CPA los angeles Archives | Page 3 of 11

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.

Pareto’s 80/20 Principle: Business Playing the Odds

Amazing, just amazing. No more than amazing, it was magic. That was my first reaction to the 80/20 rule when I reached into my pocket and saw that 20 % of the coins equaled 80% or more of the value. So, I read the book The 80/20 Principle, The Secret to Success by Achieving More with Less by Richard Koch.

That was a few years ago. Since then I have applied the concept of the book (and the 1906 Italian economist Vilfredo Pareto who created the principle) in many business situations. Here’s a few conclusions:

80% of your income is earned from 20% of your customers: This is a danger signal to businesses. If your income is lopsided like this, you must change the way you are marketing. For example: If you are a brick and mortaur business, you may want to hire an SEO/social networking consultant to broaden your reach on the Internet. Conversely, if you are a local business with a lot of internet, non-recurring customers, you may want to canvas the local neighborhoods. Look at your marketing plan using the 80/20 Principle.
20% of your Products bring in 80% of your Income: So, why keep the other 80% of your products if they don’t sell? This is why cost accounting is so important. You must know what your gross profit margins are per product and why they are that way. Oh, sure, you may have a 75% gross profit margin on Product A, but if you only sell 3 a month, you have to ask about the effort it takes to market it. Cut the stale products using the 80/20 principle.
20% of your Employees are Producing 80% of your Company Value: Now, before you start handing out pink slips, look at your employees with multiple dimensions. Are they underperforming because they are lazy? Unmotivated? Poorly trained? Or, maybe they have a specialty that you have not looked at which could set them apart. People are not simple and must be observed from multiple points of veiws. Test these views and make adjustments using the 80/20 prinicple.
As an owner or C-level management, are you spending 80% of your time performing tasks that others can peform, and 20% of your time bring in business? Delegate to someone’s highest level of competance. Don’t try to be a one person shop but build a company network of talented individuals that interact for a common, and ultimately great goal. Manage your time using the 80/20 Principle.

The secret to analyzing hidden business pitfalls is to not be bogged down in the minutia. As a business owner, you should manage your business and depend on others to build the wealth through their labor. Use the 80/20 Principle as a looking glass to focus on the right things in your business.

DeBabbitting the Business Strategy Process: Can Creative People Be Developed?

My grandfather left quite a legacy. He came from Italy as a boy to start a new life. He acted in and scripted silent movies, fought in WWI, tightrope walked between two eight story buildings (without a net) over a busy Chicago street, helped build navy ships as an electrician during WWII, and founded a successful restaurant with his wife and nine kids.

His success in the variety of endevours is grounded in one quality: creativity. Creativity is a right-brain function, natural to some and alien to others. Should all brain-storming teams have a business strategist who has this trait?

Coyne and Coyne’s article, Seven Steps to Better Brainstorming, tries to quantify this concept with a set of rules that can build business strategists within a group. Their article states that brain-storming sessions should proceed in seven steps:

Know your organization’s decision-making criteria
Ask the right questions
Choose the right people
Divide and conquer
On your mark, get set, and go!
Wrap it up
Follow up quickly

At first, I thought that maybe step 3 would meet the need for a creative strategist. But, to my disappointment, they only categorized the “right” person as one who knows answers to questions that are asked about the operations.

Still, any strategy that quantifies brainstorming raises an eyebrow. You cannot quantify creativity, and thus create a business strategist. However, the article intriged me because it referred to another article, Sparking creativity in teams: An executive guide. Ahh, I said, here is a place where the authors are referencing the important creative person, maybe the business strategist. Then I read the first sentence:

“Although creativity is often considered a trait of the privileged few, any individual or team can become more creative—better able to generate the breakthroughs that stimulate growth and performance.”

This opening sentence conjured up a new term in my head, Debabbitting. Debabbitting is any company process that aims to enhance creativity by forcing people into uncomfortable situations. But, in a business strategy session, people are most comfortable with what they know, and their usual approach to problems. In the classic Sinclair Lewis’s book Babbitt, George F. Babbitt, a mid-level company man, grew very uncomfortable when he tried to change his mundane outlook and style of life.

Now, don’t get me wrong, everyone has their special gifts. Most people are creative in certain circumstances. But, not anyone is creative in all circumstances. Take for example, a friend of mine who is a mechanical engineer. His forte is finding solutions to problems. He regularly uses creativity to find solutions to fix the problems. Yet, if you were to ask him to brainstorm outside of his element, he would struggle.

Les McKeown, author of Predictable Success, hit this point in his presentation at an Association for Strategic Planning–Los Angeles event. He spoke of his forth coming book, The Strategist–Leading Your Team to Predictable Success. At the meeting, Les described the different personalities in a business: The Operationalist (“O”), The Visionary (“V”), and the Processor (“P”). “O” is the person who solves problems, “P” does not solve problems, but will write a manual about it, and “V” is our creative person who doesn’t solve problems, and many times creates them. Though all of these roles are necessary, they conflict with each other. Therefore, Les introduced the “S”, the Synergist. The Synergist is the glue that brings all of the others together to arrive at solutions. I have find Les’s book more plausible then trying to conjeur people’s creativity. In fact, I would venture to rename the “S” as the Strategist, (the Business Strategist) because that person must strategize on how to bring all of the players together.

At first glance, you may argue that the business strategist is Les’s “visionary.” However, when you work in complimenting (and conflicting teams), you are creating a business strategist’s network, not individual. I believe Les said the roles are not cut and dry, but it seems to me that once you identify the gifts and each person’s own brand of creativity, the brainstorming session can evolve naturally.

So, how do you resist the temptation to Debabbit? First of all, you have to know your players, and their abilities. And second, you must use each person in such a way in which the process maximizes each person’s strengths. And finally, you must lead from the front by example to show the team how it can (and will) work towards a common goal.

Bad Strategic Plans: How Not to Build a Flying Carpet

When I was five years old my cousin Bill and I created a strategic plan to build a flying carpet. We wanted something that hovered over the ground about three feet (so not to be too dangerous). We also needed a steering wheel and a motor.

We had our passionate vision (I still get goosebumps), and all we needed were the materials to build it. Bill’s father was a carpenter and worked on cars. He had a garage full of parts that we chose from. So, we set out to collect the parts, or the tactics of our overall “strategy.”

We started with a piece of plywood. That was our “carpet.” Using manual saws, we cut a square out of another piece of plywood and mounted it on the larger piece with a 2×4. That was our steering wheel. Lastly, the motor. My cousin found a used automobile oil pump, it looked like a motor. We strapped it on.

We were finished and sat on it waiting for it to lift off the ground powered only by our imagination.

Richard Rumelt’s article, The Perils of Bad Strategy reminded me of that experience, and also so many prospects who call me to prepare a business or strategic plan.

Before, you consider a business plan, or a strategic plan, let’s look at some his points that are common to bad strategic plans.

Failure to face the problem: “A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one.”

A common idea for a potential business plan which comes across my door, is the creation of a record company by some musician that wants to publish, record, and write for other bands, or artists. The problem that they never address is that the current record company business model is broken. So I ask them what are they planning to do that is different? They usually don’t hire me when I ask that question, and I never hear of them again.

Mistaking goals for strategy: “A leader may justly ask for ‘one last push,’ but the leader’s job is more than that. The job of the leader—the strategist—is also to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.”

This is why motivational speakers (or life coaches) are not strategists. They work up passions to get people to give it that one last push, but don’t have the business skills to set the condition, or roadmap for them to do so. What good would it have been if my cousin pushed me down a sand dune on the wooden carpet if he did not lay out the strategic plan of how he was going to get it to fly?

Bad strategic objectives: “Another sign of bad strategy is fuzzy strategic objectives. One form this problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. A long list of things to do, often mislabeled as strategies or objectives, is not a strategy. It is just a list of things to do.”

When you are driving cross country, the mileage markers (Los Angeles 200 miles) are metrics that measure how far you have gone, and how far you have to go to reach your destination. A list of business metrics for the sake of metrics will not help you if they are not in line with your strategic plan.

Fluff: “A final hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.”

If you don’t understand this, try moving to Los Angeles and prepare a business plan/strategic plan for an entertaiment company. This city if full of this vibe. I see part of my job is to cut into this and get to the core issues of the business. I have to ask the hard questions and ground whatever assumptions the client is making.

The most important ingredient in a strategic plan is honesty. Entrepeneurs have to be honest with themselves and their potential investors. If they are not, the carpet won’t fly.