STRATEGY.
Q1: I have a ten-year old business that is doing reasonably
well financially. What are the basic steps an outsider should
take to audit our company's strategy? I don't want recommendations
for a new strategy; I just want to know the state of the current
one. -Question asked by a CEO of a $10 million products company
in CA.
A1: The "state" of your current company
strategy depends primarily on two things-one external and one
internal. First, the outsider needs to develop a comprehensive
picture of how and where your company fits in the market(s) it
currently serves. This requires an analysis of, for example,
market size, competitors, market shares, trends, and a synopsis
of how your company is conducting itself in the marketplace.
Second, the outsider needs
to understand your true expectations for the business. Your company
is selling something to somebody (your "strategy")
in order to achieve some end. The quality of your strategy on
a scale of one to ten is a judgment call on how well you are
getting where you want to go doing what you are currently doing.
For example, suppose your objective is to systematically milk
cash from your business. Then suppose the external analysis shows
your competitive position and share are declining due to a lack
of new products, an underpaid sales force, and minimal advertising.
Is your "strategy" sound? Yes, it probably is. Maybe
it's even a "10." It is producing precisely the results
you seek, namely, your strategy is generating excess cash you
can extract.
STOCK OPTIONS
Q2: Shall I give my three to four key people stock
options in my company? I want to keep them motivated and attached
to the business. -Question asked by the President of a small,
well-established sail-making company on the Pacific Coast.
A2: No. Options work best when there is a management
team in place with a viable plan to increase the tangible value
of shares. For example, options may have value if a company goes
public or is sold outright to a larger company. In your case,
you have no conscious intent or desire to do this. You aren't
really interested in selling either part or all of your life-style
type business any time soon, if ever. So spreading options around
would be a hollow gesture. In addition, worthless options can
haunt the issuer in a variety of ways. To achieve your objectives
(motivation, retention), look into experimenting with a conservative,
profit-sharing program of some kind.
WE'RE PROFITABLE.
WHAT NOW?
Q3: How do I take advantage of our initial success?
We just finished our first year in great shape. Business is booming.
-Question asked by the owner and main chef of a new retail grocery
store-deli-restaurant combination.
A3: Commandment Seven in my "Ten Commandments"
book (see BUILDING A BUSINESS section) reads: "Expand methodically
from a profitable base toward a balanced business." Currently
your business isn't balanced because it depends heavily on you,
personally, and the 60+ hours a week you put in. If you become
ill or burn out, the business will suffer. You should consider
channeling some of the proceeds from your success to date into
building an element of the business that is less dependent on
your special skills as chef. One example: You have some packaged
products you sell casually now. With the help of one or more
qualified people, you should explore expanding production and
selling more products.
WHERE FROM
HERE?
Q4. How do I present my business best to a potential
(corporate) buyer? -Question asked by CEO of a small but very
profitable, high-tech company.
A4: Step back from the business, which has been
the centerpiece of your life for many years now, and identify
objectively how the addition of your company will help your potential
buyer accomplish one or more of these results:
-Increase its sales via additions to existing product lines.
-Increase its sales via additions of market segments not now
served.
-Decrease certain (specified) expenses via consolidation of effort.
-Minimize or reduce capital or R & D expenditures in the
next year or two because...
-Enhance the buyer's reputation because...
-Increase its profitability because...
In short, outline for the buyer
the positive, immediate impact your company will have on his
or her own business's results.
TOUGH TIMES
Q5: We have a flood of challenges right now, external
and internal. What do we do to prevail in our company? -Question
asked by a senior team of three who own and manage a $40 million
products and services company in the Midwest.
A5: You have been succeeding for some years. You
may need to trim your plans but don't discard them. Meanwhile,
re-visit the basics:
-FACE UP to the reality of the actual operating environment.
Some managements spend too much time hoping tomorrow will be
like yesterday and waiting for that condition to arrive. Actively
re-examine customer needs, competitor moves, industry trends,
the state of your balance sheet. Adjust your plans according
to what you find.
-KEEP all of your key people signed on to the reality you see
and a current set of shared aspirations for the enterprise. People
riding in the plane, first class or coach, like to hear from
the captain during turbulence.
-STICK with a crisp strategy, one that keeps everyone concentrating
on truly serving a finite group of customers. No company can
be all things to all people; the alternative is to be some things
to some people. Doing this takes continuing discipline.
-TWEAK your organization design, processes, and procedures so
that people and ideas must move around. You want controlled agitation
so that fresh approaches can get some air and a hearing. Innovation
can be cultivated in companies of every size. And it should be.
-WALK what you talk-quality, cost controls, customer service,
integrity, etc. Identify and invest energy and resources in people
who make a discernible difference in the actual performance factors
of the enterprise, over time.
-UPDATE your corporate rituals, vocabulary, and day-to-day habits
so that they are consistent with your adjusted ambitions and
plans for these times. Little things, like the words you use,
often give off big signals. Words are the stepping stones for
thoughts.
