Blog | Business Techniques in Troubled Times by Thomas Gray | Thomas H. Gray - Consultant, CEO, Director - Part 4

You are here: Home » Blog

Financing Your Business

by Tom Gray | on Sep 16, 2012 | Comments

“How can I get the financing I need” is probably the most popular question among entrepreneurs. Maybe you have an attractive business concept, but it takes some financing to get into the business. Or maybe you have an operating business with plenty of customers willing to pay for the value of your products – but you need some cash to grow the business or recover from setbacks.

This is the first in a series of blog articles on financing for your business. Our goal is to provide a fairly comprehensive description of financing sources and their requirements for lending, to help entrepreneurs form reasonable expectations and search for financing efficiently.

Over the next few weeks Business Techniques in Troubled Times will post articles on community bank loan standards, SBA loans, microloans, “alternative financing” for distressed operating businesses, lender’s remedies when loans are not being repaid, and “angel” investors who provide cash for equity investments in small businesses.

By the way, you don’t see grants in the list of topics above because grants are generally not available to “for-profit” businesses. For more information on grants, see SCORE on grants.

In this introductory article the focus is on understanding types of financing, and understanding what it takes to attract financiers to lend or invest their money in you and your business.

To understand types of financing, see 15 Sources of Financing for a simple two page list provided by SCORE Fox Valley. The most typical methods for startups are personal savings, friends and family, home equity, credit cards, and leasing equipment. Loans are also feasible, but they all require some personal cash input, often about 25% of your total financing needs. Loans also require collateral and a personal guarantee of repayment. If you are already operating a business and need to grow, other options become available.

Note: 70% of startups use their own savings as the main source of their funding, according to the Ewing Marion Kauffman Foundation quoted in the Wall Street Journal November 12, 2012.

Lenders Consider How You Will Use The Loan

Note that most financiers are NOT interested in providing funds for survival, such as paying routine supplier bills or other debts. Instead, they look for clients whose use of their funds will either create collateral (such as being used to buy assets) and/or grow the cash generation capability of the business through new products, new markets, or new capabilities. This includes working capital to enable purchase of raw materials for your growing volume of orders.

Why would they be so “picky?” Common sense tells them that “growth uses” provide improved assurance that the loan or investment will be paid back with an appropriate return (interest or profit). Survival uses do not change the fundamentals of an underperforming business, i.e. the reason it could not survive on its own cash flow in the first place. That type of business is an unacceptable risk for profitable payback of standard loans.

However, “alternative financing” or equity investments may be available for such firms, because both of those approaches provide the investors with greater returns to compensate for higher risk.

Am I A Good Risk?

This leads to thinking about what it takes to attract someone to give you money to develop your business. Potential lenders are interested in assured payback; potential investors are interested in likely profit. They seek a profit big enough to be worth the risk of investing in a small unknown business, compared to the profit they could get from investing in the stock of more well-known entities. For example, the average annual gain for the Dow Jones Industrial Index has been 9 to 10 percent since 1900.

This means they want to understand both you and your business well enough to have confidence that their investment will pay off. First they will want to understand you, because unreliable management (that could be you!) can destroy even the most promising business.

What do they want to know about you? First, your character and personal reliability; second, your resources; third, how well your skills fit the role you will play in managing the business.

Personal Character: Evidence of your character and personal reliability starts with your personal credit history: credit rating; past bankruptcy; and status of your payments on current loans. The next consideration is whether your personal and business tax filings are up-to-date. They may also look into other matters such as criminal record or other publicly available information.

Your resources are important because lenders will require that you supply a significant percentage of the business’ total financing requirements, usually around 25%. If you do not believe in yourself and the business enough to invest substantial funds, then how can you expect anyone else to believe and invest?

You will also be required to provide collateral for any loaned amount, as well as your personal guarantee of repayment. So lenders will want to make sure that you have these funds and assets available. A natural response is “if I did have them available, I would use them instead of the loan.” If you have these resources, you should indeed consider whether you need a loan or not, because loans can be expensive.

Skills fit role? The other personal issue is your skills vs. the role you have assigned yourself in the business. Your business plan should have already identified the types of skills needed to succeed, and where the business will get those skills. The plan assigns you a role, usually as the overall manager, but not always. If your role is to run the business, the bank will want to know whether you have ever done that before successfully, ideally in the same industry. If not, how can they be assured you can do it now?

The right approach to minimizing management risk is to assemble advisors and other managers who have the skills you are missing, and describe in your business plan how this team will work together.

After lenders are satisfied with your personal risk profile, then they consider the prospects for the business itself. They will be looking for a coherent business plan including marketing and operations, milestones, and most importantly, industry trends and averages that show your own financial projections are reasonable. If you have an operating business already, they will also look at your current debt vs. cash flow to see if the business can support more debt repayment.

For start-ups, a good source is Can I Qualify for a Loan? For an operating business, more detail on loans and the information required to obtain them can be found at The ABCs of Borrowing. Both articles are from the Score Fox Valley website, Resources tab.

Next week’s article will provide more detail on a community bank’s lending standards. To get an email alert as each article in this series is posted, go to Blog | Business Techniques in Troubled Times by Thomas Gray | Thomas H. Gray – Consultant, CEO, Director and subscribe for email alerts. You can post your comments there as well!

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 tgray@tom-gray.com. See www.tom-gray.com

Print Friendly

After Situation Analysis: Where Do We Go From Here?

by Tom Gray | on Sep 12, 2012 | Comments

There are only three choices for a troubled business: fix it, sell it, or close it. Situation Analysis tells you about the business today, but you need some more thinking to use that information to decide what to do with your troubled business tomorrow.

Now that you have done general and detailed situation analysis ( Fixing a Troubled Company: The Detailed Phase | Thomas H. Gray), you can answer three critical questions:

1. Is there a viable core business?

2. Capital: is there adequate “bridge” financing until the business can support itself?

3. Is there a capable management team?

The Turnaround Management Association calls these the 3 C’s: core, capital, competence. If there is no viable core business – if enough customers are not willing to pay a profitable price for what it does – then your options are reduced to two: sell it or close it. The same two options apply if the necessary capital is not available.

Competent Management and Vision

When the problem is seems to be competent management, one must ask, “Competent to do what?” The first response is: competent to run the projects needed to transform the business. But we don’t yet know what the transformed business would look like, and so we don’t yet know what those projects are! How do we determine that?

Start with dreaming. The owner and his or her advisors should create a vision of the business three years from now. The form of the vision is a brief statement about 5 to 10 key aspects of the business – this is the description of the transformed business.

Some examples of these key aspects are revenue, customers, products, competitive position, brand identity, infrastructure/facilities, key processes, distribution channels, level of profit, and others. Place yourself in the future, and make a statement of what it is at that time.

For example, our revenue is xyz, most of our customers are (describe them), they buy from us because we do (this) better than the competition, etc.

For some details on how to go about it, see five articles from this blog at Vision Development | Thomas H. Gray – Consultant, CEO, Director.

Gap Analysis and Management Skills

Once you have a vision, and you have completed situation analysis, you can identify the gaps between where the business is going and where it is today. This “gap analysis” easily translates into a list of key projects needed to transform the business.

Now you can identify the management skills needed to carry out those projects. Decide whether the current team has the necessary competence. If not, consultants and/or hiring are options, plus training the current staff.

These alternatives are not free, of course. Perhaps more capital will be needed than originally thought. So now that we know what needs to be done, it is time to revisit the questions of adequate capital and competent management.

Owner Goals

If capital can be found and management is adequate or can be augmented, the owner must decide if he or she wants to make the effort to “turnaround” the business rather than sell it or close it. So this is the point where you do another “revisit.” Think again about the owner’s goals, once you know the work involved in the turnaround. Does he or she still want to tackle it, or does he or she prefer to find an exit?

If the owner decides to take on the turnaround challenge, an action plan is required — a set of project plans with interim targets and assigned resources. Lenders will want to see these specifics, and projected financials for the entire turnaround period, probably monthly at least for the first year.

Why Not Just “Make Do”

As noted in other articles, when turnaround plans fail, the reason is often that managers already working more than full-time on day-to-day issues are assigned to implement transformation projects as well, so they just don’t get done! Management resources are a critical element of these plans. Do we have the right resources? If not, when will we get them? Be sure to include their costs.

Hiring new resources to manage new work seems obvious, but costly. But the alternative to these costs is “sell it or close it”, not “make do.” Lenders may require that a “turnaround manager” be hired, or that the management team be augmented with people who have the missing skills, or that you hire people to take over the responsibilities of current managers so they can be freed to work on the new projects.

I provide turnaround consulting advice. In addition, for free advice on turning around your business, contact the Pro Bono Committee of the Turnaround Management Association in your area, or your local SCORE chapter. In the Chicago area, you can reach them at these links:

TMA Pro Bono: http://www.turnaround.org/cmaextras/TMAProBonoOverviewandApplicationv03.pdf

SCORE west, northwest, and south: www.scorefoxvalley.org

SCORE central and north: SCORE Chicago – Counseling, workshops, advice and business plans

Print Friendly

Fixing a Troubled Company: The Detailed Phase

by Tom Gray | on Sep 05, 2012 | Comments

Our first article on “situation analysis” defined the starting point: a general analysis of the company in terms of Business Model, Profit and Loss Statement, Trends, Competitive Analysis, SWOT, and Owner’s Goals. See Fixing a Troubled Company: Where to Start? | Thomas H. Gray – Consultant, CEO, Director.

The second stage of “situation analysis” looks deeper into how the company tries to make a profit, assessing how well it is performing in those efforts. This enables the third stage, where the analyst and the owner/manager select a course of action.

The Overriding Question

In this deeper look, the overriding question is “Can you make something that enough customers want, and make it better or at lower cost than competitors, so the customer is willing to pay a price that yields enough profit?”

If not, you need to reconsider products and the process for making them: product strategy and production process improvement. Otherwise, if you can make these products that customers find valuable, then the focus will be on getting more such customers: pricing, sales, and marketing communications. For more guidance on these subjects, go to the Category box on this blog, choose one of those topics, and several relevant articles will be displayed.

The Detailed Analysis Stage

We look at the business seven ways to make this detailed situation analysis:

1. Fixed costs or Overhead. These are the costs that do not change regardless of the number of sales and amount of sales revenue, such as rent, utilities, systems costs, machine and (some) maintenance costs, marketing, non-productive employee time, and others.

Usually small business owners have an excellent handle on overhead costs, with the possible exception of non-productive employee time. This is the cost of wages for time not spent working on revenue-producing production. While it includes paid absence, the main issue is paid time when the employee is between jobs (in a job shop). If it is 20%, that’s normal. If it is 40%, that is not good!

Owners may not have quantified this time because they haven’t measured how much time employees spend being productive. If there is no system for tracking hours spent per job, then the owner and the analyst will estimate it by type of job or product. They have to do this anyway for the product profitability analysis (see below).

2. Process Efficiency. The calculation here is the number or value of the outputs (products, subassemblies, or parts) divided by the number or value of the inputs (raw materials, labor hours, other).

For example, a restaurant could measure wait staff productivity in meals served per labor hour. Cooking productivity might be meals revenue per hour divided by the hourly labor cost of the cook plus average cost of the ingredients used per hour.

Once you have an efficiency measurement, you can compare it to industry averages obtained from a trade association, or to best in class operators (“benchmarking”). This tells us how efficient your process is vs. competitors, and it may explain one important reason why your costs are higher than theirs.

Quality is an issue here as well. Your cost measurement should consider the cost of rejects. Perhaps higher quality is a reason to accept higher process costs, but only if customers are willing to pay a premium price for that quality.

3. Product Profitability. Price minus the variable cost of producing the product yields product profitability, called gross margin or contribution margin.

Variable means those costs that do not happen if the product is not produced. These variable costs include raw materials, productive labor hours, any production-related outside contractor costs, plus delivery and sales commission costs. We assume at this point that all labor costs are variable.

If your product profitability is less than 50%, i. e., if price is not double the variable cost, you are likely to have trouble covering your overhead while still making a profit, depending on your industry. The price we use here is the price you charge to the next layer in the value chain. For example, if you sell to distributors, use the price you charge them, not the retail price.

When the company is a “job shop,” making a variety of products customized for each order, the owner will be asked to identify job types rather than products. Usually there will be three: a simple repetitive order, an order of average complexity, and a major customized project.

The product profitability analysis often shows that the price is too low because it does not cover all the hours spent, or does not produce enough margin to cover overhead including non-productive wages.

4. Customer Profitability. Some segments of customers (by type of business, region, age, or some other distinguishing characteristic) simply will not pay enough to yield target profits, for reasons that may include competition, late payments, too many change orders, or too much customization. Other customer segments are your sweet spot: pleased with your quality and willing to pay for it.

Customer profitability should drive your marketing effort. You want to attract more who are in the sweet spot, and decline to serve those who do not yield enough profit.

5. Marketing Program. The Competitive Analysis (see prior article) highlighted your “differentiation.” The Customer Profitability analysis identified your best types of customers.

The marketing program starts with deciding how you want these “best customers” to think of your company/products – your positioning. Maybe it is innovative solutions. Or maybe it is reliability and quality. Whatever it is, your marketing program must then be designed to reinforce this positioning to these types of prospects. Using the famous 4 P’s, ask yourself:

- Can I change the product to fit my positioning better, and to fit better with the needs of these prospects? Should I come up with something new?

- Does my pricing approach support the image I want to have in the minds of these prospects, or should I tweak it? Would they pay a little more? If so, that small price increase can give profits a major boost. See Pricing Tips: Start High; Big Results from Small Changes | Thomas H. Gray.

- Can they find my product in a place they like to shop, and one that fits my positioning? Should I find new distributors or new retail outlets? Is my web presence all it could be? Am I using social media well? How good is my sales force coverage? Could I improve my sales support? See Finding Distributors | Thomas H. Gray and Sales | Thomas H. Gray.

- Do my communications reach the target customers when they are ready to buy? Are my promotions designed to fit my positioning? Do they get the attention of the target prospects? Do they value my promotions? If not, what should I do differently?

6. Sales Channels. Do I have my sales resources targeted at these highly desirable prospects, or are they going after easy low margin sales? If it’s the latter, how can I change sales force behavior: compensation plan, management, training, more coverage, use sales agents or distributors, or better sales support?

7. Organization. Do I have my resources aligned to my priorities? Often a small business knows what to do, but is unwilling to hire the expertise to make it happen. They tend to load transformational projects on the shoulders of one or two key managers who are already working more than full-time on day-to-day responsibilities.

In that case, the near-term always drives out the long-term, so the changes that can save the business never get done because the big change projects are starved for resources.

This detailed situation analysis provides the information needed to decide what can be done about the business. The final step, covered in this blog’s next article, is deciding what to do next – where do we go from here?

This blog has a number of other articles that provide deeper explanations as well as techniques for detailed situation analysis. Go to Blog | Business Techniques in Troubled Times by Thomas Gray | Thomas H. Gray – Consultant, CEO, Director and click on categories. Then select sets of articles such as 13 week cash flow, product strategy, process improvement, prune your business, using your numbers, pricing, sales support, distribution channels, and others.

Print Friendly

Fixing a Troubled Company: Where to Start?

by Tom Gray | on Aug 29, 2012 | Comments

The first phase in fixing a troubled company is called “situation analysis.” Not a catchy name, is it? Maybe a better name would be “forensic management” or “what’s going on here?” We cannot change the name, but we can learn how to use this technique.

In practice, this process has three parts: general, detailed, and deciding-what-to-do-next. Whether you are the owner, an investor, a buyer, or a “turnaround consultant,” the analysis process is the same.

The General Stage

In the general stage, you start with the question “what do we have here?” You are trying to understand the “big picture,” before you break it down into parts and analyze each of them. Experience suggests that we look at the business six different ways in this general stage of situation analysis:

1. Business Model: How does the business make money today? It gathers some inputs, such as raw materials, skilled labor, the right machinery, and proprietary information. Then it somehow processes the inputs to create some output that customers find attractive. What are the inputs? What are the processes? What are the outputs? Are customers paying more for the outputs than the business paid to create them? If not, you don’t have a business!

2. Income Statement (P&L): How much money does the business make today? What products produce most of its revenue? What cost elements eat up most of those revenues? Does it make enough money today to justify the risk of being in business? For the last few years, has the profit trend been flat, up, or down?

3. Trends in the Market: What do outside developments suggest about the business’ prospects for future profits? They might create opportunities or threats. Use the acronym DPEST to remind yourself to consider Demographic, Political/regulatory, Economic, Socio-cultural, and Technology trends.

After considering these general trends, think about specific trends in the industry itself, concerning customers, competitors, suppliers, sales channels, and technology. Again, these trends might create opportunities or threats.

For an example of using trends, consider the following. Smaller households and female participation in the workforce are demographic trends that imply it is becoming more common that no one is home to accept a delivery. This can be a threat to Amazon’s reputation for delivery excellence, but their recent initiative for drop-boxes in convenience stores is a great response.

Amazon’s competitors who own retail stores can offer the option to have online orders delivered to stores for later pickup, rather than to homes. Amazon had no way to compete with this advantage because they did not have their own stores, until they created their drop-box initiative using rented wall space.

The analyst asks “Which trends will affect the business, and is this business in a position to benefit from the trend, or be hurt by it?” Ideally, you want your business to be on the right side of major trends, gaining as the trends continue, rather than fighting to hold back a tide which will eventually happen no matter what you do.

4. Competitive Analysis: Why do my prospects choose my competitor instead? For a simple matrix to use for competitive analysis, see Competitive Analysis | Thomas H. Gray – Consultant, CEO, Director. This matrix assesses the company vs. competitors according to what criteria the customers consider when they are making the buying decision. See the author’s short video on using this technique at http://www.youtube.com/watch?v=Cgxx9Qf-9wk.

Additional questions reveal something about the “staying power” of competitors. How do my competitors make money (their business model)? Will the trends have the same effect on them as they will on me, or will I be better or worse off?

5. SWOT: Strengths, Weaknesses, Opportunities, Threats. We already considered trends to find the external opportunities and threats. Strengths and weaknesses are found by internal analysis. Examples include the strength of your brand, financial strength, operational processes, employee skills, location, repeat customers, computer system, marketing program, unique products, and the like. SWOT is summarized by short bullet items in a table like this:

Internal

Strengths:

Item
Item
Item

Weaknesses:

item
item
item

External

Opportunities:

item
item
item

Threats:

item
item
item

6. Goals: What are the owner’s goals for himself or herself, and for the business? Does he want to exit soon with cash flow for retirement? Does he want to build a powerhouse? Does he just want to stay small enough for a comfortable business and a comfortable cash flow? Does he want to sell?

Now we know enough about the business in general to understand its size, its financial and competitive position, how customers see it, its challenges, and how the owner would like to see its future. This enables the detailed part of Situation Analysis.

The analyst must recognize that this first stage can create some discomfort and impatience: the owner has never thought about the business in these ways; the financial and other data is not readily-available; the outcome of the analysis may contradict the owner’s long-held views; he is paying you for positive changes, not for wordy analyses. Discomfort easily becomes frustration, which can quickly transition to impatience!

The analyst must resist the temptation to respond to owner impatience by choosing a course of action too soon, after only a general review of the business. The best antidote to the owner’s impatience is always speedy analysis. See the next article for the next steps.

Print Friendly

Turning Around the Defense Department

by Tom Gray | on Aug 22, 2012 | Comments

Coordination and cooperation among the armed services creates the image of children wrestling under the bedspread! The Department of Defense nominally supervises the armed services: army, navy, air force. Yet each of these services has its own infrastructure, duplicating the others and requiring another layer above them to try to coordinate these unwilling warriors.

It is obvious to any observer that inter-service rivalry and duplication has been a fact of life for centuries. Under the guise of protecting our freedoms, this organizational swamp takes our money to advance the self-interest of service personnel – their job security and advancement – undermining the interests of the country at large. The result? Over 23,000 people work at the Pentagon, Defense accounts for 25% of the US Budget, yet our military is worn out from ten years of war.

In 2010 the Secretary of Defense directed his staff (the services and their nominal overseers) to “assess how the department is staffed, organized, and operated, with the goal of reducing excess overhead costs.” (see GAO report cited below, page 233).

According to the Government Accounting Office’s 2012 Report to Congress on opportunities to reduce duplication in government (see http://www.gao.gov/assets/590/588818.pdf), DOD does not even know how many people it has in its headquarters organizations, and the system to provide that information will not deliver such a report for FIVE more years! Why rush to provide the information for your own hanging?

Aside from headquarters bloat, the GAO Report cites duplicative programs in DOD in the areas of airborne electronic warfare, drone development, counter-IED efforts, language and cultural training, and humanitarian assistance.

Back in 2003, an officer at the Army War College analyzed the enlisted ranks and found that four of the ten basic “occupational areas” should be removed from the individual service branches and consolidated into a “DOD Support Command.” Not surprisingly, there seems to have been no action taken in this regard! Those who would take such action would see their control and power diminished if they adopted such recommendations, so they don’t.

Above we see three opportunities to improving DOD efficiency:

excessive management (i.e. HQ)
duplicative programs
de-centralized enlisted support groups performing identical functions without benefit of functional expertise and best practices benchmarking.

But we also see that those who should seize the opportunities will not do so, blinded by a lifetime of inter-service rivalry as well as their own self-interest.

Imagine the different results if the Defense Secretary had asked a turnaround specialist how to reduce excess overhead rather than asking the armed services themselves! Some of the questions might be:

- Why does each service have (need) its own infrastructure and support groups?

- How many man-hours are spent on inter-service coordination?

- How many non-unit support employees are there per front-line trooper?

- What is the best organizational approach to align self-interest with the country’s interest in efficient and effective defense forces?

Ameritech and other telecom companies faced a similar problem of legacy empires governed by management teams whose self-interest seemed to undermine the corporate interest, and who lacked a sense of urgency to improve their operations and alignment. Ameritech had five 100-year-old state telephone companies to coordinate and optimize. It didn’t work, and it could never work, just as DOD will never be successful in optimizing three or four legacy armed service empires.

The telecom solution, driven by McKinsey, was to re-organize into business units focused on customers (consumer, corporate, carriers), products (cellular), or support/infrastructure functions (network, IT). The issue was “what you do for who” not what state you do it in. The customer/product units had budgets, and ordered infrastructure and support based on what they needed for their mission (their customers). This reversed the company’s power structure – customer units made the decisions, rather than network units. The result was 50% productivity improvement.

In the DOD, the organizing principle could shift from your place of fighting (land, sea, air) to your type of fighting (mission), just as Ameritech shifted from states (place) to customer or product unit (mission). For example, types of fighting might be

- Special Ops (bin Laden)

- Small invasion (Grenada)

- Large invasion (Iraq)

- Bombing campaign (Serbia)

- Naval only (Cuban blockade, Paracels?)

- Strategic (SAC and subs)

- Non-mission combat readiness

Support functions might include the following units: personnel, procurement, logistics (supplies), health care, base management, transport and vehicles, data processing, law enforcement, intelligence, communications, training, food service, others, and combat operations units. The latter could be organized into larger groups with similar skills, such as infantry, artillery, surface warships, submarines, etc. However, these larger groups would not own any of their own support organizations, AND their budgets would be controlled by the demands or requisitions of the mission planners.

The mission planners would requisition combat operations units and support as appropriate for their mission. Between missions, the combat readiness unit would govern the activities of all support functions including combat operations units.

The traditional branches of armed services would disappear except to support the transition, and to be the interface for making reports to Congress and receiving appropriations until laws are changed to reflect the new military organization. Ameritech did the same thing with its state companies, reducing each of them to a few people who dealt with the state regulatory bodies but had no authority over company operations. This approach enables the DOD to transform itself without waiting for Congressional authorization.

The existing military branches will not commit suicide, yet they are the problem for DOD budget and efficiency. The only route to that goal is to go there without the traditional branches. As we have seen, every other route is a dead-end, failing to reach the goal due to conflicting self-interest, knowingly or not.

So what do you think? Could something along these lines work? What can you offer to improve it? If it won’t work, what is your alternative?

Print Friendly

What is Effective Leadership?

by Tom Gray | on Aug 15, 2012 | Comments

Quotations about leadership are a fun way to explore the meaning of the word. This article offers some of the author’s favorites, and invites comments from readers providing some of their own.

For the next few months the news media will use the word “leadership” even more than they usually do. Standard stories about political leaders, CEOs, coaches and quarterbacks will be joined by coverage on hot new topics such as the Presidential election, the Euro crisis, and that special time of the year when all four major sports are in the news at the same time.

When the media say “leader,” they refer to a position held. A person gets that title whether or not his or her behavior provides effective leadership, i.e., producing better performance than would have happened without that behavior. So leadership is about behavior – the leader’s behavior, and the followers’ behavior (their performance) as well.

Let’s start by realizing that all quotes are not equally useful! Steve Coates says it well: “Leadership is so much the shibboleth of the American corporation, and so much that is simply awful has been written about it, that one could surely fertilize the San Joaquin Valley with the past 10 years of material on leadership.”

With that warning in mind, I will still take the risk of offering my opinion – that’s what blogging is all about!

I see effective leadership having two key components: an inspiring vision that motivates allegiance and effort, and a selfless program to create a system that enables the followers to succeed after the leader is replaced. This second aspect implies humility and management skill, which do not often appear in writings about leadership!

First, two quotes about vision and leadership:

Mary Parker Follett: “The most successful leader of all is the one who sees another picture not yet actualized.”

Charles Handy: “A leader shapes and shares a vision, which gives point to the work of others.”

The message I get from these two quotes is that the effective leader inspires us with a vision of getting to a better place – one that fits our values, such as growth, security, opportunity, fairness, and helping others. Once inspired, we are willing to think and work harder to get there. We are motivated by the vision. Our behavior changes, proving that the leadership is effective. For techniques to create an inspiring vision, see Vision Development | Thomas H. Gray – Consultant, CEO, Director

But is it effective for the long term? The truly effective leader leaves a positive legacy. Here are some of my favorite quotes about this second element of effectiveness:

Peter Senge: “Our traditional views of leaders – as special people who set the direction, make the key decisions, and energize the troops – are deeply rooted in an individualistic and non-systemic worldview. Especially in the West, leaders are heroes – great men (and occasionally women) who rise to the fore in times of crises. Our prevailing leadership myths are still captured by the image of the captain of the cavalry leading the charge to rescue the settlers from the attacking Indians. So long as such myths prevail, they reinforce a focus on short term events and charismatic heroes rather than on systemic forces and collective learning. At its heart, the traditional view of leadership is based on assumptions of people’s powerlessness, their lack of personal vision and inability to master the forces of change, deficits which can be remedied only by a few great leaders.”

Charles DeGaulle: “The graveyards are full of indispensable men.”

Robert Reich: “A leader is someone who steps back from the entire system and tries to build a more collaborative, more innovative system that will work over the long term.”

Lao-tzu: “When the effective leader is finished with his work, the people say it happened naturally.”

These quotes dramatize the humility required for sustained effectiveness, so that the vision lives on in practice, though DeGaulle is rarely associated with humility! This is the leader who said “After me, the deluge!” Nevertheless, the message here is that in order to be effective for the long term, leaders must be effective managers as well, setting up a system that enables achievement by their followers long after they are gone. The image here is the opposite of a “cult of personality.” The effective leader creates or improves the organization for the long term.

These quotes are selected from the following sources. You may want to visit them to find other quotes that inspire you. No doubt your favorites will inspire us all when you include them in your comments!

www.quotationspage.com

The Ultimate Book of Business Quotations, by Stuart Crainer, published by AMACOM, the American Management Association

The Wiley Book of Business Quotations, by Henry Ehrlich, published by John Wiley & Sons, NY

Quotable Business, by Louis E. Boone, Random House, NY

Print Friendly

Successful Baby-Boomer Startups

by Tom Gray | on Aug 07, 2012 | Comments

Successful Baby-Boomer Start-Ups

Want to run a business for yourself? No bureaucracy, no politics, no meetings. Just time spent effectively doing what you are good at. Sound great? Check out this guest article by Angela Stringfellow and distributed by SCORE Fox Valley.

Second Acts: The Key to Successful

Baby-Boomer Startups

By Angela Stringfellow

Published by SCORE Fox Valley, Illinois

The economic turmoil that plagued most of the country for the last several years saw many experienced professionals on the short end of company restructures. Many baby boomers were displaced, and watched as their savings portfolios declined due to the struggling market. They also discovered that their age, coupled with their salary history, played against them in finding new jobs.

As a result, many boomers took their proverbial lemons and made lemonade, turning many unsuspecting boomers into later-in-life entrepreneurs.

The Unintentional Entrepreneur

For Wray Rives and R. Jean Roth, finding themselves over 50 and laid off in what may be described as one of the worst economic climates, meant finding a new way to live. Too young for retirement, too “experienced” for the available jobs, both turned their education and experience into entrepreneurship.

“My first reaction was to try and find another job, but after a few months of going on interviews and never hearing back from anyone, I realized that finding another job when I was north of 50 was probably not going to happen,” says Rives, who spent more than 20 years working in corporate finance. Instead, Rives began doing what he loved: freelancing as a CPA, providing bookkeeping and tax services for friends, neighbors and local businesses. These efforts led to the birth of NeedaCFO.com.

Roth felt the same way, “I decided to push my own agenda, as it were, instead of spending more time running after job leads that actually led nowhere, especially for baby boomers,” she says. While she was searching job postings, she was also spending a considerable amount of time doing freelance graphic design work for former colleagues. She realized it might be easier and more enjoyable to transition her real-life experience to a new business.

Roth is now the sole proprietor of Rotem Design Studio, a graphic design and creative communications studio in Los Angeles.

Baby Boomers Dominating American Startups

Roth and Rives are not alone. According to the Kauffman Foundation, a nonprofit group that studies U.S. startups, aging workers were among the leaders when it came to starting new businesses. In fact, in 2011 entrepreneurship increased for those in the 45 to 54 age bracket.

Further, it is the 45 to 64 group that makes up nearly half of all new startups in the country, increasing 19 percent since 1996. The older market has seen the most significant growth over the last 15 years. But, starting up a business isn’t always easy. There are a lot of things to consider before taking the plunge.

Funding. Most startups require some sort of capital. If you’re considering using your retirement savings as startup capital, you need to be certain that you will be still be able to manage if you’re unable to recoup your investment. Also, be aware that cashing in 401(k)s or other types of retirement portfolios may result in penalties for early withdrawal.

Management. Are you ready to go from being an employee to being the boss? Do you have experience effectively leading a team? Are you ready for the additional responsibilities that come with business ownership, such as bookkeeping, payroll, marketing, etc?

Embrace new marketing strategies. Gone are the days of simply running a weekly ad in the newspaper. Successful businesses are fast turning to social media to engage with their clients. Boomers need to be willing to step outside their comfort zone with technology and embrace popular marketing vehicles including Facebook, LinkedIn and YouTube. “While many baby boomers are reluctant to get into social media, it’s an absolute must,” says Roth. “The opportunity to network and join supportive mini-communities goes beyond, in my experience, anything a chamber of commerce might offer — or at least will complement it in a different way.”

Along with social media, you may want to consider establishing a healthy Web presence. Content marketing and other forms of digital marketing, such as cost-per-click ads are driving forces in today’s marketing.

Of course, there is still a time and place for traditional media, and many businesses will still find great success with print, television and radio.

Work-Life Balance. For some, entrepreneurship provides more freedom and flexible schedules. Others will find their business requires, especially during the start-up phase, rigid schedules and family sacrifices.

For Rives, he actually believes his work-life balance has improved, although he admits there are times his family would feel otherwise. He does have days when he can’t just leave work behind but relishes the fact that he can take vacation days or run to the grocery store in the middle of the day without needing everyone’s permission. Technology, Rives says, has made him feel more in control of his business and his work-life balance.

Know your boundaries. Most people are good at one thing and have no experience at another. For example, a 30-year sales veteran may be a great people person and know how to close the deal, but would he be able to run his own books or handle payroll? Rives suggests that every business owner determine where their strengths and weaknesses lie and then ask for help where it’s needed. Outsourcing is a great way to augment where you fall short. And you may find another struggling, out-of-work boomer to help with those specific tasks.

The challenges of starting a business later in life aren’t much different than at any other time. But, the experience and expertise that more experienced professionals bring to the table provide opportunities like never before.

SCORE stands ready to help baby-boomers as well as anyone else with your start-up decisions, as well as all other aspects of your business planning. There is no better resource available than your local SCORE chapter. We have over 90 seasoned business veterans available to assist you with all of your business needs. SCORE mentoring is not only free, but confidential.

Make an appointment with us, and let’s talk.

Sincerely,

The Mentors of SCORE Fox Valley

Print Friendly

Sales Support Techniques for Sales Success

by Tom Gray | on Jul 31, 2012 | Comments

Revenue from successful sales is the lifeblood of your business, so what can you do to make sure it flows smoothly? Our last few articles have addressed distributors, the sales compensation plan, and the “insight sales” technique, but these cannot guarantee successful sales. They are only part of the mosaic.

Even when you have attractive products, competitive pricing, good market communications and promotions, and well-designed sales compensation, your mosaic is incomplete without effective sales support. Too often, sales support is the last consideration, when it should be one of the first.

Just as a building needs a frame for support, and a craftsman needs the proper tools, your sales channels – distributors and salespeople – depend on sales support to reach their potential. They know this better than anyone, and the best will join your business only if you provide the proper tools. This means sales support is a condition for hiring a high quality sales force or distributor.

Two Types of Sales Support: Helpers and Tools.

Helpers are work groups or functions that enable sales success. These include:

- Lead Generation: Finding qualified potential customers for the salesperson to contact. The company can buy lists, hire lead qualifiers and appointment setting services, gather leads at trade shows, use email campaigns, social media, or executive networks, and other methods. The whole company should consider it their job to find leads for sales.

The best leads are those who bought from you before, so your customer database must be able to identify prior customers and those without recent purchases.

- Training on both products and sales techniques by skilled practitioners.

- Readily-available technical support, from product specialists to experts on applications for particular industries.

- Customer service that the salesperson can count on to be accessible, helpful, and effective.

- Active market communications opens doors for the salesperson. Techniques include advertising, promotions, and public relations. If the prospect is aware of the company, the sales contact has a much greater chance for success.

Tools are documents and software that make the salesperson efficient, knowledgeable, and confident. Some examples include:

- Videos and presentations

- Statements of benefits

- Answers to common objections

- Software calculators to show cost/benefit using the customer’s own information

- Computer-aided design (CAD) on the salesperson’s laptop, to define the customized application, develop a quote, and communicate requirements clearly to the production department

- Paper and/or electronic leave-behinds: brochures or collateral materials for customer reference after meeting with the salesperson

- Standard proposals and contracts

- Contact management software, often with an email generation feature, to help the salesperson with timely follow-up, and keep management informed of progress through the sales funnel (see Sales Funnel | Thomas H. Gray – Consultant, CEO, Director).

- A portal where the salesperson can see order status, check on his or her own progress toward sales and commission goals, download materials (tools), and request technical or customer service support.

Sales Support Is a Great Investment!

With the right helpers and tools, salespeople close more sales, waste less time on administration, and stay with the company because they feel valued and supported. The top salespeople look for this type of support before joining a company. Thus sales support is the foundation for an effective sales force.

Leave a comment to describe the sales support tools that have been successful for you, or that you would like to have!

Print Friendly

Insight Sales Replaces Solution Selling

by Tom Gray | on Jul 25, 2012 | Comments

Solution selling was the innovation of the 1980s. Most B2B salespeople operating today were trained to sell solutions – find the need that fits your product, propose a solution, and work with an internal sponsor to gain client agreement.

Recent research shows that the most successful salespeople today have moved beyond solution selling to insight selling. The world has changed since the 1980s, and clients no longer rely on the salesperson to invent solutions for recognized needs. Clients now use internet sources, sophisticated procurement teams, and widely-experienced purchasing consultants to define solutions for themselves.

“In fact, a recent Corporate Executive Board study of more than 1400 B2B customers found that those customers completed, on average, nearly 60% of a typical purchasing decision – researching solutions, ranking options, setting requirements, benchmarking pricing, and so on – before even having a conversation with a supplier,” according to The End of Solution Sales by Brent Adamson, Matthew Dixon, and Nicholas Toman, Harvard Business Review, July-August 2012.

The result is price-oriented procurement contests rather than high margin solution sales.

Insight Selling

This HBR article presents research showing that the star sellers (top 20%) have evolved to “insight selling.” They seek out customers whose companies are in a state of flux with emerging demands. These companies are ready to re-examine the status quo.

They are receptive to “disruptive ideas” from salespeople who apply their wide experience to the company’s situation to identify previously unrecognized needs and suggest new goals and new ways to meet them. By offering change-making insights, these salespeople transform their role from peddler to valuable resource for change.

While solution sellers are trained to work with friendly informants within the company (guides, friends, climbers, together called “talkers”), insight sellers seek out change agents (go-getters, teachers, skeptics, together called “mobilizers”) who can move the organization to adopt new ways of looking at the market and the new solutions that fit the new perspective.

For insight sellers, the target audience is those who seek outside experts to share insights about what the company should do, and who are engaged by big disruptive ideas. Mobilizers are thinkers. They test the salesperson with tough questions. The conversations are challenging, but the result is a well-customized solution and a well-armed advocate.

Star sellers test the mobilizers in turn, challenging them to bring more information and set up meetings with senior decision-makers. If the mobilizer does not respond, the star seller knows this client is really just a talker, and directs his or her efforts elsewhere.

Having found the mobilizer, the final stage requires the seller to coach the client through the company’s purchasing process. This is a role reversal vs. solution-selling, because mobilizers are idea people who are often weak in the political/relationship skills needed for consensus-building. Experienced star sellers are better able to anticipate likely objections and interdepartmental politics than the idea-driven mobilizers. This coaching role is consistent with the salesperson’s insight-provider role.

What’s Different?

In sum, what makes insight selling different is:

Target company: in a state of flux; challenged by the need to change status quo; able to decide quickly, rather than a company who understands its own “established demand”
Approach: offer insights to identify problems and solutions based on broad knowledge, rather than merely responding to customer-requested solutions
Target ally: mobilizers (go-getters, teachers, skeptics) who respond to challenges, rather than talkers (guides, friends, climbers)
Sales process: coach the mobilizer through the anticipated purchasing process, rather than rely on the “guide” to explain the company’s process.

Repeat sales are the payoff for this extra effort and these tough conversations? The authors found that “the biggest driver of B2B customer loyalty is a supplier’s ability to deliver new insights.”

Print Friendly

Sales Compensation and the Segmented Sales Force

by Tom Gray | on Jul 18, 2012 | Comments

Sales executives are always finding ways to motivate their teams. From new bonus programs with splashy kickoffs to exotic trips to “exciting” sales contests, it seem like no opportunity is missed. And when sales fall short of the targets, the first culprit is always the compensation plan – “let’s tweak it again.” For sales compensation plan basics, see Sales Team Compensation Package | Thomas H. Gray

Meanwhile the company worries about controlling sales costs, with good reason. “Sales force compensation represents the single largest marketing investment for most B2B companies…three times more than advertising [for US companies],” according to Motivating Salespeople: What Really Works, by Thomas Steenburgh and Michael Ahearne, Harvard Business Review, July/August 2012.

This HBR article reports how salespeople with different success rates react to different compensation features. It turns out that “one size fits all” does NOT apply to motivating sales performance.

Different Plans for Different Types of Salespeople

Companies can easily segment their sales force into stars, laggards, and core performers. The largest segment is core performers, so improving their results offers the greatest opportunity for higher sales, yet most compensation plans ignore the core performer’s need to succeed despite competing with the stars.

Core performers produce the best results when goals and compensation have three tiers rather than two, probably because a two-tier structure makes the higher tier seem unattainable and hence not worth working for. The other technique that motivates core performers better is the selection of prizes for sales contests. These employees need to feel they have a chance to win something of value, rather than the stars winning everything.

Contests should have more prizes than the number of stars, and the prizes for lower performance should have some quality that makes them different from, not just less of, the top awards. This means no cash awards. If trips are used, different types of trips are recommended, e.g. family trip vs. golf trip. This enables the core performer to value the award for its content, rather than feeling he or she got less than the star.

Laggards need both carrot and stick. The carrot is a quarterly bonus. Research shows that near term “pace-setting” bonuses result in significantly better performance from this group than annual bonuses. The stick is a pipeline of new salespeople, whose presence makes clear the consequences of substandard performance.

Stars are motivated by the upside, so don’t cap it!. The best way to de-motivate stars is to place a cap on commission compensation, because research shows their efforts diminish when the cap is reached. No surprise there! There should be no ceiling on commissions. The other finding was that stars are highly motivated by an increase in the commission rate for sales made after their quota has been met (“stepped” commission plan).

All these techniques can easily co-exist on one compensation plan, and need to if the company wants to get the most out of its sales force. Like a portfolio of investments, the sales force is a portfolio of talents. Designing a plan to consider their differences motivates each segment to achieve more.

Print Friendly

Page 4 of 10« First «...2 345 6...10...»Last »

Business Techniques in Troubled Times

Financing Your Business

After Situation Analysis: Where Do We Go From Here?

Fixing a Troubled Company: The Detailed Phase

Fixing a Troubled Company: Where to Start?

Turning Around the Defense Department

What is Effective Leadership?

Successful Baby-Boomer Startups

Sales Support Techniques for Sales Success

Insight Sales Replaces Solution Selling

Sales Compensation and the Segmented Sales Force

New Book Available

Recent Posts

Subscribe

Search

Categories