Business Plans Archives

Strategic Planning: Can you Imagine a Shop Selling an Affordable Dress Designed Specifically for a Person’s Body Type? It May Be Just Around the Corner.

When I was a teen (1970’s), the coolest place for car alarm systems was Ross Stereo located on the West-side of Los Angeles. Ross developed very custom systems tailored to the car and the owner’s specifications. My cousin, Bill, tried out one of them. Ross showed my cousin a Cadillac whose motor was running, windows down, and doors locked. Ross told my cousin to drive it away. My cousin accepted and got into the car, and shifted it into “drive.” Immediately, the engine shut off, the windows went up, the doors locked, and the alarm sounded leaving my cousin helplessly trapped in the car. A “custom crook catcher.”

This kind of product customization had only been available to those who can afford to pay for it. Things are changing, though. Gandhi, et al, article, How technology can drive the next wave of mass customization discusses how mass customization is really close for the individual. For example, can you imagine buying a shirt that is made to fit your body type?

Gandhi writes, “We believe the time for widespread, profitable mass customization may finally have come, the result of emerging or improved technologies that can help address economic barriers to responding to consumers’ exact needs in a more precise way.”

The operative words are “profitable” and “mass.” Sure, you can customize most anything, but in a profitable way for the masses? This was only a dream a short time ago.

Another example is one shown to me by Doctor Lester Silverman of Look Optometry in Manhattan Beach. Dr. Silverman showed me a set of frames that can be immediately customized for a prescription. The use of such frames could be for a vacationer who has lost or broken their glasses. The patient would need an emergency replacement pair but are leaving on the bus in a couple of hours. Now, these are not your designer frames, but just a temporary pair that Dr. Silverman would create using a machine in his office. As far as your designer glasses, he told me that there are so many different frames and patient requirements that this kind of in-house manufacturing is not here, yet, but the trend has started. But the day is probably not far away where most designer frames can be customized while you wait instead of sending the order to a lab, that will return them in a week.

The problem has always been cost,but Gandhi proclaims, “Mass customization has the potential to help companies increase revenue and gain competitive advantage, improve cash flow, and reduce waste through on-demand production.”

The technology is here in many situations for mass customization. 3-D scanning is an example.

In your strategic planning sessions, you should identify the trends as “opportunities.” When you develop your strategic plan, you should always look 10-20 years in the future. If you are a small– medium sized business, you are most likely not going to develop these technologies. (If you do, then your strategy should be designed for a rapid expansion.) However, your strategy should be tailored for growth.

Back in the early 1950’s Admiral Television manufacturer took a chance and sponsored Sid Cesar’s comedy show. Their strategy was to sponsor a show that would help promote this new form of entertainment in the home. The problem with their strategy is that they did not anticipate the massive demand for televisions. They were forced to stop sponsoring Sid Cesar’s show because they needed the resources to build new television manufacturing plants to meet the demand for televisions. Our first television was an Admiral (blonde wood finish).

Obviously there are two areas you must examine: Increased value to customer and control cost of customization. According to the article, the aspects that must be considered are marketing, sales, product/service development, operations, supply chain, and IT infrastructure.

In any event, in strategic planning and implementation you should always keep one eye on the horizon and the other on the step in front of you.

Cash Flow and the Life Blood of a Business

My youngest son, Austin, likes to play the “net cash game” method of settling debts. I owe him $10, but then I pull out a twenty, he then takes out five ones from his wallet and states I now owe him $15. Then we exchange back and forth until the accountant in me realizes that I paid him $25 for a $10 debt. At 16 he bought an Audi…no surprise.

Business cash flow with customers and vendors can seem like the same game. Taking from here to pay there, paying partial or late payments to vendors to “make payroll.” Dan Ginsberg writes about this in Ten Steps to End the Dash for Cash. His point is well taken. Too many small and medium-sized businesses do not look at the underlying reasons for working capital shortages.

Here are some areas you should consider in addition to looking deeper into his suggestions:

Take a close look at the profitability of your services or products: Too many companies are afraid to discontinue losing products or services thinking that they will come around. There is no room for favorites in business. You must take a hard look, but before that, you must determine that your costing information is accurate. This requirement is a cost accounting function. If you do not have good information to make your decision, then your decision may not be a good one.
Take a close look at the profitability of your customers. Have you ever read The 80/20 Principle by Richard Koch? The book argues that clients that represent twenty percent of your revenue are absorbing eighty percent of your company’s time? Can you think of customers like that? If you do, you should consider whether they are worth keeping. Remember, that extra time can be used to bring in better clients or service clients that are more profitable.
Generate a list of monthly metrics that represent the health of your cash flow: Most business only look at monthly sales. There are several other cash flow metrics that you can monitor in order to gauge the health of your business. List them and use them.

Cash flow is the blood of a business. Take its pulse and regulate it to a healthy future.

Is it a Good Business Practice and Strategy to Hire a Ghost?

It worked for Disneyland in their haunted mansion, but will it work for you?

Living in Southern California had one big perk for a young lad, Disneyland. Growing up, I would go one or two times a year, and would ride the attractions over and over. One of my favorites was the Haunted Mansion. My cousin Bill and I watched it being built for years tying to imagine how the Disney Imagineering could conduct a ride in a fancy mansion. We weren’t disappointed once it opened. What I recall was at the end of the ride was a miniature female “ghost” hologram. After exiting the pod you were riding in, you would get one last thrill riding up the escalator by this woman who would say, “Come back! Come back!” It was just too cool, especially to two 12 year old boys.

Now, this holographic technology has made it to the mainstream as a hologram, virtual assistant that offers customers information in place of a real person. (Hologram Employees: Can Virtual Workers Replace Real Ones? by Anthonia Akitunde.)

These holograms come with a basic touch screen to help visitors ask questions. The article claims they will be everywhere in five years. (You have already seen them on live concert stages like Tupac (pardon the language).

If you are an industry leader with a heavy cost in sales personnel, you may be asking if this is right for you? The answer is that you are answering the wrong question.

It is very tempting to follow the herd without thinking. But you must remember the first step in business development: Develop and implement a strategy. Jumping into the latest and greatest is not a strategy, it is an orphaned tactic. It would be like setting sail on a brand new boat with no map or compass.

Strategic planning is a “must” for any business. To ignore this step increases your risk of failure, or at least solidifies years of frustration. You must stop, step back, and lay out your 10-20 year plan with strategic planning aspects. A great combination is to lay out the strategy in light of your current accounting situation, and then monitor it by combining your strategy with your accounting tactics. These will be the milestones that will monitor your progress.

Good business practices dictates planning. And planning is not a ghost that hovers in the back of you mind. It is a real, deliberate direction that may prevent failure.

The Fourth Industrial Revolution? Or Should It Be Called an “Evolution?”

Remember when Tron came out in the movies? No, not the last one, the first one with Jeff Bridges in 1982. They spoke of terms like “memory” and “data.” These were really foreign terms to the “not yet prime time” personal computer generation. The whole concept just wasn’t comprehensible to the general public thus leading to disappointing box office receipts.

We are there again, but now in reality. The Internet of Things and the future of manufacuring published in McKinsey & Company discusses the next threshold in manufacturing. That is, the ability to link manufacturing into some cyber-physical system into some global supply-chain. In fact, some say the technology already exists. Andreas Tschiesner states in the article, “…manufacturers will need to coordinate with more and more suppliers–often globally, and with longer transport times, more manufacturing steps, and significantly more parties.” He also predicts that “container logistics in maritime shipping” could become Stone Age. I believe he takes this stand because we will no longer be shipping massive amounts of parts to store in different segments of the world, but supply smaller quantities of parts on demand.

But what does this mean to the smaller business? The obvious answer is that the smaller business person must positioned their company to be in this “process and device” supply chain before their competitors. In other words, using the emerging global integrated systems to serve customers more efficiently. Especially if the business is the last piece of a supply chain in the manufacturing of a product.

If a business supplies services, then the concept can be the same. Let’s say a business supplies personnel around the world. The integrated Internet system can position and supply teams at a much quicker pace.

The challenge for the small business is to develop a strategy that can accomodate such technological advances without starting all over again. This would be an evolution of their strategy, not a revolution.

Your Small Business Needs More than Futuristic Tattoos In Order to Take on a Life of its Own

Remember the old movie, The Illustrated Man with Rod Steiger? The book was based on Ray Bradbury stories. In the movie, the main character Carl was covered in tattoos from head to toe (not so unusual today). People who looked into his tattoos(illustrations) would see the future.

Carl didn’t have a good strategy that would allow his business (or hobby) to survive him. Once he passed on (or retired), so would his practice of fortune telling.

Mike Periu could have given Carl some good advice in 4 Ways to Make Sure Your Business Outlives You. In his article, he really sets out points that can be a part of a strategic plan:

Prepare a written succession plan
Document all important procedures
Gradually turn over control of key relationships and duties
Purchase a life insurance policy

These are good points, but they contain a hidden fatal assumption, which is that your small business can actually be transferred to another owner. Many small businesses, especially in the service sector, are really the owner’s alter ego. In other words, customers buy from these types of businesses because they want the skills of the owner, not the business. You can see these in the professional arena like doctors, and obviously in the artistic world like acting.

However, it doesn’t have to be that way. Take Oprah, for example. If she restricted her business strategy to acting or performing as a talk show host, then her product would only last as long as the tape plays, or reruns. However, she leveraged her talent to produce other programs and the “O” network. Arguably, the “O” network will continue after she stops working.

But what about a small business? Does it stop existing when the owner retires? That is up to the owner. If the owner of a small business restricts the development of others in the company, then he will restrict the marketability of the company when he sells.

An owner must delegate in a planned manner with a vision. If the product or service requires the owner to personally be involved in all aspects, then the small business owner must use that “talent” to leverage other products or services that do not require the owner’s hand-holding. Once this is found, then a strategic plan can be developed and implemented. Then, the fort points offered in Periu’s article can be incorporated into the plan.

Dislodging Nipples in a New Market

During my teenage years, I worked for my step-father’s plumbing company. Of course there were times that I would get the disgusting jobs like going to the deepest part of a sewage spill to place a sub-pump. But at times, I would learn different ways to use common tools and objects. For example, sometimes we would repair sprinklers. like the times a sprinklerhead with a galvanized nipple (not plastic like today) was broken off. A portion of the nipple would be left in the fitting. To remove and replace this nipple, we would use something very unusual…a large (1/2 inch?) drill bit. I would pound the drill bit into the broken nipple and turn is with a pipe wrench unscrewing the nipple out of the fitting.

And within a couple of years, somebody adapted the shape of these drill bits to do such a job, adding a handle and such to make it a specialized device to remove broken nipples. IT was called an EZ out tool. It reminded me of my friend Seena Sharp where in her article of Sharp Insights wrote, ” The question is not just who needs what you are selling, but who else needs what you’re selling.” How can you find them? How can they find you?”

In other words, in my example, a drill bit company could have adapted their current product to tackle a new market that didn’t even remotely connect with drilling holes. To understand this though, the drill bit company would have to understand the customer’s needs of a whole different market, and the current trends of that need.

But the analysis doesn’t stop there. In addressing the current trends, the drill bit company would have to understand the changing industry. If they were to discover that the sprinkler industry was converting from galvanize to plastic, then their drill bit nipple remover could reach obsolescence before they recouped their investment in R & D.

Another trend could be that people are moving from sprinklers to drip systems. These types of market analysis can be the difference between a company blasting into a new market with successful results, and a company arriving too late to an industry that has changed.

Before moving into another market, understand it. Then develop your strategies.

The Strategy of Ordering the Larger Pie

Today, I had breakfast with my friend, Narciso. Narciso’s company deals in commodities. Now, I can’t really tell you much about what he deals in because I don’t want to compromise his strategy or position in his industry. However, his commodity has both financial and tax rewards.

Before continuing, here is a little history. Prior to the Reagan tax acts, tax-shelters were the name of the game. Now, I am not talking about moving money offshore to the Netherlands Antilles, or buying a pallet full of Bibles at a deep discount so you can donate them at FMV 12 months later.

No, I am speaking of apartment buildings, commercial strip malls, and commercial buildings carrying historical credits. Most of these “tax shelters” evaporated with the dodo bird since they were “passive losses” and could not be offset against your active income like W-2s and businesses.

However, there are some investments that are not restricted by passive losses, and are still included in investment portfolios of the very wealthy. The problem with the previous paragraph are the last two words, “very wealthy.”

So many investment salespeople tend to limit their strategy to a very small segment of our population who control 99% of the wealth. The salesperson’s rationale is, Why spend 10x more energy to get ten people to invest, when I can just work on one person who is 10x more wealthy?”

With the improving economy, I believe this is a poor strategy for these reasons:

Many competitors are jockeying for this small market.
If one of your large clients discontinue with your company, you most likely will feel the effect. Therefore, your risk is concentrated.
There may be a number of people in the top 90% that can use this product is delivered to them in an understandable way.

This reminds me of Jim Collin’s comments of why Nucor became the greatest at steel manufacturing. They started with new technology, a new internal culture and moved from producing the lowest gauge of steel to the best. Their competitors like Bethlehem Steel abandoned the lower markets, and as the Nucor tides rose, they also dominated the higher grades of steel.

In the same way, by developing a marketing strategy that addresses the top 10% of our population, instead of just the top 1% for this commodity tax shelter, the sales manager would be creating a “large pie.” According to Dr. Stanley Abraham’s book, Strategic Planning, this marketing analysis would incorporate this attribute of target market, with other attributes like degree of penetration, customer needs, and distribution channels.

Business should not be content with fighting for a larger share of a smaller pie. Many times, this strategy reduces all competitors to a commodity because the target market cannot distinguich one competitor’s offering to another competitor.

Never a Better Time to Be Strategic, Even if You are Not a Strategist

Is this the dawning of the age of the strategist? Maybe we have a new song, here. Where is the 5th Dimension when you need them?

Actually, it is according to an article in the
McKinsey Quarterly by Birshan and Kar. Becoming more strategic: Three tips for any executive. But the authors are not necessarily discussing the traditional strategist. Instead they are writing about strategic thinking by corporate executives.

The article points out that “…more senior leaders in strategic dialogue makes it easier to stay ahead of emerging opportunities, respond quickly to unexpected threats, and make timely decisions.” Also, their study confirms what I have been writing about for two years, i.e., that business leaders are in their positions due to their functional skills, not their strategic skills.

One of the theories that I use in introducing clients to strategic planning, is the Blue Ocean Strategy. Most business people seem to understand the concept of re-inventing their industry. The type of clients I love to introduce this to are the artists because I use drawings which seem to trigger their right brain processes.

In regards to small business owners, I always use the same line to express their “functional” as opposed to “strategic” thinking. I tell them that small business owners want the answers to two questions: What are my sales? And, do I have enough cash to make payroll? This may sound funny, but stop an think of the way you think of your business.

If you are a musician, you may ask: What are my record sales? And, when are my next royalty checks due?

If you are to be an industry leader, you must get out of this mindset. You cannot lead thinking historically. You must think prospectively, and strategically.

The previously mentioned article offers three points to help you think strategically:

1. Understand what strategy really means in your industry

2. Become expert at identifying potential disruptors

3. Develop communications that can break through

These cryptic suggestions can help, but the most important suggestion is that you must clear the minds of you and your company. You can’t think strategically if you are struggling to put out fires. This only results with functional thinking.

Whether you are an artist, or a business person, you must think of your industry as ever-changing and full of opportunities waiting to be discovered. The place to start is with your target customer. What is the industry delivering to them that is useless? You’d be surprised in the superfluous services and products delivered to target customers because the industry players believe that is what the customer wants. When you find these attributes, it will free up resources to offer clients what they really need but not delivered.

After taking this first step, you can creatively redesign your industry one step at a time.

Cyclical Fashions and the Strategy of Business: Don’t Keep Playing the Same Old Tune

My piano tuner told me he has a leads on two great pianos for sale. One was a Yamaha S series, the other a Steinway O Series. He has tuned them both for years, so he knows of their condition. I was tempted since I have a ten year old Young Chang, but it works and looks great.

Have accoustic pianos lost their “luster?” They have according to William Loeffler’s article, Pianos aren’t a center of attention anymore. The article suggests that this just may be a misleading trend. In other words, the abandonment of pianos is overstated, or just a trend.

The same trends happen in business. When a manufacturer creates a new trend, how long does it take for industry followers to copy it? In today’s technology, faster than ever. Are you one of those businesses that just look to copy the next trend, or are you a trend setter?

So how does a business become a leader, and not a follower? According to Kim and Mauborgne’s Blue Ocean Strategy, “Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.” An example used in the book was “Big Bertha” a metal driver with a large head. This club made it easier for “noncustomers” or non-golfers to hit the golf ball. In other words, Callaway converted non-golfers to golfers and expanded not only its market share, but the entire market population.

If you continue to play the same tune, you will eventually sound like a broken record. Businesses must evolve. The minute you feel like “you’ve made it,” is the minute your competitors will start gaining ground.

The term buyers value, is ignored by businesses that follow trends. It is common for entire industries to supply services or products to a target market that does not want them. In other words, companies should focus on what businesses need and cut the chaff of what they don’t need.

A Strategy to Measuring Your Strategy

About eight years ago I road in the Wildflower 50 bicycle rally outside Atascadero, California. Now, at the time my wife entered us in the “race” of 50 miles, I had not ridden on a bicycle for years. In fact, I didn’t own a working model. So the day before we drove up north to meet our inlaws to ride in the rally, we purchased two road bikes that had ten gears. They were not racing bikes, or even mountain bikes, but they looked alright and were on sale! I assembled the two bikes (which came in boxes) the day before we left and road around the block to test my craftsmanship. Since I made it around the block without losing a wheel, I figured I was “ready to roll.”

The next day, after we received our identification numbers, we set off on the ralley. The terraine was beautiful and I was enjoying the ride…until about mile 5 of the 50 mile course. My butt hurt. That was just the start of the long arguous ride that I was ill prepared to compete. The low point at about mile 40 was when I was going up hill. I heard a bicycle bell ring behind me with the feeble voice of ,” On your left!” I moved over just in time to see two old ladies on a tandem bicylce pass me saying, “Thank you, honey.” I thought my critical success factor in the race was to finish the race. After being passed by two 70 year old women, I realized that I had used the wrong measure for “success.”

Most small business leaders that I encounter do not use adequate measures of their strategies. Usually their measures are: Do I have enough money for payroll? And, what were my monthly sales?

Years ago, I was involved in reviewing a book, Driving Your Company’s Value: Strategic Benchmarking for Value by Maud, Dunne, Osborne, and Rigby. My late friend, Jim Rigby introduced to the measures that the book and philosophy proposed. The book identified and measured gaps in hard performance through the Mobley Matrix cash flow analysis and the DuPont formula’s Return on Equity shortfalls, as well as soft performance (groups of people marching to a different drummer). The book professed that by identifying, measuring, and managing these hard and soft gaps, the company will be able to bring strategy, systems, and people into alignment, thus maximizing value.

The Mobley Matrix using the the following financial statements: Beginning Balance Sheet, Income Statement, Cash Flow Statement, and Ending Balance Sheet is the first component for your data. Add to that, the Dupont Fomula and other metrics and you arrive at their Return on Strategic Effectiveness Scorecard (ROSE). This scorecard consists of many metrics including: sales related, turnover, and changes in cash flows. Business owners and strategists can benefit by establising critical success factors to see if they are in alignment with their strategy.

Strategy is important, but without measuring its implementation, it is almost sure to fail.