Why strategy vs. the P&L is important

investor-readinessStrategic planning is critical to business success, it is not just about the revenue model and P&L.

Different from classic business planning, the strategic variety involves vision, mission and outside-of-the-box thinking. Strategic planning describes where you want your company to go, not necessarily how you are going to get there. However, like all other “travel plans,” without knowing where you want to go, creating details on how to arrive are meaningless. Strategic planning defines the “where” that your company is heading.

Delivering a strategic plan is one of the most important things any organisation, regardless of size can undertake.  A well-formulated and executed strategy establishes the foundations against which the organisation can create, monitor and measure their success. And yet many people find strategy and its purpose difficult to articulate.

swot-analysis (1)Why is strategy important?

Strategy is fundamental to the success and sustainability of any organisation for the following reasons:

  1. Understanding your company and industry

Strategy allows organisations to develop a clearer understanding of their own organisation and what is required for them to succeed. It helps organisations understand their core capabilities, identify and address weaknesses and mitigate risks. It can help organisations better design themselves so that they are focusing on the right things that are the most likely to deliver the best performance, productivity and profit both now and in the future.

  1. Growing in a changing world

Understanding what is taking place within the external environment is important to preparing a strategy that will ensure long-term profit and growth. Understanding changes that are taking place in your industry, or with your market place is important.

Because if you don’t adapt you die. Even successful businesses need to realize that what made them successful today is not what will make them successful tomorrow. With the rate of change becoming faster every year, it’s increasingly important that we understand what trends are going to impact on our business and our industry, and how we’re going to respond to them.

Whether political, social or technological, we need to what changes are going to affect our businesses. And we need to know how our organisation can respond to them. It enables us to find opportunities for growth and sustained profitability and it can help us identify and respond to changes that could make us extinct.

It is important that you understand what can affect you and your business both short term and long term.

  1. Creating a vision and direction for the whole organisation

All organisations and their staff need to understand their purpose, their destination and the course they are taking to get there. A company without a strategy is akin to sending your staff into the desert and leaving them to follow mirages in search of water. Without a destination and focus in mind your staff will wander aimlessly from one activity to the other never knowing what to focus on or how to prioritise.

Providing an organisation with a common purpose, goals and a set of actions to reach the goal ensures that everyone is working for the same outcome (your organisations success) and that time and resources are being allocated to the same goals and objectives. Simply it streamlines your business and ensures every pound and minute you spend on the business is in the direction of your sustained success.

While strategy is can be difficult for many organisations to commence, its benefits are far-reaching and many. From creating new business opportunities, to streamlining the operations and engaging staff, a well-formulated strategy will enable increased growth, productivity and profit both now and into the future

Why the P&L is important?

For a long time, the answer has been “more.” Ever since Frederick W. Taylor did time studies of steelworkers with a stopwatch in 1900, the measurement of business activity – called “Greater Taylorism” by Walter Keichel in his business history “The Lords of Strategy” – has grown ever more central to management. One result of this drive to quantify and analyse has been that senior executives often create numerous profit centers, or isolated groupings of both revenues and expenses nested within large businesses.

The two benefits are obvious. First, profit centers allow these executives to make better decisions. In organisations whose various revenue and cost accounts are not linked, poor economic performance can be hidden by positive results elsewhere, and decision-making is clouded. Second, profit centers help make accountability clear. By giving managers direct profit and loss responsibility, companies can incentivise activity that measurably contributes to the bottom line.

Finally, for a coherent strategy to work, then, the organisation executing it must be measured as a whole, rather than as parts. In other words, if a company is to have a single strategy, it must be driven by a single P&L.

The balance of IQ vs EQ, is it necessary?

iq+eq=successI was recently in attendance at a Non-Executive Directors panel and evening, discussing the big debate over IQ vs. EQ, whilst I enjoyed hearing the collaborative panel, I really enjoyed the final summary around the facts from a Chief Business Analyst at a ranked Business School, the facts are and without a showdown of a doubt business has lacked in leadership, the statistics speak for themselves, but why?

I completed a TV interview a few years ago where I spoke on The Emotional Wake of Transformation. People in leadership love the title but can they really deliver the skills? If this is the case, what is the cost to the business without the right leadership?

Einstein, Plato, and Da Vinci are some notable personalities known to have an IQ of over 160. Evidently, they are truly geniuses in their respective fields. But does having a high IQ guarantee a one-way journey to success?

IQ

Intelligence quotient (IQ) is an evaluation of a person’s technical intelligence and logical reasoning. If you take an IQ test, you will be presented with questions to assess the following competence:

  • spatial ability, a person’s capacity to visualise space and shapes
  • mathematical ability, how a person uses logic in solving problems
  • language ability, the recognition of meaning from incomplete sentences and jumbled letters
  • memory ability, how a person recalls information

EQ

Emotional intelligence (EQ) is the measure of a person’s capacity to be aware of his own feelings and the feelings of others. Daniel Goleman, author of the book Emotional Intelligence (2005), indicated the different facets of emotional intelligence. It revolves among the following:

  • self-awareness, the ability to understand one’s emotions
  • self-management, the ability to have control over emotions
  • social-awareness, how a person develops relationships
  • relationship management, how a person treats others with compassion

EQ IQTake an example  a company middle manager with a high emotional intelligence quotient (EQ). As such, he is more than capable to recognise his emotions and those of others around him; his communication style is intuitive, motivational, and engaging; and he naturally uses empathy, as well as creative and emotive language – such as “I feel” and “I wish” – in his emails and office pep talks to make a connection with his staff.

His company director,  meanwhile, employs a direct, no-frills communication method. She requires “only the facts” and thrives on logic, and her preferred head-over-heart method of communication is sparse and to the point. Hers is a high IQ (intelligence quotient) functioning approach, which tends toward the cognitive, intellectual, analytical, and rational.

Two different people, two varying communications, contrasting styles. And this is where a difficulty can arise in business because while both are shooting at the same goal, they might as well be playing for different teams. As a result, the directors can suffer an awkward breakdown in communications, simply because they are not operating on each other’s wavelengths. Worse, their clash of cultures could have an impact on their working relationship.

Of course, a controversial IQ/EQ friction is not simply restricted to the office because it can also be an issue in the wider business world, for example when an EQ-driven director meets  IQ-driven customers, prospective clients, or peers and fails to make a connection with them. It may even be a contributing factor in his company not winning a lucrative contract. Either way, be it an internal or external IQ/EQ conflict, it has the potential to hamper good business, or turn good business bad.

Demonstrating the right balance is fundamental for the success of a business, that means putting the right processes into place that accelerate a balance of IQ and EQ, the future of every business is dependent upon it!

The below list is different for every individual candidate, but these tips are a good place to start:

  1. Seek opportunities to demonstrate that you can add value within the business by getting actively involved in a diverse range of projects. It’s important to be able to show your achievements beyond delivering accurate and timely work.
  2. Get as much practice as you can attending meetings or contributing to team initiatives. Many directors/ professionals see themselves as introverts and don’t want to ‘put themselves out there.’ In reality introverts are often excellent communicators because they are good listeners – the most important attribute for empathising well with others.
  3. Bolster the skills that are holding you back. Instead of adding another technical degree or certification to your resume, think about developing the soft skills that will boost your EQ.
  4. Go beyond the numbers to think about the impact your work has on different aspects of the business and the people who do those jobs. What insights can you give the sales team to help them sell more or make more profitable sales? If you think and communicate from a broader commercial perspective, you’ll soon get the attention of management.

Organic vs Acquisition Growth?

boardroomWe have been discussing the positives and considerations of organic growth vs acquisition, this is a very topical subject especially with a buoyant M&A appetite, buy and build company structures are ever increasing and within fragmented sectors.

So how do you turn a small business into a big one? Or, grow an already significant company into market dominance? For business owners and executives, these are the critical questions that demand sound planning, consistently astute decisions and successful execution.

The approaches to growing businesses are as numerous and diverse as the range of businesses themselves. While small companies tend to favour an internally focused organic approach and large companies usually favour growth by acquisition, both avenues are open to companies of any size. The key is formulating an appropriate strategy, and assembling a strong business case based on the strategy.

Build or Buy?

Either “build or buy” can be effective, but each present risks and trade-offs that must be carefully considered and skill fully addressed if success is to be achieved. Whether the growth strategy is introspectively organic or includes such inorganic approaches as mergers, acquisitions, joint ventures, or organic-inorganic hybrids, care must be taken in planning and execution to ensure the end result creates real value and positions the business for future opportunities.

Growth From Within

Businesses that pursue organic growth – growth from within – learn that such growth requires time and nurturing, as expanding must be done prudently, at each point biting off only what the business can chew, and allowing each move to digest before expanding further. The risks of organic growth lie in expansion that outpaces the ability to effectively manage, stretches resources too thin, strains capital, or diverts focus from the business’ core mission. Businesses that grow organically can control their rate of growth and normally face less cultural and integration challenges than those that choose an inorganic strategy.

Inorganic Growth-Accelerated Approach

With inorganic growth, via mergers, acquisitions, and joint ventures, market share and assets are immediately larger, new skills and knowledge become available, and access to capital and new markets may be easier.

If you have decided to purchase an existing business instead of starting from scratch and you’ve done some initial research to find out more about the business you’re thinking of buying. What now? If the business still looks promising after your preliminary analysis, your next step is to have your acquisition team (your accountant, solicitor and banker) should start examining the business’s potential returns and its asking price. Whatever method you use to determine the fair market price of the business, your assessment of the business’s value should take into account such issues as the business’s financial health, earnings history, growth potential, and intangible assets (for example, brand name and market position).

loaded dollyTo get an idea of the company’s anticipated returns and future financial needs, ask the business owner and/or accountant to show you projected financial statements for the business. Balance sheets, income statements, cash flow statements, footnotes and tax returns for the past three years are all key indicators of a business’s health. These documents will help you do some financial analyses that will spotlight any underlying problems and also provide a closer look at a wide range of less tangible information.

Among other issues, you should focus on the following:

Excessive or insufficient inventory.

If the business is based on a product rather than a service, take careful stock of its inventory. First-time business buyers are often seduced by inventory, but it can be a trap. Excessive inventory may be obsolete or may soon become so; it also costs money to store and insure. Excess inventory can also mean there are a lot of dissatisfied customers who are experiencing lags between their orders and final delivery or are returning items they aren’t happy with.

The lowest level of inventory the business can carry.

Determine this, then have the seller agree to reduce stock to that level by the date you take over the company. Also add a clause to the purchase agreement specifying that you’re buying only the inventory that’s current and saleable.

Accounts receivable.

Uncollected receivables stunt a business’s growth and could require unanticipated bank loans. Look carefully at indicators such as accounts receivable turnover, credit policies, cash collection schedules and the aging of receivables.

Net income.

Use a series of net income ratios to gain a better look at a business’s bottom line. For instance, the ratio of gross profit to net sales can be used to determine whether the company’s profit margin is in line with that of similar businesses. Likewise, the ratio of net income to net worth, when considered together with projected increases in interest costs, total purchase price and similar factors, can show whether you would earn a reasonable return. Finally, the ratio of net income to total assets is a strong indicator of whether the company is getting a favorable rate of return on assets. Your accountant can help you assess all these ratios. As they do so, be sure to determine whether the profit figures have been disclosed before or after taxes and the amount of returns the current owner is getting from the business. Also assess how much of the expenses would stay the same, increase, or decrease under your management.

Working capital.

Working capital is defined as current assets less current liabilities. Without sufficient working capital, a business can’t stay afloat—so one key computation is the ratio of net sales to net working capital. This measures how efficiently the working capital is being used to achieve business objectives.

Sales activity.

Sales figures may appear rosier than they really are. When studying the rate of growth in sales and earnings, read between the lines to tell if the growth rate is due to increased sales volume or higher prices. Also examine the overall marketplace. If the market seems to be mature, sales may be static—and that might be why the seller’s trying to unload the company.

Fixed assets.

If your analysis suggests the business has invested too much money in fixed assets, such as the plant property and equipment, make sure you know why. Unused equipment could indicate that demand is declining or that the business owner miscalculated manufacturing requirements.

Operating environment.

Take time to understand the business’s operating environment and corporate culture. If the business depends on overseas clients or suppliers, for example, examine the short- and long-term political environment of the countries involved. Look at the business in light of consumer or economic trends; for example, if you’re considering a store that sells products based on a fad like Crocs, will that client base still be intact five or 10 years later? Or if the company relies on just a few major clients, can you be sure they’ll stay with you after the deal is closed?

Final word; you may be tempted to acquire a competitor to take it off the market or gain access to its products and revenue. In most cases it will be risky. If you are not familiar with the process, bring in an adviser to help. Due diligence is tricky. Valuations are even harder. Discount the current revenue stream in your valuation. It will likely go down.

On the other hand, you may be able to increase the size of your business by 50 percent or more overnight. It could be a good long-term strategy, as the business consolidates.

What is an Entrepreneur?

jumping entreperneurI have many discussions with my business partner in the US over entrepreneurs and cross border challenges, the entrepreneur and his/ her role to the business community and have seen lots of definitions for what makes an entrepreneur over the years but I read an article recently that is quite compelling over exactly what is an entrepreneur. It comes from Chris Oakley OBE, chairman of web design company Chapter Eight. He is also a former journalist who in 1991 led what was then the world’s largest media management buy-out, the £120m acquisition of regional newspapers based in and around Birmingham and Coventry.

So what is an entrepreneur?

“An entrepreneur sees an opportunity which others do not fully recognise, to meet an unsatisfied demand or to radically improve the performance of an existing business. They have unquenchable self-belief that this opportunity can be made real through hard work, commitment and the adaptability to learn the lessons of the market along the way.”

“They are not diverted or discouraged by scepticism from ‘experts’ or from those from whom they seek backing and support, but willing to weigh all advice and select that which will be helpful. They are prepared not just to work seriously hard but to back their judgment with personal investment at a level which will cause problems if they are wrong about the opportunity. They understand that achievements are the result of team work and knows how to choose the necessary blend of talents and inspire them with their vision.”

Interesting enough a study from The Journal of Occupational and Organisational Psychology compared the health of a “nationally representative sample of employees and entrepreneurs” and examined a wide range of health factors for both groups. This included the rates of physical disease and mental illness, blood pressure, the number of sick days taken, the number of visits to the physician, and overall well–being and life satisfaction.

After the numbers were crunched, entrepreneurs were the clear winner in essentially every category. It was discovered that entrepreneurs showed significantly lower incidence of physical and mental illnesses, lower blood pressure, lower rates of hypertension, made fewer visits to the hospital, and enjoyed higher overall well–being and life satisfaction.

What I believe makes most entrepreneurs healthy is not the fact that they run a business, but that they approach life in a particular way. In other words, it’s their healthy mind-set that often leads to a healthy life. For example…

  • Entrepreneurs give themselves permission to change the world and to pursue their dreams.
  • Entrepreneurs believe in themselves and in the control they have over their own lives.
  • Entrepreneurs trust that, even when things are uncertain, they’ll figure it out.
  • Entrepreneurs wake up with a purpose that drives them. They have a vision of what they are working towards that pulls them out of bed each day.

The feelings of empowerment and self–confidence that come from entrepreneurship find their way into virtually every area of your life.

I do not think entrepreneurship is for everyone, but I also do not think it needs to be.

Being an entrepreneur requires much more than just big ideas. A true entrepreneur is a rare breed; it is someone who possesses a unique combination of traits, skills and characteristics that enable them to beat the odds and go after their dreams full throttle.

MindMap EntrepreneurWhat are those attributes? What does an entrepreneur need to succeed?

Goal-orientated

Entrepreneurs are all about setting goals and putting their all into achieving them; they are determined to make their business succeed and will remove any encumbrances that may stand in their way. They also tend to be strategic in their game plans and always have a clear idea in mind of exactly what they want to achieve and how they plan to achieve it.

Committed to their business

Entrepreneurs are not easily defeated; they view failure as an opportunity for future success, and if they do not succeed the first time, they will stay committed to their business and will continue to try and try again until it does succeed. A true entrepreneur doesn’t take ‘no’ for an answer.

Hands-on

Entrepreneurs are inherently proactive, and know that if something really needs to get done, they should do it themselves. They are certainly ‘doers’, not thinkers, and tend to have very exacting standards. They view their business as an extension of themselves and like to be integral in its day-to-day operations—even when they don’t have to be.

Thrive on uncertainty

Not only do they thrive on it—they also remain calm throughout it. Sometimes things go wrong in business, but when you’re at the helm of a company and making all the decisions, it’s essential to keep your cool in any given situation. True entrepreneurs know this and secretly flourish and grow in the wake of any challenges.

Continuously look for opportunities to improve

Entrepreneurs realize that every event or situation is a business opportunity, and they are constantly generating new and innovative ideas. They have the ability to look at everything around them and focus it toward their goals in an effort to improve their business.

Willing to take risks

A true entrepreneur does not ask questions about whether or not they will succeed—they truly believe they will. They exude this confidence in all aspects of life, and as a bi-product, they are never afraid to take risks due to their unbinding faith that ultimately they will triumph.

Willing to listen and learn

The most important part of learning is listening—and a good entrepreneur will do this in abundance.

Great people skills

Entrepreneurs have strong communication skills, and it is this strength that enables them to effectively sell their product or service to clients and customers. They’re also natural leaders with the ability to motivate, inspire and influence those around them.

Inherently creative

This is one trait that, due to their very nature, entrepreneurial business people have by the bucket load. They are able to not only come up with ingenious ideas, but also turn those ideas into profits.

Passionate and always full of positivity

Passion is perhaps the most important trait of the successful entrepreneur. They genuinely love their job and are willing to put in those extra hours to make their business grow; they get a genuine sense of pleasure from their work that goes way beyond just cash.

Very few people in my opinion are fortunate enough to be born with all of these characteristics, but the good news is that they can all be learned. You should read a copy of my book before you start, ‘Freedom after the Sharks’, despite a difficult family life and professional setbacks, I developed the determination, drive and skills to create a successful business and happy life. Freedom after the Sharks shows how, even in a declining economy, a business can survive and even succeed.

If you want to be an entrepreneur someday, here is an equation you should print out and attach to computer screen, smartphone, office wall:

Entrepreneur + Capital = Products + Customers = Business.

Evan Spiegel is the CEO of Snapchat. That is his job. It is a real company with a real product, real employees, and real investors. And I bet what he really identifies with is the cool ephemeral messaging app the company he co-founded came up with. Which is how they managed to attract hundreds of millions of extremely engaged users and raise more than half a billion dollars in venture funding.

John Mackey is co-CEO of Whole Foods. Healthy food has always been his passion but the way he built his company – to serve all its major stakeholders – is unique. He wrote a book about it called Conscious Capitalism. I seriously doubt if Mackey thinks of himself as a great entrepreneur but as the co-founder of a great company that showed the world a new and better way to do business.

The concluding statement I would like to leave you with is:  “employees are far removed from entrepreneurship in fact a paradigm shift away, most employees would never dream of taking a risk on their own abilities, a risk in their personal security or taking people on a journey that stretched far beyond their imagination, entrepreneurship is not for everyone but can be very rewarding for the few”. A quote from my book by Maya Angelou “ I’ve learned that making a living is not the same thing as making a life”

Do we know what we want?

2014-09-13-looking_at_ocean_thumb (1)I have been discussing the subject deeply with a very good friend of mine, ‘do people actually know what they want, the subject is actually deeper, do we know our life purpose?

“Know thyself” has been a dictate since the time of the ancient Greeks, but Thoreau’s statement speaks to the difficulty of such a task. As it turns out, there are some things about ourselves that are very hard to perceive accurately. In some instances, others know us better than we know ourselves

Everybody wants what feels good. Everyone wants to live a carefree, happy and easy life, to fall in love and have amazing sex and relationships, to look perfect and make money and be popular and well-respected and admired and a total baller to the point that people part like the Red Sea when you walk into the room.

If I ask you, “What do you want out of life?” and you say something like, “I want to be happy and have a great family and a job I like,” it’s so ubiquitous that it doesn’t even mean anything.

Everybody wants to have an amazing job and financial independence but not everyone wants to suffer through 60-hour work weeks, long commutes, obnoxious paperwork, to navigate arbitrary corporate hierarchies and the blasé confines of an infinite cubicle hell. People want to be rich without the risk, without the sacrifice, without the delayed gratification necessary to accumulate wealth.

Everybody wants to have great sex and an awesome relationship  but not everyone is willing to go through the tough conversations, the awkward silences, the hurt feelings and the emotional psychodrama to get there. And so they settle. They settle and wonder “What if?” for years and years and until the question morphs from “What if?” into “Was that it?” And when the lawyers go home and the alimony check is in the mail they say, “What was that for?” if not for their lowered standards and expectations 20 years prior, then what for?

Because happiness requires struggle. The positive is the side effect of handling the negative. You can only avoid negative experiences for so long before they come roaring back to life.

24007-life-without-purpose-is-like-a-body-without-soulPeople want to start their own business or become financially independent. But you don’t end up a successful entrepreneur unless you find a way to appreciate the risk, the uncertainty, the repeated failures, and working insane hours on something you have no idea whether will be successful or not.

People want a partner, a spouse. But you don’t end up attracting someone amazing without appreciating the emotional turbulence that comes with weathering rejections, building the sexual tension that never gets released, and staring blankly at a phone that never rings. It’s part of the game of love. You can’t win if you don’t play.

What determines your success isn’t “What do you want to enjoy?” The question is, “What pain do you want to sustain?” The quality of your life is not determined by the quality of your positive experiences but the quality of your negative experiences. And to get good at dealing with negative experiences is to get good at dealing with life.

There is a great quote by Marla Gibbs “I truly believe that everything that we do and everyone that we meet is put in our path for a purpose. There are no accidents; we’re all teachers – if we’re willing to pay attention to the lessons we learn, trust our positive instincts and not be afraid to take risks or wait for some miracle to come knocking at our door

I think most people retain at least a glimmer of awareness of their life’s purpose within their inner being. It often feels like a leaning, an inclination, that continues to pull at you. Sometimes is right in front of your eyes but you don’t allow yourself to see it, like when you’re hunting for your missing keys and then discover that they’ve been right in front of you the whole time. For example, an investment advisor found himself doing more and more work with charity organisations. He finally realised that what he felt most in sync with was hands-on work helping people. That was the part he enjoyed about his work, not the money managing per se. Helping people was his true calling, and it was staring him in the face the whole time.

Those who experience a clear inclination but don’t pursue or fulfil it remain incomplete and dissatisfied. But it’s important not to confuse seeking happiness with finding your purpose. Happiness is what you experience in the daily flow of life the highs and lows that are the situation. They will fluctuate. But purpose is deeper. It’s more of an underlying sense of peace and fulfilment overall, a sense of integration and continuous unfoldment of your being. It transcends everyday ups and downs, the disappointments or successes, even. When you’re living in accordance with your life’s purpose, you view all of the above as part of what you encounter along the road. They don’t distract you from that larger vision, your ideal, which is like a magnet steadily pulling you towards it

In the end, figuring out what you want and your life purpose isn’t an easy process and no miraculous  solution exists for doing it. The fact is, you need to think about it, and to do so you might need to push yourself through some mental challenges until you figure out exactly what is you’ve been looking for, and just maybe your life purpose will find you.

Finally, be careful what your dream for, it may just arrive into your life!