Back-of-the-House

Despite quality products, courteous service, and a spotless reputation, the ultimate success or failure of a business often lies in how well its “Back-of-the-House” functions. The Back-of-the-House is not sexy. It’s not glamorous. It's what the public doesn't see.  But it is vital to the success (or lack of same) of any business, like a strong foundation is to any new structure being built.

The Back-of-the-House is where data becomes information, and information becomes an essential business tool for every part of your business. The accurate and timely gathering, processing, analyzing, and reporting of business information creates a solid foundation on which the rest of your company thrives. On the other hand, weak or non-existent Back-of-the-House functionality will leave your business flapping in the wind.


Allow me to share a story about a recent client engagement. A few weeks ago, I completed an assignment for a wonderful small company. The owner wanted to grow his company, but soon realized the “Back-of-the-House” was not functioning properly.

We identified five things that needed to be addressed immediately, in order to facilitate the kind of growth that the owner was envisioning.

1. Financial controls and reporting were extremely deficient. They did not have the financial information to determine gross margin and profitability. They did not have controls for reporting cost of work in progress in terms of Actual vs. Budget.
2. There was no Organization Chart. No one was sure to whom they reported, or who reported to them. Employees frequently “served many masters.”
3. There were no Job Descriptions. The breadth and scope of each employee’s job was based on what they've been doing, and how long they've been doing it.
4. Responsibility and accountability were not delegated; only tasks. Not only did this slow the pace of business, it also prevented many employees from developing their own business judgment and acumen because they were only doing part of the job.
5. Owner felt the need to make all business decisions. All the time. While he thought he was taking extra special care and responsibility for everything in his company, he was, in fact, causing delays in production, losses in profit, and more than a few angry customers. Not to mention, he was also stunting his management team’s growth.

With these issues identified, they were prioritized and addressed directly. The following actions took place in the subsequent six months, which resolved a great many organizational problem areas, and made for a clearer path to success:

• A well-qualified, experienced Chief Financial Officer was hired, to provide timely and reliable reports on the business’ numbers and finances. The company will benefit greatly by having both up-to-date and historical numbers that they can use to chart their growth.
• An Organization Chart, based on specific job functions more than individuals, was created and approved. This will bring planning and order to company’s organizational structure, as it continues to grow.
• Job Descriptions were created for every position within the company, and every employee now had a written description of their duties.
• A Mission Statement and Vision Statement were created and presented to employees and customers. The reason for the company’s existence, and the goals it strives to achieve, need to be articulated to everyone who interacts with the company. And the company needs to be held to the standard of these statements.
• The position of Chief Operating Officer was created and filled, to run all facets of the day-to-day operations. The company’s owner is well-known within the industry, but the company’s reputation, as well as his own, was in danger of being tarnished because of his insistence of running, as well as representing, his company. With a dedicated COO, projects will be delivered on time and within budget, and customers will receive the level of quality they have come to expect. And the owner gets to do what he loves to do the most, and is best at - being the face of his company.

Keep the Back-of-the-House in good working order, and your business will be in a much better position to achieve the level of growth you seek.

What Have I Been Up to Lately?

In the professional life of a Business/Management Consultant, some assignments are better than others, for different and various reasons:

• The level of challenge
• The people with whom you work
• Cooperation or lack of same
• The amount of buy-in from the stakeholders

My last assignment had just about all the good things one could hope for.

In the beginning, ownership was skeptical as to what I could accomplish. Long term employees viewed me as a threat to their jobs and to the status quo, neither of which was true.

Instead, I represented myself not as an “Agent of Change” but as an “Agent of Adjustment”.

I interviewed the employee population. Asked them lots of questions. I assured them that all answers would be kept in the strictest of confidence, and no attribution given when I made my report to ownership. I kept that promise, and it worked out so well!

With the cooperation of ownership, we installed good financial reporting and controls by hiring an excellent CFO. We created an organization chart with job descriptions for every employee.  We hired a COO, so that the owner could do what he loves best and not have to worry about the day-to-day problems of running a business. We created budgets, something the organization had never done before! Each quarter we gave a report of the financial results to the department heads. The employees were thrilled to be included. Lots of questions were asked, and good answers were given.

At the end of the assignment (10 months duration), they had a farewell party for me. I felt very good about myself, knowing the company is going to become far more successful with all of these “ADJUSTMENTS.”

The moral of this story is that change does not have to be scary, threatening, or require a total upheaval to be successful. Effecting change by adding a few well-placed business adjustments really can make a significant impact on an organization.

8 Tips for Small Business Owners - Part 2

Last week, we discussed four tips for small business owners that will help lead their companies to success.  I hope you were able to step back, and take stock of how well you are applying those principles to your business, because I've got four more for you.

5. Know Your Competition

Yes, you have competition. Every business does. Don’t be stupid. Don’t be arrogant. No one “owns” a market. At the very least, each of your customers has the choice between buying what you sell, and buying NOTHING.

If you acknowledge that you do have competitors, then study them. Don’t copy them, don’t imitate them, but know them well. Not just their products and prices, but how they go about doing their business. The Art of War taught us to “keep your friends close, but keep your enemies closer.” The better you know your competition, the better you can fill a need that they are not currently filling.

And for you hardheads who still think you have no competition, consider this: you still have to be able to articulate to customers why buying your product is better for them than standing pat. Don’t laugh – “doing nothing” is one very serious competitor!

6. Business Planning

It is still amazing to me, after being in the business world for decades, that some small businesses and family businesses operate year after year without a business plan. It’s like trying to drive to someone’s house, and not having a map or GPS, and not even knowing the person’s address, or town or state! You just figure you’ll get in the car and figure it out on the way. Because you’re smart that way. Yeah, right.

Business planning is a complicated matter, depending on the depth and breadth of your business and your market. There are few generalities (other than to create a plan!) that can be offered in a short article like this, but here are two that go hand-in-hand.

One, always overestimate your expenses. And two, always underestimate your revenues. These two things, while they may not look pretty on paper when you write them, will make most end-of-the-year “surprises” be pleasant ones. It’s one thing to be ambitious with your business planning, but being realistic to the point of slight pessimism may make running your business a bit less stressful on you and your managers

7. Value Beats Cost

As stated above, sales are what keeps your business alive. The more sales you make, the better off your business will be. But sometimes, those sales plateau or decline, and you need to figure out why. Oftentimes, the knee-jerk reaction to declining sales is to lower your prices. Who can resist a good deal, right? Wrong. Assuming that you did your homework when you initially created your pricing, chances are very good that the cost of your product or service is not the reason people are not buying.

Lowering your prices does several things, none of them good. It devalues your product when the world knows that what you are selling is below the market norm. And think of those people who did pay the full price for your product. These should be your best customers, but now you run the risk of pissing them off when they see that you selling the same thing to others for less money. The same principal applies to those “New Customer” special deals. You’re going to give a better price to someone who has never used your product or service than you give to someone who is an existing customer? Really? Go back to point #1, and get your priorities straight.

Instead of fretting over pricing, concentrate on the value of what you offer. You can increase value in many ways, through innovation, upgrades, bundling with other products, or penetrating other markets. Concentrate on these things, and don’t become a discounter.

8. You’re Not Superman or Wonder Woman

Finally, the thing I have to constantly remind small business owners is that you don’t have to do it all yourself.   You don’t have all the answers. You don’t have all the skills. Hire intelligently, and surround yourself with smart, hard-working people with skills and experience that you do not have. Don’t look for clones of yourself; look for complementary pieces. When you find them, treat them well, give them the tools they need, and then get the hell out of their way. They’re going to help you be successful.

These tips, and those presented last week, are not silver bullets to bring you instant business success.  No such thing exists, you know that.  But these fundamentals are the foundation of a business built to succeed.  The rest is up to you and your team!

8 Tips for Small Business Owners - Part 1

You and I both know that there are untold numbers of books and articles written each year, advising business owners and leaders on how to improve their chances for success. There are thousands of ideas and things to consider, some of them old school, some of them bleeding edge. None of us who think about these things for a living have all the answers, but most of us have something to contribute to the challenge of successfully running a small business.

Whether you are a seasoned entrepreneur, or the proud owner of a shiny new MBA, I have compiled a short list of tips for your consideration. While you might be tempted to think that some of these are pretty obvious (and, yes, they very well may be), I would counter with the fact that knowing something, and being able to execute that something are two very different things. So read this first, and make sure you are doing (not thinking about doing, but doing!) the things on this list. Then come talk to me about the more complicated stuff.

1. Set Your Priorities
This is especially important for those who are starting a new business, but it is also something that older businesses need to be reminded of periodically. Cash flow is the lifeblood of any business. Sure, you can get a business going with loans, grants, investors, even your credit cards, but you will, at some point, need to pay the piper. And until the piper has been paid, you have that hovering over your head, and factoring into every business decision you must make.

Customers are what you need. Not “satisfied” customers. You need ecstatically happy customers. They will not only bring you repeat business, but they will tell their friends, family, and colleagues about you. Landing several of these kind of customers, and doing everything in your power to keep them loyal to you, is your Number One priority. Without customers, you don’t have a business; you have a hobby.

2. What Are You Selling?
There is a school of thought that says being the first to market with a new product or technology is the way to success and riches. And to the handful of businesses over the years that have been able to score on something new, that would seem to be the case. But upon closer view, there are thousands of struggling businesses, or former businesses, who thought for sure that their new brainchild was something that everyone needed and would buy. But they either over-estimated or misunderstood the public’s needs, or else they simply did not know how to introduce a new product or concept into the public’s imagination.

You need to offer what people want to buy, not necessarily what you want to sell. Having a small slice of a proven market is preferable to having a huge slice of nothing. You want to innovate? Great! Innovate from the vantage point of a sound market where the product is already an established item. Then, make it better. Bundle it with other things to create more value. Make it bigger, make it smaller, make it faster, change its color. Do what you can do to keep it fresh and exciting to people, but with the knowledge that the heart and soul of your product is already established.

3. How Are You Selling?
The “power trio” of business is Marketing, Sales, and Customer Service. Having one or two of these things covered is not going to make it. These three disparate functions need to play nicely together, and to provide the same message to the customer. If one flounders, the other two can rarely save the day. If two of these flounder, pack up the business and try something else. It doesn't matter what your business is. Marketing will put the idea into the customer’s head, Sales will make the promise of filling the customer’s need, and Customer Service keeps the promise with every single interaction. These three functions are your business’ foundation, not your product or your technology.

4. Know Your Customers
Don’t assume you know what customers want. And don’t guess what they want! It is your job to know what they want. Be certain. Have confidence in that knowledge… because YOU SPEAK TO YOUR CUSTOMERS. You ask them questions about what they like and don’t like about your product and your company. Then you give them MORE of what they like, and LESS of what they don’t like. This is not rocket science here, people. But it is amazing how few businesses really do this with any kind of intent. Oftentimes, companies send out surveys that are completely self-serving. What kills me is the companies that ask you to take surveys, and in the next breath, have the audacity to ask you to rate them as all “10’s” or whatever the highest score is. They are not using the survey results to better their company; they are using it to better themselves.

The better way of knowing your customers is to talk with them at every opportunity. Every time they come to your shop. Every time they call. Every time they keep an appointment with your salesperson. Just ask a few questions to get them talking. “What can we do for you that we’re not doing?” “What are we doing that you wish we weren’t?” “What’s coming down the pike for you in the next few years, and is there any way we can help you with that?” Simple little questions that show that you care. This is how you get to know your customers.
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Next week, we will discuss four more tips for running a successful small business.  Until then, work on the points listed above, and set your business up for success.  Remember, it's more than just doing the right things; it's doing the right things right!

React to This!

I was reading an interesting article, Your Problem Solving is Killing Your Growth, which made me think that perhaps  the value we continue to put on the ability to “put out fires” and “think on one’s feet” has turned our business world into a reactive one, rather than a proactive one.

The best way to be a “problem predictor” is to become a customer-centric company. In other words, ask the customers what they want, and how they want it. Their problems are your problems to solve. This is a great way to stay close to them and to avoid or resolve many issues before they impact business. The ability to predict - and prevent - future problems is a key component to your company’s continued growth!.

Strategic Thinking for Small Business: Where & Why

As a small business owner, you have most likely at one time or another referred to yourself as “Chief Cook and Head Bottle Washer.” For those of you in the food business, this may be a literal definition of your role. To others, it is a term that represents a business owner who does it all in his or her business. Sometimes, this is because you are a one-person operation. Other times, it’s because you like to… ahem… have control of everything in your business.

But whatever the reason you wear that tag, the fact is that the vast majority of your time is spent running the day-to-day operations of your business. While this may seem to you to be an appropriate, if exhausting, role, the fact is that while you are taking care of business today, you don’t have much time to think about tomorrow. And I’m not talking about tomorrow as one day; I am talking about the indefinite future.

If the world stayed the same for decades at a time, this would not be an issue. But you realize that today’s world is rapidly changing. This is no longer your father’s world. Hell, it’s not even the same world as five years ago. So how is your business going to continue to grow and thrive and remain relevant, if you don’t take the time to think strategically about the direction it will take in the future? This is the difference between working IN your business, as opposed to working ON your business.

As a business owner, you need to make the time to think strategically. You can’t just be operationally busy all the time; you need to escape the day-to-day business operations to focus on a short- and long-term strategy. And I’m not talking about doing this on your 15 minute lunch break, as you jam a sandwich in your mouth. I’m not talking about a 5 minute bathroom break.

Rather, I am talking about prioritizing your strategic thinking time as if it were an important client meeting. You know very well that if your best client or customer needed to have an hour long sit-down with you this week, you would make the time for that to happen!

But, you say, strategic business planning is for Big Businesses, the ones with layers of management with fancy degrees, who have teams of people under them to handle the day-to-day operations. To that, I say this: consider your smaller size an advantage. You are more nimble. You are better able to see an opportunity and switch gears to capitalize on it. You don’t have to sit through endless boardroom (or bored room!) meetings, while MBAs float theories and projections past one another. You are probably in closer touch with your customers, your employees, and your industry, than some bigwig Fortune 500 CEO. Use that to your advantage! Huddle together on a regular basis with your constituents – your top managers and customers - in order to address business challenges and explore options. Seize these opportunities to out-maneuver your bigger, slower rivals.

The Commercial Appeal, from Memphis, TN, recently did an online study where they asked small business owners: “How difficult is it to budget CEO time away from managing?”

Only 3 percent said they had “found a way to balance management and CEO duties,” and 8 percent allowed they were “inconsistent but getting better at it.”

However, over 50 percent of the respondents said they “can’t focus on CEO tasks for putting out fires,” while 33 percent of them completely rejected the premise with, “I’m a small-business owner, not a CEO.”

So, do you want to increase your CEO activity, especially on the strategic end? Here’s a suggestion:

At least once or twice a year (if not more), fire yourself from jobs that someone else can do. Promote yourself to jobs that only you can do. This will free up some time and put you on a course toward performing the tasks of a CEO, including charting the long-term course for your business.

Knowing When to Sell Your Business

Small business owners sell their businesses all the time. Every once in a while, they sell for the right reason, at the right time, and everything turns out well for them. However, more often than not, there is regret. According to a study by PwC, 75% of business owners are dissatisfied with the result of their exit. There could be a lot of different reasons for that dissatisfaction, but knowing when the best time to sell a business probably could have alleviated many of them.

Let’s look at some considerations for selling your business:

• You get an offer well above the company’s projected valuation – an offer you can’t refuse.
  These are the kind of small business sales that you read about, and that create buzz. For example, Facebook’s recent acquisition of WhatsApp, for the tidy sum of $19 billion dollars (yes, that is billion, with a “b”). While most of us know about Facebook, who the hell knew anything about WhatsApp? Obviously, Mark Zuckerberg and his people did, and the former founders / owners of WhatsApp signed off on the acquisition, and are now set for life.
  
  But please don’t start licking your chops right about now. This kind of deal does not happen very often, and it is folly to hope that it will magically happen with your business. Not trying to be rude here, just offering a dose of reality. So let’s move on to some more realistic considerations.
  
• Changes in your personal life will affect your business, and you need the extra money.
  The wrong time to decide to sell your business is when you really need to sell your business, due to life events that are not business-related. A divorce, a serious illness, a disabling accident to you or a loved one, gambling debts… you get the idea. I’m not saying that these types of matters are not as important as your business, but selling your business to resolve these issues will more than likely cause you to make an unsatisfactory deal. Ultimately, you will do what you have to do, to address whatever crisis you are facing. Just understand that this is probably the worst reason, business-wise, to sell a company.
  
• You look into the future, and see the writing on the wall.
  You feel that tough times are ahead in your industry. Evolution in technology or shifts in business or consumer needs may well render your company’s products and services obsolete, or at least less in demand. The value of your business may never be higher than it is now.
  
  You may also realize that global demographics are not in your favor. More and more Baby Boomers, who are retiring earlier, or find themselves unemployable, are starting small businesses. This could mean more competition in your industry. Smaller businesses, with less overhead, willing to do the work your company does, at a fraction of the cost. You may feel that you don’t need that aggravation, going forward.
  
• You see a more lucrative opportunity elsewhere.
  Your business may be too small to ever be big, and you've got some big ideas. The more you've learned about business, the more you understand the limitations of certain industries or companies. You want to accomplish more, and you know your current organization will not get you there. The neighborhood bodega is not going to evolve into a gourmet wine and cheese shop with an international clientele. So selling your small business may give you the financial leverage to get into a bigger game, where your ideas can really develop.
  
• Your company is growing faster than you can fund it.
  Your business may be getting too big to be small, and it is more than you can handle. While you are grateful for the success you've been able to achieve, you realize that you are having difficulty in keeping up with customer demand. You don’t want your reputation for quality and service to suffer, but trying to satisfy a huge influx of business may not be your strength. All of your instincts tell you not to turn away business, but you begin to think that maybe a larger organization could better handle the growing customer base.
  
• Your business is no longer fun, or interesting to you.
  When you started your business, you had a reason. It could have been your love of the industry, or a great idea you had for a product, or maybe you just enjoyed being a contributing member of the business community in your town or state. But it had to have been a good reason; people don’t go through the effort of starting and maintaining a business just for the hell of it. But whatever the reasons you had for starting the company, let’s just say, to quote B.B. King, “the thrill is gone.” If your heart is just not in it anymore, perhaps it is time to let someone else take it off your hands. You’re not getting any younger, and maybe selling the business is a good way to secure a comfortable retirement and diversify your wealth.
  
• Ultimately, the best time to sell your business is when the company and its sales are peaking.
  The best way to ensure getting good value for the organization that you have poured your life’s blood into is to take full advantage of the success it has shown. You've created a company that has strong management, and runs effectively without you overseeing every detail. Sales are strong, customers are happy, employees are engaged. This is the kind of business that is very attractive to buyers, and will command the best price.

The bottom line here is to start thinking and planning the sale of the company a few years before actually doing it. The stronger the organization is, the more you will be compensated for it. Unless, of course, Mark Zuckerberg comes snooping around.

Pointless New Year’s Resolutions for Your Business

I don’t know that “corporations are people,” but I do know that businesses are run by people, and therefore are prone to the same mistakes and miscalculations that we mere humans often fall prey to. And although we realize that the calendar is an arbitrary, man-made, slice-and-dice of the year, we still put a lot of emphasis on the late December – early January period as one of putting some changes into effect, in our personal lives or in our businesses’ lives.

In my view, New Year’s resolutions for your business are pointless if:

• You feel you have to wait for January 1 to implement them.
  This shows a lack of urgency to the resolution. Who is the genius that decided that the middle of winter was the best time to make changes in our lives and businesses? 
• You resolve to do (or not do) things without first establishing a clear plan to navigate to success. Winging it means you change some things kind of when you remember to do so. It does not show the commitment to change that is necessary. Without a clear plan, you do not have a resolution; you have a hope, a dream, a wish. Good luck with that.
• Your resolutions are too big. Rome wasn’t built in a day. I mean, even Lost Springs, WY probably took at least a few days to build. Very few people or organizations succeed when they bite off more than they can chew. Instead, break the big goals down to a succession of small goals, tied together with one purpose in mind.
• Your resolutions are too small. If your big change this year is that Fridays are now “Hawaiian Shirt Day,” it might be fun, but it does not qualify as a business resolution of change. Sorry. If you want to resolve to change something, then change something that will impact your business in a significant way.
• The resolutions you make in December seem like a big pain in the ass in January. If the love of the resolution dies that quickly, then you have to wonder about the importance / feasibility of the idea in the first place. 
• Your resolutions are directed by industry changes or regulations. They are no longer resolutions, but mandates. Do not mistake one for the other.
• Your resolutions are created solely by you, the boss, and handed down to your organization. Without input from your team, your business resolutions become personal directives from the boss. We know how much employees just love having change foisted upon them, with no say in the matter!

Frankly, the idea of New Year’s Resolutions for businesses is a cute one, but not terribly practical or binding. Strong businesses have a Business Plan, complete with tactics and strategies. This is significantly different than resolving to do some things differently in the coming year. If your idea for a New Year’s Resolution is something that will positively impact your business, then perhaps it should be included in your next version of the business plan, instead of simply “resolving” to do something differently this year.

Put that on your list of New Year's Resolutions!