CPA Firm Los Angeles Archives | Page 3 of 9

Business Vision and Goals: Understand the Target You are Aiming For

In the early 1970s, I watched a Stanford professor choose Jim Plunkett, (Stanford’s star quarterback) to demonstrate perception and the brain. The professor placed a pair of glasses on Jim that caused his vision to be distorted, shifting everything he sees to the right about 20 degrees. Jim missed his attended receiver throwing consistantly to the right by 20 degrees.

Drawing his share of laughter, Jim compensated and started aiming 20 degrees to the left, thus hitting his receiver about five times. The professor explained his point about perception and congratulated Jim on his adjustment. As Jim took off the glasses and proceeded to sit down, the professor asked him to throw one more pass with no impairment to show the crowd that the professor did not ruin the star quarterback’s talents. Jim laughed and passed the ball one last time. The ball soared past the receiver by 20 degrees to the left. His brain had not re-adjusted.

The Association for Strategic Planning-Los Angeles (ASP) had the honor of hearing Deepa Prahalad speak on September 13 at the beautiful Dole Corporation auditoium. Deepa spoke of her book, Predictable Magic, and its message to identify company goals. She stressed that if you have only broad goals, both your customers and employees will not understand what the company stands for. She suggested that you must become the interpretor of your message.

As in the case of Jim Plunkett, if you cannot see what you are aiming for, you will miss your target. The start of a good strategy is to have a clear vision of what you want to accomplish. Just to have a vision to be your industry leader is not good enough. Once a business establishes a viable vision, they can create a path with quantitative metrics to move towards that vision. Jim Plunkett’s vision changed, so he has to alter his tactics to get there.

Business today is always changing, so a vision you had five years ago will most likely be obsolete, or commonplace in your industry. The ASP preaches the steps of Think-Plan-Act, but if you are thinking about the wrong vision, your plans and actions will lead you towards a failing destination.

How Does a Small Business Grow? You Can Try to Think Like A Rock Band

We were called the Mini Playboys. Three ten year old musicians who temporarily put down their rock roots to play old standards, big band, and Italian songs. The band consisted of a drum, guitar, and accordion. We almost never played like this for our friends for the obvious reasons, but played at old folks parties and restaurants. Heck, we each earned $5.00 an hour in 1967 when minimum wage was $1.40. Great money! Our band focused on a strategy to hit a particular niche market, and it worked for 2 years until we went our separate ways.

I came across an article by Apryl Peredo, So, You Want a Label Contract? The article listed 5 reasons why bands are not signed by record labels. The article laid out some good, though basic advice to young band members. However, as I read the article I substituted the word “small business” for “band.” It also seemed to translate into good advice to those small businesses that are looking to grow their business. Here is what I mean:

We don’t sign “newly formed” bands. Customers who are looking for value and trust like to see an established business. This also pertains to expertise. I remember working for an accounting firm who declared themselves as experts in any area where they performed a single engagement. That hardly builds up the trust you want with your customers.
We don’t sign undeveloped bands.As a business owner, you must walk before you run. Starting small is not bad, it allows you to make mistakes without risking too much. Design your strategy to build slowly and in control or you may find yourself in the “white water” (Les McKeown’s definition in Predictable Success).
We don’t sign unknown bands. Customers and clients like to see a reputation, a good reputation. In looking at E-Bay, I noticed that some of the most successful businesses are those who have hundreds of good ratings. This weighs a lot with a new customer, so build your fan base.
We don’t sign people/band we meet at parties. Very few people would hire an attorney who advertised door to door. There is just a culture that discourages that kind of selling for that profession. It may work for a realtor, but not a surgeon. Learn your industry’s norms and culture.
We don’t sign based on “oral” favors. Business character counts. Always be beyond reproach in your client solicitation practices.

The article summed up a band’s quest to secure a label contract with “persistence, practice, professionalism, creative development, and hard work”

That is good advice for any small business looking to grow. Very few businesses make it “big” over night, and the ones that seem like they do, worked at it for years.

Good and Bad Aspects of Small-Medium Sized Business Strategies

When I speak of “strategy” to business owners or entertainers, I usually get a blank look. Small and medium-sized businesses usually don’t have a specific business strategies. However, what they don’t realize is that they do have a strategy, formal or otherwise, and it was probably a bad one.

The Perils of Bad Strategy by Richard Rumelt discussed this concept of bad strategy. Rumelt defines a strategy as “a way through a difficulty, an approach to overcoming an obstacle, a reponse to a challenge.” The problem is identifying the challenge.

I have met business owners who refuse to face the problem. Why?

Their ego gets in the way. They want to see the business in their own light, and not reality.
They are afraid to look at the business problem. The owners literally bury their heads in the sand like an ostarich and ignore the problems.
The business owner is excellent at their trade, but not at management of a business.

Rumelt also states that business owners mistake goals for strategies. “We want to raise our sales revenue to $20 M in five years. So? That is not a strategy, that is a goal. I hear that type of talk all of the time from clients. They point to the “where,” but not “what,” and then the “how.” They don’t look at their core competancy (or Hedgehog concept as explained by Jim Collins in Good to Great.) And recently, I have not even been able to get that far because the company’s internal reporting system is inadequate.

The third hallmark of bad strategy discussed by Rumelt is “fluff.” I see this in the entertainment industry business propects. I remember one prospect that wanted to start a new record company. It was a typical scenario, a group of musicians and friends who are financed by a rich parent or two. This particular group set their entire strategy of one guy who was going to write for them and any band they sign. I alerted them the risk of establishing a company on the back of one unproven talent, especially in an industry who is still searching for a new business model. I didn’t get them as a client.

As a small business owner, you don’t have to hire someone to create a 100 page strategy complete with the history of your company. In fact, you can find someone to do it in about an hour. Then, as a small business owner, you should impliment it faithfully.

Charismatic Business Leaders: What to do afterwards? A Problem to Be Avoided

I can remember back in the late 1970s when only engineers and escentrics operated an apple computer. My neighbor brought me over and tried to explain how the large odd-shaped device worked. MS-DOS was not invented, and my attention span waned.

Business has embraced many aspects of Apple, along with the consumer, driving it beyond Microsoft’s highest endeavours.

But what happens without Steve Jobs at the helm, and how does this series of events relate to small and medium-sized businesses?

Kathleen Pender speaks of this issue in Maintaining success after exit of a charistmatic CEO. However, she really is not addressing the right questions. Does a company need a charasmatic leader? Or, what kind of personl should lead a company?

Jim Collins writes about these in his two books, Good to Great and Built to Last. In Built to Last he states that visionary companies do not require great charismatic visionary leaders. “In fact, [they] can be detrimental to a company’s long-term prospects. Some of the most significant CEOs in the history of visionary companies did not fit the model of the high-profile, charismatic leader.”

In Good to Great, Jim states what kind of leaders should lead a company. Level 5 leadership during pivotal transitional years “refers to a five-level hierarchy of executive capabilities, with Level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitous first and foremost for the company, not themselves.”

Steve Jobs seemed to fit this definition. He seemed to push the company, not himself which will help foster the Apple tradition long after he departs from it.

Small and medium-sized business owners should take note of this distinction. I find that so many owners sell their personas, not the company. This is almost fatal in two respects:

When the owner wants to sell the business.
When the owner dies.

In both cases, the inherent value of the company is tied to the owner, not the balance sheet. If he goes, it goes.

So, how do you get out of this vicious circle. I recommend:

Read the E-Myth by Michael Gerber. The author descrives the owner’s chokehold on a business, and why a business of that type struggles to grow.
Train, train, train others to do specific tasks that you perform. If you are worried about losing your customers to you employees, create a system of divided labor where each person performs specific tasks, but you still hold the key to putting it all together.
Set out a timeline for an exit plan. When do you plan to sell the busiess? How big does your business have to be before you sell it? What annual metrics can you measure to make sure you are on your path?

Quantify you feelings. Don’t dream of a company that you cannot measure its success or milestones. You can be a visionary, but the it is not about you, it is about your business.

Strategic Thinking: Don’t Confuse Tactics for Strategy

“There’s nothing worse than a sharp picture of a fuzzy concept.” —Ansel Adams

“There is nothing more wasteful than becoming highly efficient at doing the wrong thing.” –Peter Drucker

Mike Michalowicz’s article The 90-Day Method: A Strategy For Business Growth in Difficult Times offers some suggestions for business to strategize. He says that a business owner should ask what they have done in the last 90 days that has brought results, and then replicate those things that were successful. Even though these may sound like sage advice, they can be interpreted as tactics instead of strategy.

I found that Bill Birnbaum’s book, Strategic Thinking, A Four Piece Puzzle, distinguished between the two very well. Bill defines strategic thinking as a top-down big picture. When thinking strategically, you are not concerned about whether you ran a double-shift to produce your product. That would fall under Mike Michalowicz’s “things you did right,” but would be a tactic. Instead, Bill Birnbaum argues to think strategically, “you would consider the needs of your customer, the benefits you offer that customer, and the reason your customer buys your products or services.” In other words, you’d be concerned with doing the right things, rather than doing things right.

Another way Bill put it was that you use strategic thinking in deciding what to do, and tactical thinking in deciding how to do it.

Thinking tactically is very tempting because most managers and owners are in the trenches “putting out fires” and fixing problems.

But why is it important to think strategically? Strategic thinking is important because it results in a strategic vision that is shared among your management team which is based on the team’s deep understanding of the business.

Don’t get me wrong. Strategic planning is a highly structured process with well thought-out objectives and a number of strategies designed to accomplish these objectives.

So, what is the easiest way to think strategically? A commonly used tool is the SWOT matrix. Most managers know that it stands for strengths, weaknesses, opportunities, and threats. However, where business people miss their marks is that they don’t consider these four attributes in line with their key success factors. According to Bill, you must list these factors this way. For our organization to be successful, we must be especially good at the following three activities…

Taking these steps will help a lot in getting business owners to think strategically in order to see the horizon, and not technically in order to just avoid the pot hole in front of you.

Are Business Strategies Obsolete? Does it Matter?

My wife and I have started a new hobby of collecting and reselling small antiques. We really enjoy “the hunt,” but one of the most rewarding aspects is our increased knowledge of 100 year old household tools. One such item was a nickle/steel handle with a cone cup on the end. The cone cup had a butterfly handle on the end of the cone that turned blades inside the cone, scraping the sides.

Almost nobody guessed its function, which was a Delmonico ice cream scoop.

Today, the basic operation of the Delmonico ice cream scoop is the same, scoop it up, and scrape it out.

The McKinsey Quarterly published an article by Bradley, Hirt, and Smit entitled Have you tested your strategy lately? The article listed ten tests of which most companies strategies failed. The first test was the most comprehensive, “Will your strategy beat the market?”

Looking at my Delmonico ice cream scoop, I question whether any of today’s companies can execute a strategy that can produce a product or service that can be an industry standard 100 years from now.

A major complaint about American corporations is that in the last 25 years, they have been striving for the short-term profits, and not planning for the distant future. We have seen that in the auto industry.

But what about small/medium-sized business strategies? Will they follow in the footsteps of the some of the large corporations?

That all depends. If you are like most small/medium-sized businesses, you are only concerned about Sales and whether you have enough cash to meet payroll.

Bradley’s ten tests may be a good place whether you are in the business plan or seasoned stage. In my experience, most businesses of these sizes could not pass three of these tests.

Managers and owners must review their strategies continuously during its implementation. Too many fall into The E Myth (Michael Gerber) and have the business run them, and not them running the business. Or as Gerber puts it, ” working on your business” as to “working in your business.”

When it comes to strategy, Bradley et al proclaim that it is not the newest strategy that a business owner should find, but flaws in their current strategy.

Business Acumen: Beware of Useless Advice

There are brilliant people that study for years to provide brilliant advice based on solid, empirical evidence. Then, there are others that just talk well.

Financing, Outsourcing And 7 Other Tips from an Expertby Shira Levine, touts the advice of two business women, Amy Abrams, and Adelaide Lancaster who are releasing a book in September based on 100 interviews of entrepreneurs.

The article sets forth the following advice:

You’re never finished with your homework
Really ask yourself what you want out of your business
Focus on what is meaningful to you vs. what you are passionate about
Figure out your business goals
Determine what to outsource
Find access to capital
Specialization is key

Now, I have not read the book. And based on these seven points, I probably won’t buy it. The reason is because these points don’t present a case that is no more than common sense. Business people do not need motivational speakers or cheerleaders. Instead, they need experience, knowledgeable and trained people to give them real advice of what, how, and when to do things.

To prove my point, if you were to buy this book, may I suggest that you spend an extra $50 and buy the following:

Good to Great by Jim Collins

Blue Ocean Strategy by W. Chan Kim and Renee’ Maugorgne

Predictable Success by Les McKeown

If you do not have the time or budget to read those, at least buy a smaller guide, Achieving Strategic Alignment by Barry MacKechanie.

Most of these books are critically acclaimed with sound business advice based on years of research by highly educated and experienced strategists. In these books, you will find recurring themes.

Compare what they say to Abrams/Adelaide book if you choose to buy it. Small business owners cannot hire the seasoned professional, but can learn from them through their writings. Business acumen has a price, but the inability to develop it has a much bigger price.

Startup Strategy: Are You Playing the Same Old Tune?

My college-aged son played “Satin Doll” with his jazz band in a local upscale restaurant last week. I turned to my wife and told her I played that song in a big band music group back in 1969. The 1953 Duke Ellington song is still timeless. But the same old tune doesn’t work for business startups.

The Digital Music News reported that nearly $15 million dollars was thrown at music startups in July bringing the year-to-date total to $143 million, Spotfly representing almost 1/4th of the total.

So far this year, about a half a dozen startup record companies have approached me to design a strategy and business plan for their new music venture. They always have the same plan: 360 deals, sign up and write for other bands, run on a shoestring budget.

I always reply, “So, what are you going to do different than the other companies, because their business models are broken.”

I always get a blank look because they only seek to do what others have done unsuccessfully before them. This of course allows me to do my Blue Ocean Strategy speach. I also thrown in my bad strategy caution.

A large componet that I stress to startups is that you must focus on your consumer. What is the consumer asking for? What are your competators giving the consumer that they don’t want? Are you able to create a strategy where you can extracate those things the consumer is not asking for and present a product or a service to the consumer that they are not getting from your competators?

Business consultants seem to produce the same framework for startups. To think like those who have come before you will not turn your startup into a resounding success. I am not saying that you should launch a startup based on some hairbrained scheme that you have not researched. No, instead, you should make informed decisions and take calculated risks with your startup.

In addition, don’t paint only a rosy picture of your startup, but present scenarios that show breakeven, normal, and pie-in-the-sky financial projections.

A CPA/Planner Tip on How to Survive in the New Business Economy

I worked with a plumber, Dan, when I was 15 years old. I learned some plumbing, but mostly I ran to his truck for tools and dug ditches…lots of ditches. Dan told me that I was good, but I wasn’t as good as “Speedy” from Big Springs, Texas. Speedy earned this ditch-digging title over all of the other plumber helpers.

One day, the boss bought a mechanical trencher. A trencher required one operator to walk behind it and guide it. Everybody wagered bets. Some on Speedy and the others on the trencher. Speedy was amazing digging a ditch along side the machine who worked at a steady pace. Speedy actually pulled a little ahead, until he had reached about twenty feet. Speedy started to lose steam, and slowly dropped farther and farther behind until the machine had reached the forty foot finish line, first.

This story parallels many situations in our new business economy. Of course, as a CPA/Planner I have seen this scenario in the world of business and in history, e.g., the steam locomotive, blacksmith, and prop-driven passenger aircraft. However, today’s new business economy has injected this phenonemon with steroids. Not only do you have to be ahead of your competition, you have to be ahead of your industry and any verticle industry that may steal your market share.

Take Apple for example. Twenty years ago when they were pushing the Macintosh, who would have guessed that they would now dominate not only the personal computer world with their ipad, but the music delivery system, itunes?

John Mariotti’s article, What’s Your Impossible Dream? tries to inspire business people to think big in whatever they do. He encourages people to do what they are good at, and what they love to do.

CPA/Planners take issue with motivational speakers. They seem to push people downhill but really give no guidance to where they are to go, and how they are to get there. That just won’t work in the new business economy because jobs are increasingly driven overseas, the wealth has been sucked into the top 5% of our population, and governments are being increasingly squeezed and cannot create jobs.

Looking at it from a planning perspective, I recommend Jim Collin’s books, Good to Great and Built to Last. Jim speaks of the three circles: Passion, economic denominator, and best in the world. In other words, do what you are passionate about, do something that can make money, and do something that you can be the best in the world at. The intersection of these circles should be your BHAG (“Big Hairy Audacious Goal”). In addition, keep your plan simple. Jim called it the “hedge hog” concept because the hedgehog was the best of doing just one thing to outsmart a fox.

Of course, as a CPA, I would suggest you quatify the economic aspect of this application.

The new business economy will require you to choose your path very carefully, but with all the elements above. To take the safe road may reduce you to the masses and risk whatever potential you have.

“Far better to date mighty things, to win glorious triumps, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory, not defeat. –Theodore Roosevelt, 1899

Financial Independence: Does That Define Your Small Business?

I grew up in a family of small business people. It started with my grandparents who opened an Italian restaurant in 1949 with their four high school children. At that point, my grandfather would arrive at the restaurant at 4 am and make the pizza dough that would raise by 9 AM. However, at 6 AM he was at Terminal Island in Los Angeles building navy ships as an electrician. Several years later, he achieved financial independence in which he could retire from shipbuilding and work full time at the restaurant. The restaurant supported, in part, five more of his children, and a couple of dozen grandchildren who worked such jobs as pizza makers, waitresses, dishwashers, and parking lot attendants.

This memory of small business financial independence came to me when I read Nell Merlino’s article, Building a plan to achieve financial independence with your small business. Nell lists three good points: Recognize your worth, get a mentor or coach, and don’t fear math. But even with these, you will not achieve the small business financial independence if you are unable to delegate to others. The end result is that you will end up working 80 hours a week in a business that you cannot sell and dies when you die.

The book, The E Myth Revisited by Michael E Gerber will help you understand your “worth” by leveraging your talents in supervising others. Most small businesses cannot achieve financial independence if the owners perform all of the main functions themselves. It is very hard to grow your business in a predictable and productive way, if you are so concerned with the nuts and bolts of the operation. You must step back and train others. He states that you must transform your thinking from a technician’s perspective to an entrepreneurial perspective. For example, Michael distinguishes these views as, “The entrepreneurial perspective asks the question: ‘How must the business work?’ The technician’s perspective asks: ‘What work has to be done?'”

In most cases, if you choose a technician’s perspective, you will not achieve financial independence because you will have to solve every problem yourself. In addition, you will not be able to enjoy (or even go on) a vacation because you will be on the phone every day putting out fires from your vacation spot.

The most important goal this year should be your financial independence. Identify where you are in your business, where you want to be, and how will you get there.