked a cake for each staff member on theirbirthday which was a lovely thought when she had a staff of 12 but became a nightmare asthe business quickly grew. Your extras should be creative and surprising. We work with asuccessful business that had a problem when the directors’ bonuses became a standard. Itwas costing the business a lot of money but creating little up energy. The solution was, oneyear, to pay the bonus to the directors spouse or partner by cheque with a letter singing thepraises of the director and requiring the cheque to be spent within 3 months on something thedirector would really appreciate. It created a lot of energy and fun! 65
  • 66. TOP TIPS • Develop a customer service strategy that is focused on putting client relationships in the up position • Aim for four satisfactory ‘touches’ with each customer. • Ensure that your customer really understands when you are giving him an “extra”. Beware! Once an extra becomes an expectation, it is perceived as part of your standard service. • Have an extra strategy for your staff as part of your culture.66
  • 67. CHAPTER 13:CREATING REVENUE – A FINAL THOUGHTI’ve talked a lot about energy and feelings within the business, because in our experience theorganisations that succeed recognise that they are a living, breathing community of people.But, the business itself works very like an energetic system – growing and developing andcreating a culture and personality of its own.The following diagram provides a useful summary of everything we have covered so far. Itshows the business in simple contextual themes. It shows that each of these is dependentupon the others and that the business effectively flows like a river. If any of the key parts ofthe business is not working it creates a block to the flow of revenue and energy. If the riverflows smoothly it becomes effortless to manage and builds exponentially as revenue flowsthrough it.The diagram also illustrates that where you think you may have a problem could very wellhave its source further up the chain. For example businesses often think they have a problemwith sales but the source is quite likely to be in poor channels to market or an unfocussedmarket position.As useful exercise to do now is to score your business in each of these key areas using asimple system of a tick if you feel you’re getting this right in your business, a – if you feel thereis work to be done and a cross if you feel this is really not working well. You’ll quickly uncoverwhere your blocks are and where you should be devoting your time and energy as CEO. Oneyou have done that we can usefully move on to the next section. 67
  • 68. Protected by Copyright © 2007 Shirlaws68
  • 69. GETTING YOURBUSINESS TOWORK FOR YOUAnd give you back your time...In the first two Sections I have talked a lot about the effective CEO shifting into a morestrategic, less operational space (a mainly “why” conversation) both to drive revenue growth(which we covered in Section 3 moving firmly into the “what”) and build equity valuation, and togive you choices ultimately about how you spend your time.In this Section I want to turn to “how” you can make all this happen. You may recall I startedthis book with the four big issues many business owners and CEOs come to us with: “I wantthe business to work for me, not the other way round”, “I’m not making the money I want”, “Iwant less stress”, “I want to exit”.I suggested many CEOs have created a belief that they have to manage or double-checkeverything because no one will do it as well as they do. That’s fine for a sole trader orvery small business - and inevitable for an early stage business - but becomes completelyimpossible if you wish to really grow your business.The key question is who is going to step into this operational role if you’re stepping out of it andhow will the business operate? The theory is great but clearly you need a process to achieve it.This section will explore how we have helped hundreds of business owners achieve just that –and, in most cases, significantly reduce costs through big efficiency gains into the bargain. 69
  • 70. CHAPTER 14: THE FULLY FUNCTIONAL BUSINESS “So much of what we call management consists in making it difficult for people to work.” Peter Drucker “Being busy does not always mean real work. The object of all work is production or accomplishment and to either of these ends there must be forethought, system, planning, intelligence, and honest purpose. Seeming to do is not doing.” Thomas A. Edison70
  • 71. Smaller businesses operate in very competitive environments and being able to respond tomarket changes – whether taking advantage of new opportunities or fighting off increasedcompetition – is vital in achieving profitable growth or perhaps even survival. Yet how oftendo you find yourself spending your time handling day-to-day tasks and fire-fighting themyriad of issues that constantly arise in an SME organisation? There just never seems tobe any time to work on the stuff that will really grow the business (like building culture orcommercial strategies like refocusing the positioning or looking at new product or packagingopportunities) or to plan and communicate where the business is going (vision).It’s a classic situation. More often than not, in a company that has grown from the top down,owners structure their businesses without a real plan in mind. As the business expands,they simply hire staff. And the people they usually hire are for the department that screamsthe loudest. Businesses don’t grow in an orderly, methodical way. Growth turns up in lumpychunks and the key to your success is how you manage those chunks. If you’re serious aboutgrowing your business beyond what you can personally and directly manage – or you want aless stressful life - resourcing your business should be a strategic function and not one that isdictated from the bottom up.The starting point is to identify the best functional structure for your business, one that willenable you to step back from a fully operational role, maximise the talents of your employees,and operate at maximum profitability.This means assessing which job functions and activities are really needed and then allocatingroles to the people who are most appropriately skilled or experienced for that job. And youmay well find that the most appropriate person is located in another part of the business, oryou might have to bring in some training to develop a skill the business needs.For us at Shirlaws, all activities within an organisation fall into one of three groups and wecolour code them for simplicity as red, blue or black activities. By using colour-coding you caneasily plot where time is currently spent across your business and then match that againstwhat the business actually needs.Red activities are those that support the infrastructure and are non-revenue generating, suchas administration, finance, HR and IT.Blue activities are all revenue generating functions and are customer-related so includeanything to do with making, selling, delivering, and servicing whatever your customers buyfrom you – as well anyone involved in marketing, for example. 71
  • 72. Black activities include any functions related to business growth and these include leadership functions such as the development and nurturing of culture and setting of the vision as well as other contextual areas that will create long term growth such as developing your market positioning, new product and packaging strategies, key external professional and referral relationships, as well as joint venture, licensing or merger activity. In a sense most red and blue activity is the fairly content based (“what”) and black activity , Blue, Black Business Management Profit Equity Business Business Business Support Strategy Operations Protected by Copyright © 2007 Shirlaws72
  • 73. is more contextual (“why”). Too often business owners and directors are busy handling redand blue activities instead of strategic black activities. Sorting out IT problems, organising forthe offices to be decorated, handling a stock problem or even doing sales calls because youbelieve customers like to see the boss are not black or strategic functions – so you should notbe spending time on them.For most of us it’s a salutary exercise to systematically (and honestly!) colour-code a typicalweek in red, blue, and black. That simple exercise tells most CEOs why they feel so stressedand why there is never enough time to actually grow the business. Of course, there willalways be the need for you and your key team to do some red and probably more blue. Andthe percentage of time spent on each will depend on where the business is on Stages – in itslifecycle. But the simple fact is most of us spend too much time stuck in the content of red andblue and far too little in black. And however great we are at it (after all we’ve been doing thissince we started the business) it really isn’t where CEOs and owners add the most value.The next stage is to look at the next tier down, and the one after that. What are yourpeople really doing? And then to create an organisational structure and clear workflowsin red, blue and black that suits your business at its current stage of developmentby assessing which job functions and activities are really needed, allocating roles tothe people who are most appropriately skilled or experienced for that job and thenempowering staff to take the responsibilities attached to each role. It is vital to understandthat with each role comes responsibility and it will be necessary to rewrite every jobdescription so that everyone knows their area of activity - and the responsibility they willhave to solve problems that arise in that area.The trick is to get each staff member to take real responsibility and for the owners anddirectors to genuinely delegate and trust staff to fulfill their responsibilities. Allied to astrong culture and a clear vision, this process creates enormous pride and exceptionalperformance amongst staff. This in turn creates a hugely productive business whereevery job is only done once instead of the traditional inefficient system of reporting linesand double checking every task.Putting in place an efficient functionality structure can take some time and is challengingto achieve without outside help. There will be false starts along the way, but it can haveconsiderable benefits for a business. As a guide we find an average increase in productivityof up to 30% in businesses which we support to implement a functionality strategy. It is avital step in getting your business to work for you. But just as importantly getting this right will 73
  • 74. help in developing a culture where employees feel fully valued and fulfilled. And that would be something to feel proud of achieving. CASE STUDY: Elle Events Elle Events (www.roselleevents.co.uk) based in Edinburgh, plans, produces and manages conference, incentive and recognition events within the corporate sector. The company was set up eight years ago by Jo Daley and her business partner Val. For the first few years they managed to grow organically. However, a couple of years ago the business started to feel as though it was getting stuck. It was not growing as quickly as it had done and Jo recalls feeling that she didn’t have control of the business. At the time, Elle employed five people but for a small team they were still surprisingly disorganised. Elle decided to address this with a strategic organisational project based on the principles of red, blue, black to create consistent processes and efficiency to the business. That project took six months to complete but had a huge impact on the culture of the business. “People began taking responsibility,” says Jo. “It’s amazing because now I couldn’t imagine the business without the functional process and structure it has now. Every process is documented too, we have policies and procedures, structure charts and everyone knows what area of the business and which process they are responsible for. So it’s a bit like having a log book for a car with all its service history. Our processes are documented so that it actually becomes an asset in our business that increases the value of it. In the first 12-18 we grew by £1m - a 60-70% growth rate. And in the current year we’re going to turn over £3million.“74
  • 75. TOP TIPS• If you’re serious about growing your business structuring and resourcing must be a strategic function and not one that is dictated from the bottom up.• Systematically colour-code your typical week in red, blue, and black.• Create an organisational structure and workflow in red, blue and black.• If you want real productivity you can’t give people responsibility – they have to take it. 75
  • 76. CHAPTER 15: CAPACITY PLANNING - THE SECRET TO CONTROLLED PROFITABLE GROWTH “A very good question to ask as you develop your business goal setting strategy ...do you have the capacity and capability to realise the future?” Peter Drucker “It is usually easy to gauge which businesses have a capacity issue. They are the ones that feel busy, but are not profitable. Ones where staff seem to be working flat out and yet there’s no time to take on more work or plan where the business is going.” Darren Shirlaw76
  • 77. When I talk to clients they can all tell me their turnover, profit margin and cash flow. But fewbusiness owners can tell me the maximum capacity within the business and their currentrunning rate (what percentage of that capacity is being used efficiently).A business that is making efficient use of all its resources (people, equipment, machineryetc) is running at around 80 percent capacity – there will always be holidays, sickness, plantmalfunctions etc that will prevent 100% use of resources. But most businesses we seeare operating well below their maximum capacity and consequently are missing significantpotential profit.It is easy to spot businesses with a capacity issue. They are the ones where everyone feelslike they are on a hamster wheel with no way out; they feel busy, but are not profitable andthere’s no time to take on more work or plan for the future. I am painting an extreme case butdoes this sound at all familiar?So how do you measure capacity? If you run an organisation that sells time-based servicesthen you can obviously look at the potential hours available and actual hours sold and seewhat additional capacity exists within the business. For other types of companies, choosea measure that is appropriate to your business – and you may need a different metric fordifferent functions in the business. It’s then vital to look at what constraints there are in thebusiness. For example, you may have a machine that is producing 100 units a day, but youare only able to distribute 50 units a day because of the functional efficiency of this part of thebusiness –a bottleneck that constrains your ability to maximise efficiency.By understanding capacity issues you can get more clarity around business planning andgrowth strategies. Let’s stay with the time-based business. A consultancy that is only workingat 50 percent efficiency (but is unaware of the fact) and wants to grow, will probably take onmore staff. The owner will probably be pushed to recruit by division heads who are apparentlyunable to take on any new business. Yet increasing the number of people you employ whoare not working efficiently (or to their full capacity) only decreases the company’s profitabilityand is not growing the business, but merely expanding it.Profitable growth occurs when an organisation plans its future in a series of ‘platform’ and‘growth’ strategies.In a platform phase, the company increases its efficiency and profitability. This is initiallyachieved by implementing the efficient functionality we covered in the previous Chapter. 77
  • 78. Inefficiencies occur when roles overlap and for example operational people are spending too much time on administrative tasks. In our consultancy example, it is inefficient for a consultant who is charged out at £1,000 a day to spend 50 percent of their time on non-specialist admin jobs. Platform initiatives may also include training of staff or improving processes and systems – anything which raises efficiency levels but does not actually grow the capacity of the business. When the implementation of these platforms has increased the running rate (over time) from 50% to around 75% then the business needs to change from a platform to a growth strategy. This could involve investing in resources such as additional staff or new premises, or could be about looking at market position, products or pricing strategies or changing client criteria to concentrate only on larger, more profitable clients and stopping working with smaller clients. We looked at these strategies in the previous Section. If the distinction between “platform” and “growth” is confusing imagine a cup half empty (50% capacity). When it is almost full (having followed a platform strategy), the contents need to be tipped into a bigger cup – and that is a growth strategy – at which point the contents revert to taking up perhaps 50% of the larger available volume. When you have consolidated that growth (platform strategy again) you will change to another growth strategy. And so on. Protected by Copyright © 2007 Shirlaws78
  • 79. You and your board can use this concept to plan the journey (vision) you would like to take toyour commercial goal. For example, you can imagine that a strategy of building your runningrate (platform) to 80% before making modest investments to grow your capacity (growth)such that running rate drops to 65% would feel very different to, say, a 40%/60%/40%strategy.You can also plan ahead exactly what platform and growth strategies you will adopt andwhen these will be phased in, how much each will cost, and exactly what impact that willhave on your run rate and therefore your profitability. That is a far more useful document thanmost business plans, will allow you to feel absolutely in control – and make a fairly compellingcase to your bank.Understanding this capacity model enables you to plan and develop a profitable growthstrategy for your business - and gets you off that hamster wheel.TOP TIPS• Know the capacity of your business and current running rate – these enable you to plan and develop a profitable growth strategy for your business.• Understand where the bottlenecks that choke the profitability of your business are – and release them.• Understand the difference between Platform Strategies and Growth Strategies and use these to maximise profitability today and plan your growth tomorrow.• Develop a Capacity Plan and use this as a daily management tool. 79
  • 80. BUILDING EQUITY VALUE AND EXITING YOUR BUSINESS80
  • 81. “When it comes to unlocking the marketvalue of a privately held company, it isnot limited to the bottom line. Profitabilityis hugely important, but the factors ofcustomer diversity, management depth,proprietary systems or products andtechnology, channels to market andcontractually recurring revenue andbrand and position can result in trulysignificant premiums over traditionalvaluation approaches.”David Kaupi 81
  • 82. CHAPTER 16: WHAT REALLY DRIVES EQUITY VALUE The focus of this book has been about structuring your business culturally and organisationally so that the business works for you to give you choices for your future, and growing sustainable profitable revenue so that the business can support the choices you ultimately make. Once you have considered corporate positioning, developing new business programmes, the efficient functioning of staff etc, there will come a time when you will start to think about your own future in the business. In fact if you haven’t thought about it yet, you should. It’s the final topic that I would ask you to add to your check list of running a successful business and it has a bearing on your long-term thinking. I use the phrase ‘long term’ deliberately, as any exit strategy for a founder, owner or senior partner is going to take time and planning to accomplish. Five years is a realistic time frame to consider. Your first consideration is to understand your own priorities. What do you want to get from your business? This is partly rooted in your own intent, vision and values which we will cover in the next section. But commercially you need to resolve whether the relationship you have or want to have with your business is in an “income”, “equity” or “control” context – or a combination of two or all of these? In other words (ultimately) do you want to leave the business but have it provide you with an income? Is it your intention to sell it on - to your own staff or an outside interest – and walk away with a significant slug of capital to spend or invest elsewhere? Or perhaps you want to sell your equity but retain control? There are a number of options and each has implications in how you structure and develop the company, which I will cover in more detail in the next Chapter. But before all this, the main questions everyone wants the answer to are: “how much is my business worth?”’ and “how can I improve its market value?” As you know, your accountant will advise that, at its simplest, each industry sector has a traditional benchmark based on your profit times a multiple (usually somewhere between two and four), based on industry standards and issues such as prevailing market conditions. Traditionally in preparing a business for sale advisors will drive the profit side of the equation. But we are much more interested in driving the multiple. After all, how hard will it be for you to double your profit in the short term? Whereas I believe we can demonstrate using the principles set out in this book82
  • 83. that you can increase your multiple by a factor of 4 or 5 times.To explain this we use a framework with our clients that we call the Seven Layers ofValuation. From experience we know that each layer you put in place increases the worth ofyour business by a particular multiple – details of which you can see in the diagram. Asset Benchmark 1. Client Base 1 2. + Staff x2 3. + System x3 4. + Product x6 5. + Distribution x10 6. + Position/Brand x15 7. + Scale x20Protected by Copyright © 2007 ShirlawsThe first three layers relate to operational aspects of the business and roughly correspondto traditional benchmarking practices. If someone is buying just the access to your existingclients then they are buying just your current revenue. And the business attracts the lowestvalue. We simply benchmark this as a score of 1x profit to illustrate the model.If you have invested in developing your staff with a clear and aligned intent and values, strongrelationships with the customer base, they are functionally efficient and independent of youthen they have a real value to the business which a buyer would take into account and thepotential benchmark doubles.Add to that a number of effective processes and systems in place that are unique to you orbetter than your competitors, for example in IT, marketing, sales and training, and you arelooking to increase to a benchmark multiple of three.The typical business that is sold today sits somewhere in this band V1-V3 on the diagram. 83
  • 84. If however you have developed the business strategically as well, then the benchmark multiple increases significantly. You will see from the diagram that the remaining four layers of valuation really enhance desirability and value to a purchaser. So the next consideration is product range. How many products do you have? Have you looked at your products strategically as we discussed in Chapters 8 and 9? Are you a one trick pony or have you demonstrated your ability to develop new products? And have you built sufficient customer loyalty so new products are readily accepted by them? If so, then the multiple doubles to six. After product range, can you demonstrate a strategy for distribution to open up new markets through establishing networks with creditable third parties or perhaps with new retailers or wholesalers as we examined in Chapter 11? If so, then your business has the channels in place to develop and expand further and these channels may be of huge value to an acquiring business for its own product suite - and that again increases its value. Next on the list are your company’s market positioning and the strength of its brand that we looked at in Chapter 10 . If you have a strong brand or a strong market position then it has equity that is reflected in the balance sheet. A strong brand or position attracts client loyalty, it makes new products attractive and desirable, it attracts customers to make purchase decisions other than on price which drives a strong margin, and it attracts the best talent to work for it, and it makes other companies want to be associated with it. In short, if you have developed a distinct and strong positioning in your market, you have dramatically increased the desirability of your business to an acquiring business over a classic V1-V3 SME. Finally, if you can add to the above list the ability to replicate the business in multiple markets then you can achieve the highest multiple of all. So as you can see, succession planning and building value in the business go hand in hand. You need to plan for both to ensure you realise the maximum value in the business when your exit strategy comes to fruition. My advice to clients is establish a formal record of strategic development and implementation progress at board meetings. This company ‘log book’ which outlines the layers of valuation as they are put into place then becomes a valuable document in negotiations with third parties who are interested in investing in the company.84
  • 85. CASE STUDY: Travel and Conference companyOne example of how this works is the sale of a Travel and Conference company. Twopartners were running the company, but wanted to retire. The business was generating $11mgross revenues with a margin of 3%. With $330k a year in profit they had received an offerof $750k. Their accountant thought they should get at least $900k and were being short-changed by $150k. He asked us to take a look so one of our Partners reviewed the businessfrom the perspective of the Seven Layers of Valuation.What this revealed was that the company had some extraordinary hidden assets. Amongstthe products they had was the organisation of conferences for large corporates. In this marketthey’d created a unique product, had developed distribution relationships, and a strongposition. This amounted to some powerful and valuable Company IP – in organizing three-to five-day conferences for the top 10 to 600 executives in each company they had moreinformation on the top 100 companies’ executive teams than anyone else in that market. Allthat was needed was to develop this IP.15 months later the business sold for $11m. The difference between the final $11m andoriginal $750k offer is their company IP. The original offer was simply a “Trading Valuation”whereas the sale price was an “Asset Based” valuation.TOP TIPS• Start planning for your exit from the business 5 years before you want to make the change. Understand your own priorities; is it income, equity or control?• If you have developed the business strategically, the valuation multiple you can achieve increases significantly.• Build a strategy for increasing the valuation of your business and your own exit strategy simultaneously.• Develop and build a Company Log Book. 85
  • 86. CHAPTER 17: LEAVING YOUR BUSINESS IN GOOD HANDS “Many business owners say to me “I’m going to exit in five years” and yet when we ask them a year later, they say the same thing. It’s a permanently moving target – an aspiration not a strategy.” Darren Shirlaw “The great leader speaks little. He never speaks carelessly. He works without self- interest. And he leaves no trace. When all is finished, the people say, ‘We did it ourselves’.” Lao-tzu from the ‘Tao Te Ching’86
  • 87. As I said at the beginning of the book a very common theme we hear from business ownersis “I want to exit”. But this requires a great deal of planning. As we discussed in the previousChapter you should consider your own exit strategy up to 5 years before the date you mayfeel you wish to step out of the business – or at least out of the level of involvement youcurrently have.This is a neglected but important issue as it should affect how you structure the businessgoing forward.So, if you haven’t given it much thought then you should take some time to understand whatyou want to get out of the business, and when – and how you can make five years a realistictime frame for an exit strategy – whatever that means to you. You need to organise andstructure the business so that you are leading it not running it, in other words it is operationallyindependent of you. And you need to put in place the key strategic building blocks that abuyer will value when looking at acquiring your business. These two key ideas are mutuallylinked in that a business that runs brilliantly and grows profitability without being dependenton the founder is both a joy to own and a highly valuable proposition..There are four elements to a succession plan and we have covered three of these already:1. Building Value (Chapter 16). Increasing the traditional multiples by which your business is valued.2. Timing (Chapter 5). Your business will pass through a number of predicted stages dictated by your energy levels. There will be the good times and times of frustration when the business doesn’t seem to grow any further no matter how hard you work. This is when you need to invest in the business to reassess its structure and ensure maximum use of the resource capacity within the company.3. Independence (Chapters 4 and 14). Everyone in the organisation should be aware of their function and areas of responsibility within the business. You need to plan to remove yourself from daily admin tasks and concentrate on strategic issues that will drive the business forward profitably. And for planning your exit you need to be working towards a position where your leaving will not affect the company’s development plans or operation.4. Priorities. Understanding what is important to you in your exiting. 87
  • 88. It is this fourth area that I will cover now. As I briefly covered in the previous Chapter, in assessing your priorities there are three main options available to you: income, equity or control – or a combination of these. You may want to leave the business as the CEO but still have it provide you with an income or your intention could be to sell it on to your own staff or an outside interest and walk away. Alternatively you may want to sell your equity but retain control. Each is a valid option but all require careful planning. A good way to start this exercise is to list the order of your requirements. It may look like this: 1. Equity 2. Control 3. Income Or it could be: 1. Income 2. Equity 3. Control Or any other combination that meets your needs. But by setting out your priorities you can begin to consider who may be able to succeed you or who will be interested in taking some or all of your equity. If you anticipate your successor is going to come from within your business then you need to consider what their priority list will look like – probably dictated by their current life stage. For example if someone has a young family with ten years of school fees ahead of them, then income is likely to be top of their priority list and financing the purchase of equity a lower priority. So having decided on your priority list and having identified third parties outside or inside your business you think will be interested in your proposition, you will open negotiations. If both parties can be open about comparing their needs then you have the basis for recognising if a deal is potentially possible or if you both have priority lists that are incompatible. If this is the case, then you can walk away before too much time and too many costs have been wasted. If you have set up the business from scratch then it is easy to become very emotionally involved in discussing its future. Formally setting out priorities makes negotiations less personal and easier to discuss.88
  • 89. I mentioned the importance of thinking five years ahead. It may seem a long period, but iffor example you are in a situation where you have a management team that is interestedin negotiating a Management Buy Out (MBO), then by setting this sort of time frame, youmay be able to put in place improved performance criteria whereby the MBO team canpurchase equity through profit shares. Or if key performance indicators and performancemilestones can be set out for a number of years, then third party finance organisations can beapproached to discuss funding, based on successfully hitting these targets.Whatever route is right for you, time and planning is necessary if you are to achieve theoutcome you want, at a price you want. Don’t let a lack of strategic planning now hinder yourfuture retirement or ability to move on when you want to, with maximum benefits.TOP TIPS• Take some time to understand what you want to get out of the business, and when.• There are four elements to a succession plan: Building Value, Timing, Establishing Independence in your business and Understanding your Priorities.• Use a ranking of income, equity and control to understand the relative priorities of a potential succession candidate or acquirer. 89
  • 90. MANAGING YOUR OWN ENERGY “Awareness is the greatest agent for change. ” Hazrat Inayat Khan “Be the change you want to see in the world. ” Mohandas K Gandhi90
  • 91. CHAPTER 18:I started out this book by suggesting that your role of CEO is to set the context for thebusiness, to manage the energy of the business, and to coach not play. This requires a hugeamount of energy and self belief, it requires you to find a way to manage your own energyand to find the time to set your own context and understand your own intent, to create andhold onto your own vision.As CEO understanding energy and responsibility is the key to being an effective leader; ifyour job is developing and nurturing the business, who is nurturing you?The best place to start is by understanding yourself and your own energy using many of thesame techniques I covered in respect of your business: really understanding your values,taking time to explore your vision, understanding where you are on the stages of your lifejourney, understanding the way you operate and the way you communicate.The real secret to empowering who you are and managing your own energy is to discoveryour intent – the fundamental purpose that drives you. What you will realise is that living yourintent nourishes you and constantly replenishes your energy.Once you find a way to live that keeps you fit and healthy, then keeping track of your intentand deliberately including it in your life has a higher level effect – you could say it sets thecontext for your wellbeing.Put another way, if you want to effect any change (proactive or reactive) there is one simpleplace to start; it is with the old, old adage “know thyself”.To really know yourself and understand your energy based on your intent you need to takethe time to achieve an awareness of yourself. Awareness is the greatest agent for changeand the single most effective tool you will ever need in your life. With it you have the ability tounderstand all that is going on in and around and you; it gives you context. It enables you totake a step back and ask yourself questions. Do I want to react or respond to the situation?What else do I need to know? It gives you time to decide (even in a split second) is thisdecision is one which will support you and those around you?With awareness all of this is possible and easy to achieve but it needs proactive commitment 91
  • 92. for change, and understanding the realities that this will take time. How you manage the change will be how you manage yourself and those around you. As a CEO of a busy and fast growing business I have found the support of a coach the single most useful tool in my arsenal. I find the clarity and perspective offered by coaching invaluable – both commercially in better understanding my business and personally in getting greater awareness of me. If you are really to create the business you want, that will give you the wealth, leisure and sense of fulfillment you need I wholeheartedly believe you must start with yourself and be prepared and willing to look at the effect you, your past and future expectations will have on yourself and your business. TOP TIPS • Awareness is the greatest agent for change. • Be the change you want to see inside your business. • Find someone to support and nurture your development.92
  • 93. ABOUTSHIRLAWS“The best business advice I ever received?Get a business coach.”Eric Schmidt, CEO, Googlewww.youtube.com/watch?v=yVfeezxmYcA“Where I think a business coach adds value isproviding a space for business owners to stepaway from the business for a period of time,and focus on high-level issues. In addition toproviding the space to do this, a coach alsomakes sure it happens despite whatever crisishappens to have arisen that day. ”Wayne Davies 93
  • 94. I hope this book has been useful in sharing some of the skills and techniques we have found to work in transforming owner-managed business. But this is just the start of what we strive to do for our clients. We work closely with business owners and management teams to turn these concepts into fully developed strategies tailored to the individual business. We transfer into the business the skills and methodologies needed to turn that strategy into an implemented reality. We support the client in using this knowledge and process to create the business they want to own. We call this business coaching. It’s about unblocking barriers to growth to ensure your business pays you richly in time and money. Founded in 1999 Shirlaws has now grown to include operations in North America, UK, Europe, Middle East, Australia and New Zealand. Our coaches take the many complex issues involved in running a business and help make them simple and easier to manage. We work alongside clients to guide their businesses to achieve long-term, profitable and sustainable business growth. What Shirlaws brings is a language and system for growing businesses and building internal capability. A language and system that gives our clients three simple things: more time, more money, and less stress. If you’d like to know more about us please take a look at www.shirlawscoaching.com and www.shirlawsonline.com I you have liked what you have read in this book do please get in touch. We are always happy to have a coffee and a chat with any business owner at no charge. We love business! Email: jrosling@shirlawscoaching.com94
  • 95. “We became a coaching client inNovember. Our revenues are up 31%in January, 24% in February. I wish we’dbecome a client three years ago. What abusiness we’d now have!”Rajan Amin, CEO Coversure.“The most transformational part of workingwith Shirlaws is the hands-on skill transfer intoour business that generates additional profit. ”Iain McMath, CEO Sodexo Pass UK 95
  • 96. ABOUT THE AUTHOR John Rosling John Rosling is UK CEO of Shirlaws, the international business coaching organisation. John divides his time between that role and working with a small number of clients in the UK and across Europe helping their businesses to grow, and developing the skills and performance of their management teams. John started his career with Unilever in the UK and Japan before moving to Diageo as International Marketing Controller with development responsibility for 113 markets. Since leaving the corporate world he has established or acquired a number of small businesses in Carbon Responsibility, CRM, finance/asset management, e-commerce and business outsourcing. He retains an interest in a small number of these businesses. John is married with three children and lives in Hampshire.96
  • 97. APPENDIXThe recession and what to do about itThis book is not a survival guide to the recession. It is intended to summarise as succinctly aspossible the learning we have developed as to what creates a successful business and thelearning and experience we have had in working with hundreds of wonderful businesses allover the world. This information applies just as much in a time of boom or bust – although thepriorities, balance and timing will change depending on the external environment.At the time of writing the world economy is emerging, tentatively, from the worst economiccrisis of our lifetimes. This is a great time to be in business – a time of boundless opportunityto those with an efficient business with some cash on the balance sheet, a strong culture, aclear product and position and a powerful grasp of IP.With this in mind this section will act as a summary of how the information and knowledge inthis book can be focussed to thrive in a recession and in the recovery phase. 97
  • 98. THE FIVE MISTAKES OF A RECESSION “The opportunity is now - at the bottom of the cycle.” Darren Shirlaw Recessionary times normally ‘surprise’ most business people. It is almost like the recession sneaks up on them and creates the surprise. Very few businesses in the world have themselves financially and strategically set for a recession before it arrives. There are then five common mistakes made by business people when they implement the consequent change in strategy and adjustments to the business to cope with the economic environment. MISTAKE NO.1: TIMING There are four stages to every economic cycle; • Down – as the market heads south into a bear market • Drag – as the market bounces off the bottom but drags out in a flat period • Release – the market spikes downward initially and then releases into a new period of growth • Up – the market moves into the new bull market More commonly than not, business owners are implementing strategies behind these cycles instead of getting in front of them. The opportunity rests with being able to see when these cycles come into play in an economy and investing in our businesses accordingly.98
  • 99. MISTAKE NO.2: RISK PROFILERisk Profile is a measure of how willing an owner/management team is to taking businessrisks. What typically happens is the owner/manager reduces their risk profile through arecession. This puts them into the spiral of “sell low, buy high” – and creates the mismatch oftiming mentioned above.Measuring a business’s risk profile and adjusting tactics accordingly is what enables abusiness to grow quickly when coming out of recession – the “buy low, sell high strategy.”MISTAKE NO.3: WIND/UNWINDWhen a business is in growth mode we describe this as “winding up” – think of a bicyclewinding up to gain speed. When a recession hits businesses start to “unwind” – think ofslowing that bike down; you have to put the brakes on.When the market turns most owner-managers still have their foot on the brake, operatingtheir businesses in the “unwind” modality. And with a low risk profile, they are reluctant to taketheir foot off the brake until there is lots of proof that we are genuinely out of recession.The problem is by the time there is plenty of proof that we are out of recession and it is safeto invest again; then the opportunity is gone as the market will have already picked up 30% to50% growth in the initial stages of the new cycle.MISTAKE NO.4: MACRO/MICRODuring boom times business managers tend to focus on the bigger strategic plays availableto them; mergers, acquisitions, new markets, new branches/outlets etc – it is what we callmacro strategies. What is forgotten during these times is micro – all the detail that keeps abusiness lean and efficient. You can hide these mistakes during a boom period as the growthwill hide them. So during boom times micro is the blind spot in a business.The opposite is true during recessionary periods. Owners tend to get dragged back into allthe detail of the business and become very micro focused. This means that the alignment of 99
  • 100. the detail to the macro strategies and visions is often overlooked. Businesses come out of the recession in one piece but not aligned with the growth strategies. They then waste 12 months plus aligning the business to grow – but the market is already growing – they miss the boat! MISTAKE NO.5: INDUSTRY CYCLE And the last mistake is often linked to cycles within industries. Owners tend to get caught up in the conversations of “doom and gloom” across the market and fail to watch the economic cycles within their own industries. Not all industries move with the same timing as the overall economy. Watching these cycles is critical to achieving timing of individual business strategies. And the five common mistakes? It’s easy to see when you are looking for them; easy to miss if you forget about them.100
  • 101. THE FIVE GROWTH OPPORTUNITIES OF A RECESSION“Recessionary times present hugeopportunities for businesses to thrive.While many businesses are hurtingthrough a downturn, it presents those thatare structured well with massive growthopportunities.”Darren ShirlawRecessions are times of enormous opportunity for the fleet of foot. More innovation occurs ina recession than in a boom. Many of the leading brands and products we know today wereborn in a recession.For your business there are five key organic growth opportunities you can focus upon duringa downturn.OPPORTUNITY NO.1: PRODUCT INNOVATIONBusinesses that innovate their product during a downturn always do well during the nextboom. Always.The easiest time to reposition a business is actually during a downturn. The hardest timeto reposition is at the height of a boom. The question to ask yourself is “am I still selling thesame product, in the same way and with the same pricing structure as two years ago?” If so,then you are still selling a boom product in a bear market. 101
  • 102. The key to this strategy is to know how to innovate product and packaging, know when to introduce the ‘recession product’ and when to dump the ‘recession product’ in favour of the innovated growth product. Broadly speaking in the good times your focus is on Product extension and in bad times it is on Product (and packaging) innovation. OPPORTUNITY NO.2: CHANNELS TO MARKET If a business does not have enough revenue coming through during a recession then it is clear that whatever channels to market the business was using pre-recession were either not a) well enough established or b) the correct ones to see the business through all parts of a cycle. The business needs to innovate its channel strategy. If it takes a business too long to establish new channels to market in the next growth cycle then they can miss a large chunk of uplift readily available If your business innovates its product then it is clear that you may well will use different channels to market to sell its product post a recession than prior to the recession. . All this means that in good times you need to focus on a Channel extension strategy and in bad times on Channel development strategy OPPORTUNITY NO.3: FUNCTIONAL STRUCTURE And what can stop a business owner/manager from finding the time to develop product and find those new channels to market? Answer: it’s our old friend the functional structure of their business. Often dragged back into the content and operations of business during a recession the CEO or owner finds it difficult to find the space to undertake growth initiatives. The output is that the business needs a “recession functional structure” – a lot of businesses fail to adapt their structures through the cycle and end up simply retrenching staff against cost budgets. This means that in good times you need to undertake a micro functionality review and in bad terms a macro functionality review102
  • 103. OPPORTUNITY NO.4: CAPABILITYWe come out of recession with a fresh new innovated product range, sold into new channelsto market; the business needs different levels of infrastructure. It also needs different skillslevels post the downturn.The fast moving businesses coming out of recession focuses on building the capability of itsteam.OPPORTUNITY NO.5: SUCCESSION PLANNINGMany businesses forget staffing succession during downturns. It is almost as if staff are safeduring the downturn so no there’s need to worry about them; they will stay loyal out of sheerfear of not getting another job. The problem is that staff, post recessions, then leave. Thiscreates a recruitment problem for businesses. And so while other businesses are starting togrow during the upturn, some businesses spend most of their time re-staffing and spendingthose valuable investment dollars on recruitment costs.In bad times it’s even more important to focus on staff development, culture and those“extras” that needn’t cost the business very much but keep staff loyal when you need theirtalents to grow into the recovery. 103
  • 104. SUMMARY: THE FIVE WAYS TO PREPARE FOR THE RECOVERY 1. Understand Market Cycles Markets move in waves, with peaks and troughs. There is only one guarantee; that the state we are in now - whether boom times or bust - won’t last forever. Yet recessionary times normally “surprise” most business people. In the previous section I said that there were four stages in the cycle: • Down - the economy heads south into a bear market • Drag - the market bounces off the bottom but drags out in a flat period • Release - the market spikes downward initially and then releases into a new period of growth • Up - the market moves into the new bull market. Understanding the four stages of each economic cycle is the first step to helping you take advantage of the upswing - helping you ‘Catch the First Wave’. Many business owners implement strategies behind these cycles - reacting, instead of getting in front of them. It’s like a surfer who paddles too late - there’s little he or she can do to catch that wave. The opportunity is in seeing how these cycles affect your business and investing accordingly. 2. Timing is Everything While investing in the markets is instantaneous, investing in business is anything but. After a CEO or business owner decides to expand, such as by adding staff, opening new offices or markets, or investing in new products, these take time (typically nine to eighteen months) to produce a return on that investment. During a recession, most CEOs and business owners will wait until they have seen the signs of economic recovery before they start to invest in their businesses again. They wait until the markets recover about 30 percent and then reinvest.104
  • 105. Compound the slow start with a lag time between investing in the business and when itstarts to pay off, and by the time the growth shows up in the business we may be more thanhalfway through the next bull run of economic prosperity.Timing trips up many businesses because, as we’ve already discussed, owners becomemore cautious about risk during a recession, and reign in spending and strategic investment.By reducing their risk profiles during a recession, business owners effectively position theirbusinesses to stay behind the curve, missing the first wave of growth.3.Change Course NimblyWhen a business is in growth mode, we describe this as “winding up”. When a recessionhits, businesses start to “unwind”. When the market turns upwards, most owners and CEOsare still operating their businesses with the unwind mentality. With a low risk profile, they arereluctant to let go until there is lots of proof that we are genuinely out of a recession.The problem is: by the time there is plenty of proof that we are out of the recession and it issafe to invest again, the opportunity is gone as the market will have already picked up 30percent to 50 percent growth in the initial stages of the new cycle. The opportunity is now - atthe bottom of the cycle.4. See Past the Blind SpotsDuring boom times, business managers tend to focus on the bigger strategic plays availableto them; mergers, acquisitions, new markets, new branches or facilities - the macrostrategies. What is forgotten during these times is micro - all of the details that keep thebusiness lean and efficient. Growth during this period will hide these micro mistakes, soduring boom times micro is the blind spot in business.The opposite is true during recessionary periods. Owners tend to get dragged into the detailsof the business and become very micro-focused. This means the macro strategies andbusiness vision are often overlooked.Businesses may come out of the recession in one piece, but misaligned or lacking a long-term growth strategy. They then waste twelve months or more aligning the business to grow 105
  • 106. - but the market is already growing - and they fail to catch the first wave. 5. Work with the Energy Recessions are made up of more than profit and loss, pounds and pence, facts and figures. The energy and emotions of the market also influence market dynamics. First, there is fear that drives momentum downward into a recession - without fear, recessions would never happen. Next, there is the energy of “withhold” as everyone hangs on to everything they have in fear of scarcity. That scarcity results in little energy (which shows up in the form of money) in the system - greatly reduced consumer spending, orders for goods from manufacturers, and capital available for reinvestment. On the positive side, businesses are forced to re-evaluate, realign their resources and re-jig their product lines. This creates a streamlining effect, increasing efficiency of product and production. Many businesses that make a few changes in this phase find that the tweak creates a substantial, long-term shift in the productivity in their companies. The recession is nothing more than a cleansing period - it gets rid of the unproductive processes, businesses and people, a bit like a detox. This provides a strong foundation for new growth, an opportunity for new energy to enter the system, and the perfect time to be ready to ‘Catch the First Wave’.106
  • 107. Thank youWe’d love to listen to you.How to get in touch:Shirlaws (UK) Ltd,New Broad Street House,35 New Broad Street, London, EC2M 1NHinfouk@shirlawscoaching.comVISIT US AT www.shirlawscoaching.comISBN: 978-0-9566930-2-0