Everywhere you turn today, there’s someone offering you ‘added value’. Companies promise it in their advertisements. It’s the big issue in empowerment deals. Prospective employees punt it as the reason to hire them. But what does it really mean? Should you believe it? And if you think it’s a good idea, what can you do to make it a reality in your company?
As business conditions continue to tighten around the globe, managers can do one of two things to pump up their profits: cut costs or deliver new value.Cutting costs is usually the easier of the two courses. In the blink of an eye, you can fire people, cut the advertising budget, cancel computer upgrades, say “no” to charities, and put training on hold. This is the way most firms respond when the going gets tough.
Delivering new value takes a lot longer. It’s also a lot harder. You not only have to figure out what it might be, you also have to produce it. In an increasingly cluttered marketplace, everyone is hustling to give customers the next new thing. Today’s whizz-bang product is obsolete tomorrow. Services that win applause one minute are ho-hum the next. So poking your nose out from the pack, and then staying ahead, is a big challenge.
Into the fray comes the notion of value-based management, or value management, which promises to be ‘the big issue’ in business. Value management is not a new idea, but it’s now a headline idea. Any company that ignores it is asking for trouble. Entrepreneurs and executives who don’t practise it will fall.
So what is this hot new concept? What should you do about it? How can you make it a way of life in your business? And how on earth can you introduce yet another theme or initiative into your organisation without taking people’s eyes off the ball, and maybe causing even more confusion than already exists?
Here’s the good news, value management is:
- Plain commonsense
- A way to focus attention and resources on critical issues
- A discipline that will help you pull together a lot of what you’re doing already
Begin with your business purpose. If it’s not fundamentally to make money for shareholders, you’re in trouble. Your company is unlikely to be around for long. Other stakeholders matter, of course. You can’t get along without customers, suppliers, employees, government, and so on. Nor can you ignore the needs of the society in which you operate.
But face it: a company is a money machine. If it doesn’t make more money than it uses, it is a parasite. There’s no chance of it paying taxes, creating jobs, training people, funding sports events or the arts, cleaning up the environment or doing any of the other ‘good works’ expected of it.
Many people won’t want to hear this. There are growing pressures on business everywhere to be ‘a good citizen’, to be more socially responsible, to do the right thing. But there’s a heavy cost to all of that. So while it’s a fine idea to ‘manage the triple bottom line’, the priority must be to deliver cash.
The only way to do that over the long term is to connect with customers, give them products or services (or both) for which they’ll pay the highest possible prices, and encourage them to keep buying for a long time.
If this seems terribly basic, it’s not all that common. Every firm could improve its results just by thinking through what this means. Companies like to boast that they have the best people, that teamwork is a way of life, and that they’re developing leaders at every level. If only that were true. In the real world, too many firms have a few enthusiastic people and a mass of frustrated conscripts. Imagination and spirit are sadly lacking. Value destruction happens in countless ways, every day. And always, the culprit is lousy management!
Value can only be created if your people know what you’re trying to do and if you manage them in a way that turns them on, not off. You can’t dictate it and then sit back or walk away. You have to make it the central issue in your strategic conversation, you have to talk about it constantly, and you have to walk your talk. Value management means just what the term says – managing for value. Today, it’s the only way to compete.
Value Management: Critical Basics
- You have to decide who your ‘right’ customers are – the ones you’ll focus on. If you don’t know which customers are best for your business, you’ll be tempted to chase anyone in sight. Result: you’ll waste money and energy on the wrong customers, and serve the right ones badly.
- You have to decide what value you’ll offer your customers. Your value proposition – your promise to them – has to be clear to both you and to them. Recently, a senior marketing executive in a big company that had fallen on hard times told me the company was well on the road to recovery. “We have a great value proposition,” he said. But when I asked him what it was, he struggled to tell me.
- You need to tailor your business model to support your promise. Every element of it must be a building block in the value-creation process. No nice-to-have or just-in-case bits, no flab, nothing that will get in your way.
- This is perhaps the most crucial step: you need to take your team along with you so your good intentions turn into action.
You Are Your Own Client
Before you can build a start-up that takes over your industry, you need to treat yourself as your own best client.
In business, when you have a client, the relationship is formalised into a structured one where there are defined expectations and regular meetings. For example, if you are a consultancy and have a one-year contract to deliver services to a client, the relationship will be formalised, structured and possibly include monthly status meetings. Some may be report-back meetings while others may be briefing meetings.
Your client will receive a monthly invoice and there may be quarterly reviews of the work you have done. Your general mindset is one of service to the client because they are important and worthy of the effort. Crudely speaking, most service-provider arrangements work in a similar way because the structured model works.
In contrast, as entrepreneurs, our relationship with our own business is often far more chaotic or ‘organic’ than formal. My contention is that it is also much less effective. When I work with SMEs, one of the first things I do is encourage the entrepreneur to treat his or her own business as a client by formalising meetings, ensuring that there is a feedback loop and having a service-provider mindset. By making these philosophical and structural changes, you will create a far more efficient and well-run business.
There are four aspects to any business which, in my view, should be formalised.
It still astounds me how informal the meetings are between partners in SMEs, especially when they operate from the same office. There are no set times, no agendas and no outputs required. The fact that you might sit in the same office or chat regularly is the problem because it’s interpreted as proper communication while it’s actually a very undisciplined and unstructured process. Casual chats do not ensure that all the requisite items or issues are being properly discussed and dealt with.
The often-given excuse for not holding weekly, biweekly or monthly meetings with team members at the same date and time is that the business is fluid and the entrepreneur needs to be responsive to their clients’ urgent needs whenever these might occur. And so non-rhythmic meetings are occasionally inserted into the gaps in between the chaos.
The discipline that I try to imbed in the SMEs I work with is to hold rhythmic meetings at a certain time and day every week, month or quarter. Should there be a need to cancel this meeting for whatever reason, it should be rescheduled. The simple discipline of rescheduling and not cancelling allows for a compromise between the practical reality of an entrepreneur’s life and the discipline required to build a sustainable business.
Agendas are often seen by entrepreneurs as an icon of the structure of the corporate world. They smack of rigidity, stuffiness and boredom so they are often discarded and replaced with warm and fuzzy chats. In reality, in order for it to be an effective use of time, every meeting requires a structure, outline or agenda.
This can be a comprehensive agenda similar to that used by corporates or as simple as each person in the meeting talking about their three top-of-mind issues. What is important is that there is structure and outputs, otherwise the meeting’s output is merely that it’s nice to know. The output from a meeting with a formalised agenda is that it’s nice to do.
4. Product review
When last did you, as an entrepreneur, formally ask yourself if your products are still relevant and effective in the market? One of the greatest oversights made by SMEs is not regularly reviewing the appropriateness of their existing products or services. In a high-growth, chaotic environment that is attuned to constantly producing new products, existing products soon become the ugly stepchild, only getting attention when the client cancels the contract because your competitor has a faster, shinier and cheaper iteration of your product. An incredibly important discipline in any business is the regular and formalised review of products and services.
We resist structure as entrepreneurs and the price of that resistance is ineffective and inefficient businesses. By simply treating ourselves as we would our clients, we are able to imbed a level of structure to our businesses that will create a far more effective and enduring business.
What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?
Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.
While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.
Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.
What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.
The illusion of holding more than 50% of the shareholding in a company
- Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
- Examples of decisions that require a special resolution include:
- Amending a company’s Memorandum of Incorporation
- Approving the issuing of shares or granting of other similar rights
- Authorising the basis for determining directors’ salaries
- Disposing of company assets
- Mergers and acquisitions.
So, what does this mean for you and your company?
- If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
- Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
- If you intend to merge with another company, you will not be able to pursue this without a special resolution.
- If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.
Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.
There’s More To Team Management Than Leadership
When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.
The staff that work for you determine:
- How happy your customers are with your business
- The quality of the things that you sell
- The costs that you incur to sell your products and services
- Your risks – the things that can go wrong and how much it costs you
All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?
At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:
- Giving too much or
- Getting too little
- Then this is unfair, and they won’t work well (poor productivity – how much they produce).
The manager needs to:
- Know what people are thinking about what they are giving and getting and
- Manage the giving or getting side
- So that people become more productive
In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.
How do you increase happiness without money?
- Job security – knowing that you will still have a job next year – and that you will get paid on time.
- Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
- To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
- To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!
Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.