The road to profits is one of focus and simplicity, as noted in last week’s post, “Growth through Focus”: Prune Your Business | Thomas H. Gray. Owners must understand which products, markets, customers or processes have been winners for the company, and focus on them, while shedding or starving the losers.
It’s a strategy of “more through less”. When everyone in the company understands what makes a winner, you avoid distractions, gain focus, and improve margins.
Here is a process for focusing on the winners:
1. Identify the segments: Get your people together so they become part of the process from the beginning. Ask them to help you make a list of types of products, customers, geographic areas, processes, and distributors where margins might vary.
2. Gather your data: Understand the margins for each type of segment they identified. You “understand” when you know why the margin is what it is: the cost components, your price, and your position vs. competitors.
For example, maybe you are spending money for quality that really doesn’t matter to some or even to all customers. Also, take some time to think about how your fixed expenses (overhead) might change if you did not serve that type of segment.
3. Get their ideas: Meet with your people again, and share your findings. Some owners shy away from disclosing numbers to their people, but you cannot get them involved without trusting their discretion and judgment, and you need them involved because they too must focus.
When the discussion turns to what can be done, after some time for venting and excuses, steer the discussion away from fixing the laggard segments. Spend your and their time on how to develop the winners more, and find more like them. The outcome should be an easel list of possible initiatives to do just that.
4. Assess “success themes”: After a break, or another day, provide the team with a grouping of the ideas into types of growth activities, or “success themes.” Examples might be relationship-building with potentially strong customers, or changing a product or process, or marketing efforts to find a particular type of customer.
Then ask the team to help place these success themes on a nine-cell grid: one axis is expected impact, and the other is ease of implementation, i.e., effort and resources required. Your high-medium-low break points can be dollars or hours, or even unstated. See Decision Technique: Nine-Cell Matrix Sorts a Riot of Ideas | Thomas H. Gray – Consultant, CEO, Director.
5. One level deeper: Your team was thinking and talking about implementation while they made the assessment. Capture that energy and thinking before you end the meeting.
Use two of the more attractive themes, and brainstorm three levels of action for each. The first operates as a trial, the second extends the effort, and the third is a full-scale effort. This makes the assessment real, and can result in changing the placement of the theme on the grid as everyone understands it better.
6. Assign champions: As the meeting ends, assign themes to individuals and ask them to work with you on developing an implementation plan for each: tasks, timelines, and participants.
7. Bring it together: After a week or two, you will have the implementation plans. In the meantime you will have assessed what resources can be freed by starving the laggard segments. You’ll also have reviewed your sources for additional skills and money.
At this point you earn your pay. You decide what will be done with what resources, who will do it, and when it will be done. You also decide how the laggards will be starved. Put a catchy name on your new strategy, and call another meeting to explain it all and listen to reactions.
8. Make it happen: It’s your job to free up the people, hire the skills, provide the money, stop doing business as usual, and celebrate the initial successes. This is where you earn credibility. Your focus will be simple and clear for all to see.
9. Measure progress: You owe it to yourself, your team, and your business to keep track of whether the changes in activities are changing the numbers. Figure out which measurements will show that, track them at least weekly, and share them with the team. Adjustments will be needed – don’t be afraid to make them quickly.
What Can Go Wrong
- You MUST fix underlying problems before building scale. This should be part of the implementation plans.
- Managing the laggards: you can milk them for margins while reducing their use of resources, or you can divest (sell them or close them down), or you can leave them alone because they make a contribution to profits but cannot be extended as a success theme. Radical action shows you are serious about focus and simplicity, but a case-by-case analysis of these segments will be part of your resource planning when you “bring it together”.
- You may not “stay the course”. Then you are back where you started.
Pruning your business means envisioning a transformed business built on what works. That new business is your vision. A great technique for showing what’s different is to make a chart listing key aspects of the business, and then showing “old way” followed by “new way” for each. For more on defining your vision by key aspects of the business, see Vision Development: “Imagining Excellence” for Aspects of the Company | Thomas H. Gray
Acknowledgement: This article was inspired by Growth through Focus: A Blueprint for Driving Profitable Expansion, by Khosla and Sawhney in Strategy and Business, Autumn 2010.
Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or email@example.com. See www.tom-gray.com
Prune Your Business, Small Business Techniques
Tags: develop winners, nine-cell grid, old way new way, starve laggards, three levels of action