Archive for the 'Management Fundamentals' Category

Diaper Changing Stuff (DCS): Five critical questions for startups and veterans

Small business owners have to deal with two universes every day: the Marketplace, and what I call, the Diaper Changing Stuff (DCS).

The Marketplace is the fun place, where you buy and sell stuff. Playing in the backyard of this universe is why you became a business owner in the first place. And the good news is, most entrepreneurs are pretty good at the rules and expectations of this universe before they start their business.

The DCS represents mostly backroom, operating tasks (read: not much fun) that have to be done in order to present the business and its products to the Marketplace – accounting, cash management, banking, capital allocation, payroll, regulations – you get the picture. Just as no one has a baby because they like changing diapers, no one ever went into business because they’re passionate about inventory management or accounts payable. And yet, those tasks are as critical as the fun ones.

If you’re thinking of starting a business, don’t do it until you’ve compared my quick DCS checklist to your abilities. If you’re a business veteran, road test your DCS skills against this list to see where you might need improvement.

1. Cash and accounting

Do you know the difference between cash and accounting? Gain this understanding before you hock the house to start your business, because it’s the most imperative financial dynamic you’ll face every day. In fact, it’s the number one business issue that will wake you up at 2am. Remember, you can’t make payroll with a debit or a credit.

2. Capital allocation

Do you know how to properly allocate operating and non-operating capital? Don’t use operating cash to buy long-term assets, or borrow money to operate on. Create a capital source and allocation strategy before you crank up your corporation.

3. Banking

Do you know how to talk banker? If you need a loan, can you explain what you’re going to accomplish with the money, AND how you’re going to pay the bank back? If you make a loan request without this information, you’ll just burn a banking bridge. Bankers are easily frightened, and no one ever got a loan from a scared banker.

4. A/R Days – A/P Days

Do you understand the relationship between Accounts Receivable Days and Accounts Payable Days? If you extend credit to customers, you have to fund those accounts until they’re received, which is usually later than when you have to pay vendors. If you’re not tracking this relationship, you could literally succeed yourself out of business. And the first indication you’re in jeopardy will be a call from your banker telling you to make a deposit, or a vendor putting you on C.O.D. Sometimes these calls come in at the same time.

5. Quality Process

Do you know the difference between Quality Service (QS) and Quality Process (QP)? QS is always making the customer happy, no matter how many times it takes to get it right. QP means getting it right the first time. QS is an expense you have to pay for over and over. Having a QP is an investment in excellence that stops the bleeding and moves customers from complaining to placing new orders and referring you to their friends.

Bonus question: Can you operate the business you had the entrepreneurial vision to create? Not everyone can. Don’t start your business unless you’re ready to change the diapers on your baby.

Write this on a rock … Blasingame’s Fourth Law of Small Business: “Successful small business owners have the spirit of an entrepreneur and the heart of an operator.”

Can you sell your leadership product?

What is a leader? A mentor once told me a leader is someone who can find others who will follow him (or her).

But as we all know, followers can be high-maintenance folks, requiring constant tending to whatever it is that attracts them; most of the time “it” is something intangible. Napoleon is reputed to have said, “A soldier will fight long and hard for a bit of colored ribbon.” Intangible.

Leadership, like beauty, is in the eye of the beholder. So we asked our radio and online audience which of five characteristics is THE most important to being a successful leader. Two of the leadership traits we offered, courage and perseverance, got the lowest ranking, each in single digits.  The highest ranking went to “ability to communicate,” with about 40% choosing this one, followed by “ethical behavior,” chosen by almost one-third of respondents,  and “vision” selected by a little more than one out of four.

At first, I was surprised that courage and perseverance didn’t rank higher, because it’s my belief that both of these are defining traits of a successful leader. But surprise turned to clarity when I realized that our poll had revealed what we all know but don’t always remember: There are two faces of a leader. One is the face leaders see when looking in a mirror, and the other is the one followers see. When seeking the definition of a leader, we have to be clear about which point-of-view is being sought: leadership traits we seek in ourselves or those that attract followers.

The face in the mirror knows courage and perseverance are definitely among the imperatives for leadership success. But to followers, these are merely raw materials used to manufacture the product they demand of leaders - that intangible “bit of colored ribbon” delivered by communicating a vision that is executed based on mutually held values.

Turns out, being a leader is a lot like being a business owner. To be successful in business, it’s not enough to offer quality products you’re proud of - customers drop the gavel on that judgment. Similarly, it’s not enough for leaders just to please the mirror - followers are the customers of your leadership product.

In order to get others to follow you, both faces of leadership must be in evidence. Nurture those traits that success requires of you personally, like courage, perseverance, faith, commitment, etc., while simultaneously delivering what followers expect: ethics, communication, vision and performance.

Write this on a rock … Are you finding followers for your “bit of colored ribbon?”

Three important people you want to be close to you

Why do birds suddenly appear
Every time you are near?
Just like me, they long to be
Close to you.

In 1970, the brother/sister act, The Carpenters, took these lyrics and the rest of the song, “Close To You” to the top of the charts. Velvet-voiced Karen sang lead, with brother Richard contributing lyrics and sweet harmony.

Out here on Main Street, small businesses should hum that tune every day to remind themselves about the three most important stakeholders they want to be close to.

Customers
Every business, large and small, longs to be close to its customers. But getting customers to return the favor is the challenge. Time was, when a business was a critical link to certain products and services for customers. Longing to be close to us, customers – and their loyalty – weren’t so illusive. Today, almost everything needed by customers can be purchased within a few miles of your business from competitors that didn’t exist when the Carpenters topped the charts. Throw in the Internet and e-commerce and what isn’t a commodity today?

The good news for Main Street is that small and nimble increasingly trumps big and strong. With few exceptions, we can’t compete with the big guys on price, selection, or brand intimidation. But we can make customers want to be close to us is by scratching an itch the big boxes can’t always reach: customization.

If you want customers to suddenly appear, find out what keeps them up at night. And don’t expect the answer to be a burning need for your product or service. If you deliver a customized solution, customers will long for your business because you added unique value they can use. And here’s the silver bullet of customer longing: Help your customers help their customers.

The other good news is that customization justifies higher margins than off-the-shelf offerings. If it’s truly focused on the customer’s solution, they’ll pay for it and come back for more.

Vendors
Once-upon-a-time, a vendor was a company from which you purchased inventory, raw materials, and operating supplies. Today, if a vendor isn’t longing to be your partner, you’ve got the wrong vendor.

Of course, we’re at once a customer to vendors and a vendor to customers. Consequently, we have to find vendor-partners as well as be one. In these roles, it’s important to understand a concept that has become part of the romance between 21st century vendors and customers: seamless.

In a world of outsourcing as a management strategy, the goal is not merely to reduce in-house staff. If outsourcing is to work, products and services MUST be delivered so seamlessly to us by our vendors, and by us to our customers, that operating efficiencies actually improve.

Small businesses have a greater opportunity today to accomplish the hand-in-glove level of closeness required for seamless delivery. And we can’t deliver seamlessly to customers unless vendors long to be seamlessly close to us.

Employees
Back when the Carpenters were belting out hits, the employer/employee relationship was based largely on the Dominator Management Model, which is to say, not much closeness. Employees longed for the perceived job security and benefits of a paternalistic employer. But in the 21st century, employees are drawn closer to leaders.

Today, employers must be able to show employees that we long for them. The best way to demonstrate our longing is to close the gap between what the company needs and what employees want. This means finding and keeping employees who become stakeholders.

If you want employees to long for you, you have to suddenly appear as a partner longing to support their professional and personal fulfillment. And no one can do this better than small business.

Write this on a rock … Find and keep customers, vendors, and employees who long to be close to you.

Defending your business against Big Boxes and Cyber-Boxes

Besides the traditional, local, competitive landscape small business retailers must navigate every day, they also feel pressure from two other fronts to which they’re typically less adept at responding:

1. The Big Boxes, anchored around the corner.
2. Cyber-competitors, untethered in the Internet.

And pressure from the second one is increasing every day.

Here are a few ideas on how Main Street businesses can minimize the pressure from these two:

Big Box competitors
Let’s begin with these two truths:

1. Unlike Big Boxes, a small business doesn’t have to conquer the world to be successful.

2. The price war is over and you lost.

Your most qualified prospects and reliable customers are also the least likely to spend much time or money with a Big Box. The same feeling that attracts them to the customization and connection of your small business also causes them to be unimpressed by size and underwhelmed by poor service. Those who don’t fit this profile were never real prospects for you anyway; get over it – let them go. Your job is to re-enforce that “connection/customization” emotion by delivering value, not price, and quit trying to be something you’re not – big.

Online competitors
Those same customers just mentioned, who love your small business special sauce, still expect you to provide some level of online support. Your brick-and-mortar store doesn’t have to conquer the e-business world to keep customers happy, but you do have to show up online. Here’s what that means:

1. Two words that reveal why you MUST have a professional presence online: local search. Prospects and customers use local search every day – especially on smart phones – to find companies and consider their offerings. Disregard the imperative of local search optimization at your peril. There are professionals who can help you with this – let them.

2. Besides a regular website, yours must also be mobile-ready, including a hot phone link and directions. Nothing about your business’s past was mobile, but mobile will define your future.

3. Prospects and customers increasingly expect businesses they like to connect with them with useful information, service announcements, and special offerings.

There’s a reason the special offerings were listed last. “Connect” means by any means: email, text, Twitter, Facebook, etc. If you aren’t asking prospects and customers for their electronic contact information, which platform they prefer, and then connect with them there, your business will suffer the slow death of irrelevance. And remember, some will still just want face-to-face.

You can compete against the Big Boxes by merely not trying to be like them. And regarding traditional best practices and the virtual world, remember this: it’s not either/or, it’s both/and.

Write this on a rock … You don’t have to conquer the world; just show up and be yourself.

10 reasons to never be too cool for Old School

You may think you’re too cool for “Old School,” but there’s one thing it produced that you can’t be successful without: the fundamentals. Here are ten essential operating fundamentals that are timelessly, beautifully, definitively, non-negotiably, Old School.

Financial statements: Become an expert at understanding your financial statements. Spend more time with the numbers below the sales line on your operating statement. Non-negotiable.

Budgets: Yuck, right? But operations work best with a track to run on. Creating budgets isn’t hard – sticking to them is. Grow some discipline and get on track.

Cash management: Whether sales are up or down, you must be intimately familiar with your cash picture today, tomorrow, and six months from now. Do not delegate this.

Inventory: This is a euphemism for cash. Inventory that isn’t turning is declining in value and must be converted into cash – ASAP. And if you aren’t practicing Just-In-Time inventory management, do it now.

Vendors: Their success depends on yours. Talk to them about managing inventory, improving margins, lowering freight costs, and new ways to serve customers. Get rid of any vendor that only wants to sell you stuff.

Systems: These are the structured components in your operation which may be outdated and unproductive. Scrutinize employee schedules, delivery routes, opening hours, (your idea here). Nothing is sacred! Nothing.

Customers: Categorize them from the most profitable As, to the least profitable Ds. Worship the As, cater to the Bs, encourage the Cs, and let the Ds learn the meaning of self-service. You might even have to fire a few.

Products: Same song, different verse: A-B-C-D. Stock the fast-turning As, keep some of the Bs handy, and only a couple of the Cs. But never let a D spend the night under your roof unless a customer has paid for it.

Add Value: Find out what customers want instead of trying to get them to take what you need to sell. If you don’t add value to your customers’ operations, like your unhelpful vendors, expect to be fired.

Employees: Let them help you find efficiencies and opportunities. Encourage creativity and entrepreneurial thinking. Invest in training. Share your plan and let them help you accomplish it. Empower producers and cut the dead wood.

Bankers: Don’t be a stranger. Good news or bad, an informed banker can help you. But an uninformed banker is a scared banker, and no one ever got any help from a scared banker!
Focus on these Old School fundamentals and success will come and play in the New School backyard.

Write this on a rock … Even if you’re too cool for Old School, you still have to focus on the fundamentals.

Organizational special sauce: an intangible force

“Two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun.”

You may know this line as the commercial jingle describing the Big Mac that McDonald’s created to compete with the Hardee’s Husky, which came with essentially the same condiments, including Hardee’s own special sauce.

Over the years, the term “special sauce” has been re-deployed beyond the burger wars, from condiment to handy metaphor. Management and organizational commentators, like me, have co-opted the term to identify a level of organizational performance beyond extra effort. Here’s how I’ve observed organizational special sauce in the marketplace.

Organizational special sauce isn’t a strategy or campaign, nor can it be achieved with a slogan or mission statement. No special sauce was ever the child of an algorithm, big data, or other amalgamation of ones and zeros. To the chagrin of Wall Street quants, organizational special sauce is an incalculable, unprojectable, and intangible force. It’s 100% performance leverage produced by a single active ingredient: human beings loving to work together toward something they all believe in.

This leverage kicks in like a turbo after quantifiable, tangible leverage reaches its RPM red line. Every business would like to have organizational special sauce but few ever do, because the elements that foster it are not easy to achieve, including, but not limited to:

  • Hiring the best people, who are then respected and valued.
  • Excellence as a non-negotiable performance standard assumed by all stakeholders.
  • Leaders demonstrate all the aspects that define the word: courage, integrity, morals, ethics, commitment, decisiveness, humanity.
  • People are not interchangeable parts, as if they were modules.
  • Corporate values flow to the organization’s last mile as a minimum expectation.
  • Delegation includes responsibility AND authority.
  • Corrective action first presumes shortfalls result from best efforts, and the first management step is redemption.

Here’s how organizational special sauce manifests:

  • Peerless products and services.
  • Industry-leading employee retention.
  • Prospective employees line up to join the organization.
  • Employees and partners are proud of and claim the organization’s excellent reputation.
  • Ethical actions and integrity manifest as devotion to the unenforceable.
  • Customers become the organization’s best salespeople.
  • Teams work harder than they ever did, while having more fun than they ever had.
  • And the classic marker: quantum leap performance.

You can’t demand, buy, or acquire the intangible leverage of special sauce, you can only foster an environment that gives rise to it. It’s an engagement sweet spot that produces results beyond expectations and projections – quantum leap performance.

Organizational special sauce is possible, but rare in public corporations, because it doesn’t conform to the analytical expectations of the Wall Street 90-day conference call. Our here on Main Street it’s more prevalent, where small business leaders know special sauce comes from the intangible resolve of their valued and respected employees.

Write this on a rock … Contributing to organizational special sauce is one of the hardest and most beautiful things you’ll ever do at work.




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