After spending time with many businesses it has become clear that just knowing a lot about your industry, finding money, and hiring good people is not enough to be successful. Quite a few owners have done just that and failed. The key to success is knowing the right questions to ask and answering them on a regular basis to make sure that your answers are still relevant. This is a perfect time to ask those questions to make sure that we have the right foundation for success.
Please read below to learn more about what is meant by each of these questions.
1. Purpose – Why does anyone need what you are selling?
Many companies define themselves based on the products they produce or the services they provide. This can get you in trouble. For example, if you were in the business of manufacturing and producing typewriters today, you could be the best in the world, but you would go out of business very quickly. The point being, you need to identify needs in the marketplace that are underserved for a large enough potential customer base, and attempt to meet those needs better than anyone else. As with the typewriter example, you need to stay in touch with what is going on in the world, because those needs change, and you may become irrelevant or miss out on bigger opportunities.
When revisiting this question it is not to question values, as I believe these endure and should not change. They are the essence of the company founder(s) and are discovered rather than created. What is important here is to ask whether people are adhering to those values and know what they are. As an organization grows more people, vendors, and subcontractors are acting on behalf of the company. The guide lines for making and how people are to conduct themselves must be clear. The leaders and founders cannot be everywhere, so institutionalizing a hand full of rules makes building culture easier. It must clear that failure to adhere to the guidelines will result in termination of relationship with the company. It is these core rules that create the culture of your company and help people decide whether they want to work for and do business with the company.
It is important to identify the customers you want a lot more of. When analyzing customer databases it is not unusual to find that the majority of revenue is made up of bad customers (e.g. pay poorly, less profitable, complain a lot, hard to service, do not give referrals, etc). This happens mainly because companies find it easier to get the bad customers, particularly when businesses first start and need revenue to survive. As companies grow, they continue to use the excuse of not feeling financially stable enough to afford to focus on getting ideal customers. However, it is this lack of focus that drains organizational energy and profits. Furthermore, building a base of bad customers leads to creating a negative image in the marketplace as to who you ought to be serving, and thus a company ends up being trapped.
If you cannot describe your strategy in one sentence, then you do not have one! Using Verne Harnish’s “Mastering the Rockefeller Habits” methodology, which encompasses Jim Collins “Good to Great” concepts, it is important to know what your brand promises are to your customers. This is really how you will deliver your product and/or service to your customer in a way that will make you stand out in the marketplace. These promises have to be important to your customer, add value to the end product, and allow you the ability to differentiate yourself. They recommend that you choose your leading promise and have two following promises. For example, at Southwest Airlines their leading Brand Promise is “Low Fare,” and the other two promises are “Lots of Fun” and “Lots of Flights.” Choosing this strategy proved to be very profitable. By delivering on these promises better than their competition, they have been the more profitable than all the other airlines combined.
This tells you whether your strategy is working and how strong you are versus your competition. Too often companies are growing because they are in a strong market or because of acquisitions. In reality, they are turning over clients and losing market share to the competition but they are not recognizing it. If market share is increasing, you know you have a good strategy. Particularly if a large percentage of your sales are ideal customers in your target market. If your answer is “no,” it is time to make changes or expect more of the same. Companies that ignored these signals got hit hardest when the economy turned and are having the most difficulty recovering.
This is an important question that many companies do not spend enough time asking. It is important to understand how technology may render you obsolete. What could competitors do if they knew all your weaknesses? Could they steal significant share away from you, and are any of them doing it? Who are some of the new emerging players, and what are they doing? You have to be careful of phantom competition, as these are the organizations that you do not normally perceive as competition until they are taking customers away. For example, big life insurance companies such as New York Life were able to enter and take a large slice out of the wealth management industry. What trends are going on that could drive pricing down or cause your clients to take another look at the competition?
These are 3 to 5 ranked priorities to be addressed in stages in multiple projects spanning several years and quarters, in a systematic way, to build a company and allow it to own the ideal customer market. It takes into account what is known about market trends, internal strengths and weaknesses, competitive trends, and external opportunities and threats. You should visit this list at least once a year to make sure it is complete and prioritized properly.
8. “What are the key initiatives that must be accomplished for financial soundness of the company while driving toward the long-term goals of the company?
The company draws upon 3-to 5-year priorities and selects which ones they can afford and need to make progress on in the next 12 months. It is important to prioritize them and not to have more than 5 initiatives. It is important to recognize your cash limitations and how to strengthen your cash position. Without cash you are in trouble. Then you decide which to tackle in each quarter based on the biggest needs at that time and those which you believe will have the most significant impacts.
In other words, does your organization’s structure support your strategy, and will it deliver on your promises. If you are missing any seats, it is like a chain missing a link: it will not hold together. For example, if the company strategy is fanatical customer support but there is no one in the organization that holds a position to give voice to the customer, then there is a problem. Then everyone is responsible for customer service but no one is accountable. It is likely that you will fall short on this brand promise.
This is called strategy mapping. It is important to match key performance indicators with each position, looking at leading indicators so that once everyone produces required inputs, the end results will be likely. For example, let’s say a company has a sales goal is $10,000,000. An “A” player in sales can be expected to get 5 meetings a week from networking and cold-call activities. Those meetings will result in 4 proposals a month, and they will close 50% of their deals with an average deal size of $42,000. So you can expect them to produce approximately $1,000,000 each.
“A” players do 3 times the work of the average player, so you can get much more productivity out them. If you hire wrong and/or keep a poor performer you will likely not achieve your goals. If they are not already working at an “A” level, then you have to decide if they can become an “A.” If not, you need to upgrade immediately. If they can become an “A,” you need to take the appropriate steps to get them there. This is critical to achieving your goals. Using the example above, we needed 10 sales people to achieve the sales goal. Well that assumed all “A” players. Therefore if you do not have 10 “A” player salespeople at all times during the year you will not achieve your goal. The “B” and “C” players will produce less and vacancies will kill you. In a typical sales organization 80% of the sales come from 20% of the people. So by hiring incorrectly the cost to manage, train, excess salary and pay the other 80% relative to the level of sales they produce is unacceptable. While sales is an obvious example, productivity differences can happen in every position in your company. The more critical the position to the company the more damage it will do if you hire a “B” or “C” player.
Many business owners are so focused on fixing their business and their customers that they do not realize how hard they are pushing their employees and for how long they have been doing it. It is one thing to try to hire employees with passion, and wanting them to love the company and all. In the end, you will never find anyone to be as passionate about the company as the founders, and financial rewards only carry so far before people burn out and start listening to their spouses and friends who they miss spending time with. You need to observe body language and solicit input. You need to let them vent, encourage honest feedback, and be willing to let them take it easy for periods of time. Not just one week-end here and there. It is amazing how owners get to the point where they can take their long trip and enjoy life because they earned it through all their sacrifice. However, many of the employees out there are also sacrificing quite a bit and if not careful you can drive away some great ones by being too selfish.