Left, right and centre I hear business owners talk of their “strategies.” It sounds as if everybody can do it. Yet when last can you remember a strategy break away that actually produced real results?
Yes, it’s easy to set revenue and profit targets, then make plans how to market and sell better so that we can increase revenue. It’s as easy to increase our margin and therefore our profit by cutting costs.
So, there you have it, what could be clearer than that? Market better and cut costs – that’s your strategic planning. All that’s needed to complete your strategy weekend is a powerful rah-rah session from you, the CEO. Usually along the lines of: “If you can dream it, you can do it!” So, if the strategy fails it’s an issue of everybody not having pulled their weight and the search for culprits begins. What a cheap shot, don’t you think?
Business strategy in a nutshell
Unfortunately what you have been doing is at best an exercise in efficiency and optimisation: Trying to make your company more profitable by being more efficient. You can call it strategy if you want, but it misses the really difficult nut to crack.
Hard core strategy goes beyond an exercise in efficiency and optimisation because it requires you to take a long, hard, critical look at the stuff that you must do to get you company lean, mean, efficient and functioning at its optimum.
Let me explain. There are three indispensable features of efficiency and optimisation that you need to execute if you want to remain in business:
- You need to deliver quality
- You need to remain close to your customers
- You need to benchmark to assure that you don’t fall behind your competitors.
These are all good things that you must do and nobody that ignores these will remain in business for any length of time.
From ‘what if’ to success
Hard core strategy takes the opposite tack. Hard core strategy asks “What if?” questions:
- What if my quality is too good? What if there is a low quality competitor waiting to wipe me out?
- What if I am too close to my customers so that I have become blind what newcomers to the market want?
- What if my benchmarking let me improve, but in the process I destroy my differentiation in the industry?
Hard core strategy questions the assumptions of everyday business efficiency. Let me give you some examples.
Can quality ever be a bad thing? Yes, if the client can make do with less. Sometimes, would you believe it, they just don’t care! A good example is the media industry. Newspapers had well designed, cool websites but then came this crazy individual Craig Newmark with Craigslist and destroyed the most profitable part of newspapers, the listings advertisements.
Craig hat crappy design quality, but he single-handedly destroyed an industry. We all know Gumtree, another good example that you don’t need crisp well-designed typography to take on the big boys! Do yourself a favour and go to www.vg.no ( I don’t expect you t read the Norwegian!) and see how this website looks that is most successful in attracting, readers, keeping them and monetising.
In the high-tech industry I have seen so many companies hell bent on competing on quality and going out of business, instead of saving on the hight costs of quality and competing on a different, less expensive value proposition.
Keeping customers close
This brings me to the second point: How can keeping close to your customers be a bad thing? Clayton Christensen convincingly demonstrated this in one of the two or three business books that the great entrepreneurs in the world such as Andy Grove and Marc Andreessen recommend: The innovator’s dilemma.”
He treated the hard drive industry and earth excavating equipment. In both cases the powerful incumbents were so close to their customers that they did not recognise a new market opening up. The guys making hard drives for desktops heard their clients telling them, bigger, bigger, more memory, faster, faster.
In the mean time the laptop market was opening up and there bigger was a problem and customers would willingly sacrifice speed for smaller. The big hard disk manufacturers lost control of the industry because they were eaten up by the poorer quality products. In the end they did not even retain their hold in what they were good at! History repeated itself when flash memory developed.
None of the incumbents understood how important super mobility and super small was, even though that was how they conquered the big hard drive manufacturers! Hard core strategy asks: “What if the client does not know best?!”
Finally, what is wrong with benchmarking? First of all there are some features where you should be worse than your competition! Better “in every aspect” costs money, too much money. It means that you sacrifice margin and therefore profits!
Secondly, if bench marking results in you erasing the differences between yourself and the competition, you destroy your ultimate competitive advantage, the holy grail of strategy: DIFFERENTIATION. Hard core strategy requires you to say no to each and every improvement and pick those improvements that will enhance your differentiation.
Sometimes you should even intentionally scale down on features where you are too good without them contribution to you differentiation.
Anybody for hard core strategy?
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.
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