business strategies Archives - Page 9 of 14

August 3, 2015

Do start-up businesses spend enough time in creativity and innovation?

Every now and then, I attend a management conference. Usually what I hear is the following: the current environment is characterized by rapid technological change, shortening product life cycles and globalising. All organisations need to adapt to this dynamic environment and be more creative and innovative to survive, compete, grow and lead. To beat the new entrants, aka the startups, innovation is the key! Then startups enter stage. Wow, is the general word I hear from the audience, when the startup guy, usually in jeans and beard, explains his success story.

So can we innovate more, is there the capacity in start-up businesses?

Certainly the engagement and involvement of employees can lead to more commitment from them because their thoughts, ideas and projects can have an impact on the organisation. We can speak of newly developed organisational culture; vision, mission, values and a behavior tone of voice can shift the organisation in new directions.

What are the problems associated to innovation and creativity?

The first major issue is an increased level of regulation and policy to trade.

Economists believe that regulation hurts small business in four ways. First, as Nicole and Mark Crain of Lafayette University explain, regulatory compliance exerts a disproportionately large burden on small companies because the fixed costs of adhering to rules can be spread out over more revenue in large firms than in small ones. In the US, Crain and Crain estimated the per employee cost of complying with Federal regulations at $10,585 for businesses with fewer than 20 employees but only $7,755 for businesses with more than 499 workers.

Small business owners are increasingly frustrated by government regulation, which they say has become a major problem in recent years. Twenty-two percent of small business owners surveyed to the National Federation of Independent Business’s November member survey say that governmental regulation and red tape is the most important issue that they face today, just one percentage point fewer than the fraction that identified taxes the number one problem.

Now researchers at a variety of think tanks are beginning to believe that government regulation is doing more than causing entrepreneurs to gripe. They are concerned that rising regulation could be keeping would-be entrepreneurs from starting companies. Anthony Kim of the Heritage Foundation explains, the rising cost of complying with regulations makes marginal entrepreneurial endeavors uneconomical, which also causes the start-up rate to decline.

How can a start-up free itself of time to innovate and what does this mean for collaborative innovation?

When you want to enhance the innovation level in the organisation and create exceptional results, you need to invite your employees and your team to create white boarding to effect a kaisen, a Japanese term for continuous improvement, this will start tapping into the brainwork of product development sales and marketing, there is no point designing an innovative product if you have no demand generation.

Here are 3 tips for innovating in the team:

Innovation is not the same as invention.

Many people conflate innovating with inventing. While there are similarities, we think of innovation as a way to find more appealing ways to do or make things that already exist, and invention as the creation of something that never existed before.

Always have a head of innovation.

Nearly all companies these days have a head of innovation, although this can be a co-founder or CEO. A business that values innovation needs to have a chief innovation officer (or at least a leading person of influence tasked with that responsibility) who not only drives the innovation initiatives of the company but also works to embed the paradigm of innovation into the company’s vision and culture.

Customers must drive innovation.

Innovation should drive company strategy, customers should drive innovation and provoke thinking. Companies must innovate in ways that make sense to their corporate missions and values; if they break their brand promise to consumers, they can easily lose credibility and trust.

Always remember innovation evokes constant change and driving solutions. The more complex the world becomes, the more problems there is to solve.

The negatives are that start-ups have a tendency to run out of cash. For every founder that manages to bootstrap a startup, there are dozens, maybe hundreds that do run out of cash for any number of reasons: they do not want to give up equity, they do not budget properly, they do not plan for how long it takes to raise rounds of funding, their burn rate is too high, or some combination of the aforementioned.

If gaps in the strategy fail, then the team does not have what it takes. Some founders just can not get along. Others fall apart when the initial strategy fails, as it often does. Still others are out to make a quick buck and are not committed to working day and night over the long haul. Any VC or investment house will tell you, a big part of what they invest in is the management team and not just a great idea.

Perhaps the most important tip I can give you is this: If your startup fails, it is worth spending time to understand what went wrong. That’s the only way you’re going to improve the odds of making it next time. And, I am sure there will be a next time for you. Hopefully when you start planning and exercise the business strategy you will see the paradigm between a good idea and commercial reality and importantly what’s needed to be implemented to drive business growth and success.

July 6, 2015

How do you sustain long term change in a business?

Interesting enough, only a quarter of employers achieve long-term gains from change management initiatives, according to a Towers Watson study. The study blames a lack of long-term success on companies’ inability to prepare and train managers to be effective change leaders. It found more than half (55%) said their change management initiatives met initial objectives, but only 25% are able to sustain gains over the long-term.

These initiatives can range from programme or policy changes to business transformation and mergers and acquisitions. “Most companies are having a difficult time keeping the momentum of their change management initiatives going,” said Nicola Cull, a senior change management consultant at Towers Watson.

But for mainstream companies, sustainability remains a disappointment: worthwhile thinking on products and services has not translated into increased sales. Change is so much easier for businesses if it comes from the marketplace and is represented by fundamental shifts in consumer values and needs.

Positioning for these changes requires companies to act today to address areas that are likely to become consumer concerns, to build brands that are more resilient to the changes ahead. For those companies wishing to be in the vanguard there is a clear need to promote behavior change and establish new rules in the marketplace. Brands need to play a bigger role: they are the most powerful tools companies have.

The big questions are how and when, to do it in such a way that you gain the rewards of leadership.

Linking the broader corporate intent with the plans and direction of its brands is one of the biggest challenges for many companies. Short-term commercial focus continues to dominate category and brand decisions. But good brand practice today is about building for the future as well as the present. To endure, brands need agility. Those that are building equities on more sustainable principles now may just be the ones that thrive and dominate in the future.

First, you should constantly explore your company’s capabilities. Which of those capacities will serve it well in the years ahead and which won’t? A careful analysis can help you to identify which of them to retain, which to jettison, and what new capabilities might strengthen your company’s position in the marketplace.

Second, you will want to look for trends that will shape the services, programs, and products you offer to your target market. You can identify key trends by listening carefully to the evolving needs and goals of your customers. When they express a new need or goal, you can then develop new offerings proactively that will fulfil them. You can also identify trends by following the latest news and developments in your target markets.

Third, it is likely that, in the process of creating a sustainable business, your company establishes itself as a leader in a particular market that generates a considerable amount of your customer base and revenues. At the same time, it can be risky to focus too much on one market. What happens if that market collapses for some reason? Just as with financial investing, as you build your business, you will want to diversify your markets, so that if one market slows down, you can pick up the slack with customers from another.

June 22, 2015

Creating value from values

What does the term ‘creating value from values’ mean?

It is in fact a powerful concept for companies to use. Ultimately, it is a strategy for developing the future market while also strengthening economies, the marketplace, communities, and corporate money.

Recently I wrote a blog post on ‘Do we live in a current economy where we have no customer lifetime value? ‘

Have you ever stopped to consider that the word values contains the word value?

We talk about them as two separate and often very different words. Often strategy, finance, operations, people talk about value in economic value or added value, and human resources, communication, and marketing people talk about values in the terms used across business values and brand values. Yet value sits inside values; a powerful combination of human and financial factors.

Do we treat them separately, discuss them separately, and give them to different departments to deal with separately?

Surely, delivering values needs to be adding wealth creation by adding value. Building brand values, builds brand value. Building emotional values builds economic value. If people believe in what they do, are committed to delivering, and in a way that satisfies their customers, then the community in which they work and as a business will benefit as a whole?

If you believe values create value you need to question the following:

1. What’s important to us as a business?

2. What do we value?

3. What our customers, our staff, and their suppliers say about us?

4. Do we deliver on time, every time?

5. Do we make sure that we follow quality control?

6. Are we passionate about what we do?

7. Do we announce good news stories?

8. What do we dislike about what we do?

The above questions are values that can deliver value when everyone in the organisation is working to live up to their values; in simple terms, the things that are important to us, the things ‘we’ care about, what makes are job and purpose worthwhile.

It is imperative that the values are developed across the company to be effective and from the board down, otherwise the ‘we’ will be meaningless and risk being treated with disdain by the majority.

Even more important is to turn the values into behaviours that represent value creation.

A shared value creation will involve new and heightened forms of collaboration. While some shared value opportunities are possible for a company to seize on its own, others will benefit from insights, skills, and resources that cut across profit/nonprofit and private/public boundaries. Here, companies will be less successful if they attempt to tackle societal problems on their own, especially those involving cluster development.

Successful collaboration will be data driven, clearly linked to defined outcomes, well connected to the goals of all stakeholders, and tracked with clear metrics.

June 15, 2015

With the impact of Social Media, do we actually plan for crisis management?

crisis management

noun: the process by which a business or other organization deals with a sudden emergency situation

A crisis is the ultimate unplanned activity and the ultimate test for managers. In a time of crisis, conventional management practices are inadequate and ways of responding usually insufficient.

Fewer circumstances test a company’s reputation or competency as severely as a crisis.

Whether the impact is immediate or sustained over months and years, a crisis affects stakeholders within and outside of a company. Customers cancel orders. Employees raise questions. Directors are questioned. Shareholders get very nervous. Competitors sense opportunity. Governments and regulators come knocking. Interest groups smell blood. Lawyers are not far behind.

As the ultimate unplanned activity, a crisis does not lend itself to conventional “command and control” management practices. In fact, some of the techniques for managing a crisis may fly in the face of conventional notions of planning, testing and execution. Preparation and sound judgment are critical for survival.

One of the most vital skills a company can possess is the ability to determine if, when and at what level of importance a crisis has struck:

Is this a crisis, or is it simply a continuing business problem coming to the surface?
Is it confined to a local area, or does it have the potential to become a situation of national or international importance?
Has someone verified the incident or crisis?
What are the legal implications?
What level of resources will be required to manage it?
So what’s to be done?

Ten rules for crisis management

1. Respect the role of the media.

2. Communicate effectively

3. Take responsibility.

4. Centralise information.

5. Establish a crisis team.

6. Plan for the worst; hope for the best.

7. Communicate with employees.

8. Third parties.

9. Use research to determine responses.

10. Create a website

The Chinese have an expression for crisis: wei ji, which is a combination of two words: danger and opportunity. While no company would willingly submit itself to the dangers inherent in a crisis, the company that weathers a crisis well understands that opportunity can come out of adversity.

A well-managed crisis response, coupled with an effective recovery program, will leave stakeholders with a favourable impression and renewed confidence in the affected company.

June 8, 2015

What is a SWOT analysis?

There has been much discussion recently over what is a SWOT analysis and if there really is a need for some much work internally and externally, particularly in small businesses.

The answer to the question is simple: a SWOT analysis is an imperative as it is a tool used for situation (business or personal) analysis.

SWOT is an acronym which stands for:

Strengths: factors that give an edge for the company over its competitors.
Weaknesses: factors that can be harmful if used against the firm by its competitors.
Opportunities: favorable situations which can bring a competitive advantage.
Threats: unfavorable situations which can negatively affect the business.

Strengths and weaknesses are internal to the company and can be directly managed by it, while the opportunities and threats are external and the company can only anticipate and react to them.

When examining the potential for a new business or product, a SWOT analysis can help determine the likely risks and rewards. SWOT, which stands for Strengths, Weaknesses, Opportunities and Threats, is an analytical framework that can help your company face its greatest challenges and find its most promising new markets.

The purpose of a SWOT analysis

In a business context, the SWOT analysis enables organisations to identify both internal and external influences. Outside of business, other organizations have found much use in the method’s guiding principles. Community health and development, education, and other groups have used the analysis. SWOT’s primary objective is to help organizations develop a full awareness of all the factors, positive and negative, that may affect strategic planning and decision-making. This goal can be applied to almost any aspect of industry.

Though SWOT is meant to act primarily as an assessment technique, its lengthy record of success makes it an invaluable tool in project management.

When to use SWOT

SWOT is meant to be used during the proposal stage of strategic planning. It acts as a precursor to any sort of company action, which makes it appropriate for the following moments:

Exploring avenues for new initiatives
Making decisions about execution strategies for a new policy
Identifying possible areas for change in a program
Refining and redirecting efforts

The SWOT analysis is an excellent tool for organising information, presenting solutions, identifying roadblocks and emphasising opportunities.

Performing a SWOT analysis is a great way to improve business operations and decision-making, it allows you to identify the key areas where your company is performing at a high level, as well as areas that need work.

Some small business owners make the mistake of thinking about these sorts of things informally, but by taking the time to put together a formalised SWOT analysis, you can come up with ways to better capitalise on your company’s strengths and improve or eliminate weaknesses.

Businesses should not consider the SWOT analysis a cure-all however. Like any self-analysis tool, it can be used incorrectly if we allow our ego or insecurities to drive the content. It is imperative to be as honest with yourself [as possible] and be prepared to provide input that truly reflects your competencies, accomplishments and abilities.

By knowing these things about your company you can work toward an action plan of self-improvement or minimally ensure you select jobs, organisations and leaders that are an appropriate fit for you to improve your chances for success.

June 1, 2015

Managing fast growth companies

Wherever you are on your journey to market leadership, successful start-ups and companies around the world are experiencing and are having to change to adopt to managing a fast and accelerated growth, growth from a small start-up with a handful of employees into companies with hundreds of employees distributed around the globe.

With such cyclical rapid growth and change, how do companies ensure that they maintain the level of quality, innovation and business sustainability for growth?

As companies scale their teams to keep up with aggressive growth goals, a new challenge arises: companies are increasingly forced to promote technical developers, engineers and other specialist individual contributors into managerial roles in order to manage the influx of additional team members. Someone has to manage these expectations?

This presents what may be the single biggest employee management challenge facing growth companies today, as specialists with none or little management experience or training are now introduced into leadership roles – but without the skills. And usually, with no structured training or guidance provided to them, and no concern for the importance of “soft skills” or best practices to help them quickly become effective in such new manager roles.

As your business grows, investors and other stakeholders will want assurance that you understand the key risks facing your business and that you have these under control.

Here are some points you need to evaluate and assess for growth:

1. Set clear expectations

Different companies stress different types of management duties. A new manager can be responsible for setting priorities that drive toward company goals, giving feedback, helping employees stay motivated, knowing company policy, addressing performance issues, reporting results, and much more. Make it clear what they are responsible for so they can prioritise their time.

2. Train right away, and check in regularly

Make sure to establish a consistent training program right away so that it is an expected part of the role. It may seem like training takes too much time away from other important tasks, but a great training program will save time in the long run. Training courses or workshops should be offered to all new managers, and regular check-ins should happen to ensure managers are getting what they need to grow and improve. It also helps to schedule recurring one month, three month and six month check-ins. New managers do not always know what they do not know, so they need the ongoing dialogue.

3. Pair new managers with seasoned managers

Training only goes so far and the value of mentors cannot be understated. New questions arise constantly for new managers. Make sure your new manager has a dedicated mentor, who can help them navigate the ins and outs of their role. Learning from example is a tried and true practice and even if the mentor is someone from a different department, having that resource is crucial.

4. Know their limits

Great managers know their product and operations, but they aren’t a ‘know-it-all.’ Setting up new managers for success requires knowing their strengths and pain points. Educate your managers on the resources available to them. This will enable new managers to flex the muscle of their good judgment but also know when it may be time to bring someone else into the fold.

5. Culture of management

As we’ve seen in recent headlines, corporate culture can make or break a company. Emphasising the corporate culture as a guidepost for management style will keep problems at bay. Managers should embody a consistent set of values that extend right up the chain of command.

Companies need to put both the processes and technology in place to make it possible for people to become great managers. Startups move incredibly quickly and managers need to do their own work on top of managing others. If building good management skills is not a priority, and tools for building skills are not accessible, people will not necessarily commit. Investing in new manager training is even more important in fast-moving growth companies. Management training may seem like a nice to have, but strong management is one of the essential ingredients for scaling quickly and staying competitive.

Finally, your long-term vision and mission is actually a series of medium-term objectives. When your company grows too fast, it is easy to skip these medium-term objectives because you are seemingly forced to change goals.

Many fast-growth business leaders change their goal too often, never quite completing a plan before starting the next one. So it is important to set a medium-term goal and deliver it.

May 25, 2015

How rational are Occupy protests? Are they right?

What began as an open call from Adbusters to show up with a tent grew from dozens to hundreds, to thousands, to tens of thousands spurred on by social media. Far from rejecting the extended sit-in, area businesses plied demonstrators with food and support. Those who could not make it to New York started their own hometown Occupy protests in solidarity, hundreds of them, across the country and around the world.

Occupy Wall Street protests have spread around the world, with a common slogan of “We are the 99%.” But there is a great deal of confusion and misperception about this movement.

In New York City, energy flowed into campaigns against police stop-and-frisk practices and to help victims of 2012’s Hurricane Sandy. Occupy experience put organisers in touch with community members normally scornful of ‘weirdos’ but resolved to fight corporate power. One experienced organizer, fresh from Occupy in Missouri, went on to help launch the Take Back St. Louis initiative, subtitled “Reclaiming our Tax Dollars for a Sustainable Future.”

The group gathered more than 22,000 signatures of registered voters, more than enough to put on to an April 2014 ballot a measure to “stop the city from giving tax breaks and other incentives to corporations that mine coal, gas and oil, and any corporation doing $1m of business with a mining company”; to “create a sustainable energy plan in the city that would invest public money in and open up land for renewable energy and sustainability initiatives like weatherisation programmes, urban farms and solar arrays”. In other words, to create sustainable jobs – against the retrograde claim that measures to halt global warming are ‘job-killers’.

As for the executives in corner offices and boardrooms around Wall Street and Canary Wharf, in state houses and Washington, are they relieved that the rabble were swept away? Do they believe that partial financial reforms will insulate them against risings to come? Beyond growing attention to public relations (probably a growth centre for future employment), are they mindful, as they make policy, that those who once awoke to fill the streets and parks may awaken again? Do they suspect, late at night, that youngsters in sleeping bags might turn out to be the modern equivalent of peasants with pitchforks?

Where have all the chanters gone; the gospel-minded Christians and the denouncers of ‘banksters’ and tyrants; the homeless and the indebted and unemployed who filled our urban squares in 2011-12, crying out such slogans as “We are the 99 percent” and “The people want the end of the regime”? Where are the leaderless revolutionaries who turned cities around the world upside down?

The simple answer is: they were dispersed. When the sometimes public parks were swept clear of troublemakers, many dispersed into a scatter of left-wing campaigns. Other activists now escort visitors around bare, fenced-off Zuccotti Park near Wall Street. In London, free bus tours with guides in top hats carry the curious around the City and Canary Wharf (“Make your very own ‘credit default swap’ and find out how to create money out of thin air!”).

Political rationality, if not fear, may well make elites more responsive. Rumblings on the Right are not the only noises emanating from Europe. The sparks that set Occupy on fire fell on inflammable tinder, and this is how history goes: one spark, then another, ignites a whole landscape. The Occupy ‘graduates’ hope that their time will come again. They might turn out to be wrong – until, one day, they’re right.

May 18, 2015August 2, 2017

Do the Royals have influence over media and film?

At least 39 bills have been subject to Royal approval, with the senior royals using their power to consent or block new laws in areas such as higher education, paternity pay, and child maintenance.

Andrew George, Liberal Democrat MP for St Ives, which includes land owned by the Duchy of Cornwall, said the findings showed the Royals “are playing an active role in the democratic process”.

‘It shows the royals are playing an active role in the democratic process and we need greater transparency in parliament so we can be fully appraised of whether these powers of influence and veto are really appropriate. At any stage this issue could come up and surprise us and we could find parliament is less powerful than we thought it was.’

The power of veto has been used by Prince Charles on more than 12 government bills since 2005 on issues covering gambling to the Olympics.

So do the Royals have influence over media and film too?

Everyone remembers ‘The King’s Speech’

‘The King’s Speech’, a film about King George VI, sparked swooning adulation since opening at British cinemas. Towards the end, it hits all three fantasies at once: a humble speech therapist is forced to reveal that the king is his patient and friend, after his wife finds Queen Elizabeth at their dining table in a hat, pouring tea.

The film’s success was rooted as an interesting, little-known true story. Many younger Britons have only sketchy notions of George VI, perhaps knowing he reigned during the second world war and fathered the present monarch, Elizabeth II. The film shows a shy prince overcoming a bad stammer with the help of an unorthodox Australian therapist, Lionel Logue (who did exist), in time to ascend the throne after the abdication of his brother, Edward VIII. It breathes rare life into his wife, Elizabeth, later revered in the role of Queen Mother, a rather doll-like figure loved for smiling, waving, saying little in public and living to 101.

E!’s new original scripted series, The Royals, is ostensibly based on the lives of the British royal family. But the current Prince and Duchess of Cambridge, better known simply as William and Kate, are not making headlines every weekend for their heavy partying. Actually, they barely make headlines at all, and even the coverage in the UK is pretty subdued, largely limited to basic announcements about places where they made appearances and what Kate Middleton wears. Even Prince Harry, who’s better known for being a “crazy,” rebellious royal, is practically comatose compared to the characters on E!. But is anything from The Royals based on facts or influenced? Well, there are some elements that try to be somewhat close to the lives of the real royals

So what about media advertising, the power of association is widely known. Brands which have no direct link to something positive can benefit from an association to something the consumer loves or respects. The easiest way to do this is by simple repetition. The alliterative mantra ‘Queen and Country’ makes people believe there is something intrinsically patriotic about blindly supporting them, rather than daring to imagine a nation which stand on its own two feet and looks after itself.

To think that the Royals do not make arrangements with the press is I am sure not just a coincidence. The level of access some photographers, even apparently rogue ones, get is staggering. This is one of the richest families in the world with one of the world’s biggest powers protecting them. Being famous celebrities brings a form of power that is easy to underestimate until you see it close up. I will also feel that the Royals also have influence over media and film too.

May 4, 2015

A founder’s problem to being CEO and succession planning

Every would-be entrepreneur wants to be a Bill Gates or Steve Jobs each of whom founded a large company and led it for many years. However, successful CEO-founders are a very rare breed in-deed.

When you look at start-up to IPO it is interesting to see that most founders give up management control long before companies go public.

Choosing money: A founder who gives up more equity to attract investors builds a more valuable company than one who parts with less—and ends up with a more valuable piece, too!

Harvard did a recent study that showed that by the time ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings. Other researchers have later found similar trends in various industries and in other time periods. We remember the handful of founder-CEOs in corporate America, but they’re the exceptions to the rule.

Further in the study it also showed that founders do not let go easily. Four out of five entrepreneurs, are forced to step down from the CEO’s post. Most are shocked when investors insist that they relinquish control, and they’re pushed out of office in ways they don’t like and well before they want to abdicate. The change in leadership can be particularly damaging when employees loyal to the founder oppose it. In fact, how founders tackle their first leadership transition often makes or breaks young enterprises.

Leadership transitions in a business of any size can be influenced by and affect stakeholders. How each stakeholder perceives the process-and their role within it-will have an impact on outcomes. Perhaps the two stakeholders who often play the most central roles in this process are the incumbent, or controlling, CEO and his or her successor.

The transition from one CEO to another is a critical moment in a company’s history. A smooth transition is essential to maintain the confidence of investors, business partners, customer and employees, and provides the incoming CEO with a solid platform from which to move the company forward. A properly designed and executed succession plan is at the center of any successful transition.

CEO vacancies can be planned or unplanned; in either scenario, by the time a succession plan is needed it is far too late to start building one. Because of this, it is the responsibility of the board to make succession planning a priority, even in the face of more immediate and tangible issues. In addition to being necessary for risk mitigation, succession planning brings with it several beneficial by products:

Succession planning is usually directed by the governance or compensation committees, or occasionally a special ad hoc committee. The current CEO’s involvement varies (depending on whether the succession is planned or unexpected) with primary responsibility being the development of internal candidates. The Lead Director often acts as the single point of contact between the board and the sitting CEO on succession matters.

Some tips for the pre-planning are listed below:

i. Create a written succession plan.

ii. Conduct regular, in-depth reviews.

iii. Compare the resulting list of capabilities against the firm’s senior talent pipeline.

iv. Narrow the field to two or three finalists.

v. Implementing The Plan

vi. Assess the finalist candidates.

vii. Finally, the board deliberates and makes its final decision.

Some tips across the successful transition:

1. Begin intensive knowledge sharing.

2. Communicate with stakeholders.

3. Develop a written transition plan.

4. Share the transition plan.

5. Strengthen relationships with the board.

Managing the CEO succession process is a board’s ultimate responsibility. A regularly reviewed and closely followed succession plan is essential to successfully exercise that responsibility. The costs of short-changing this process are easy to see when companies are caught off-guard by events; the payoff is reflected in the company’s momentum as it moves from one leader to the next. In addition, ongoing succession planning helps the board to be better informed and aligns the development of the senior management team with the strategic needs of the company. Beyond its usefulness in risk mitigation, CEO succession planning contributes to the successful governance and management of the firm long before a successor is needed.

Finally, choosing between money and power allows entrepreneurs to come to grips with what success means to them. Founders who want to manage empires will not believe they are successes if they lose control, even if they end up rich. Conversely, founders who understand that their goal is to amass wealth will not view themselves as failures when they step down from the top job. Once they realise why they are turning entrepreneur, founders must, as the old Chinese proverb says, ‘decide on three things at the start: the rules of the game, the stakes, and the quitting time.’

April 27, 2015

Do we live in a current economy where we have no customer life time value?

With the ever-changing and fast-speed of the internet and technology, every company and product is interested in selling products and services, but are we missing something?

Research shows that in industry, students have been barraged by an ongoing stream of news and facts, stretched over years, if not decades across what motivates customers to buy. Its ‘customerising’, gearing a company up to focus exclusively on your customers that matters, you need to build a customer-driven company, the results speak for themselves a company that focuses on its customer’s needs will embrace customer loyalty, increased performance and a healthy bottom line.

In marketing, customer lifetime value (CLV) (or often CLTV), lifetime customer value (LCV), or user lifetime value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. The prediction model can have varying levels of sophistication and accuracy, ranging from a crude heuristic to the use of complex predictive analytics techniques.

CLV has a central strategic importance for a company, and more and more managers are discovering that their most important asset is not the company’s inventory but its customers… that matters!

The Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes. When applied to e-commerce, this means that 80% of your revenue can be attributed to 20% of your customers. While the exact percentages may not be 80/20, it is still the case that some customers are worth a lot more than others, and identifying your “All-Star” customers can be extremely valuable to your business.

Taking CLV into account can shift how you think about customer acquisition. Rather than thinking about how you can acquire a lot of customers and how cheaply you can do so, CLV helps you think about how to optimize your acquisition spending for maximum value and not minimum cost.

Some seasoned entrepreneurs may say “break even” or some other number is the most important metric, but I believe “lifetime value” is perhaps the most significant measure to benchmark. I also know it is one of the most overlooked and least understood metrics in business, even though it is one of the easiest to figure out.

Why is this particular number so important? Mainly because it will give you an idea of how much repeat business you can expect from a particular customer, which in turn will help you decide how much you’re willing to spend to “buy” that customer for your business.

Once you know how often a customer buys and how much he or she spends, you will better understand how to divide your resources in terms of customer retention programs and other services you’ll need to keep your customers, and importantly – keep them happy!

Once you have some idea of the lifetime value of your customer, you have two options in deciding how much to spend to acquire him or her:

1. Allowable acquisition cost: This is the amount you’re willing to spend per customer per campaign — as long as the cost is less than the profit you make on your first sale. This is a shorter-term strategy that makes the most sense when cash flow is a concern.

2. Investment acquisition cost: This is the cost you’re willing to spend per customer knowing that you’ll take a loss on an first or even later purchase. But you have the cash flow and other resources to absorb your initial marketing investment with this longer-term strategy.

The point is that you’ll never know how to develop an optimal marketing budget unless you know what the return on your investment needs to be. This knowledge is vital because it will help you make marketing decisions based on the reality of your own numbers and not the promises of some new media program.

Knowing lifetime value also lets you see how, or if, you can discount. It will help you avoid the potentially disastrous effects of discounting when your business needs cash flow to survive. In addition, you will find innovative ways to build value upfront and create offers that drive enough volume to support and eventually increase your overall lifetime value number.

So take some time to work the numbers in the very simple lifetime value equation, especially if you’re still in the planning stages for your business. Remember to build in some variation and see if your current plans support the numbers you come up with. If so, that’s great. If not, that’s also great because you’ve determined on paper what you need to change to make your numbers work.

Investing to earn the loyalty of your customers often requires trade-offs—you must decide which of the many investments you could potentially make will result in the greatest return. A clear understanding of your company’s loyalty economics will help you make those decisions. It will give you a quantitative basis for investments in long-term customer assets and provide a defense against the short-term, sub-optimal, “quarterly earnings” mind-set that often tempts leaders to generate “bad profits.”

It is possible to calculate loyalty economics with great precision, if you have the resources and the tools to do so. If not, you can also make rough estimates that can help guide decision-making. This page describes a relatively simple way to get reasonable, rough estimates of the potential value that can be created by improving your company’s Net Promoter score and earning the loyalty of more of your customers

Share of wallet and number of products purchased: calculate how the annual purchases of your promoters, passives and detractors vary. This will help you estimate revenue differences. If you have actual revenue per customer, you’ll be able to estimate more precisely, of course.

In the end, it’s the lifetime value numbers that will determine the ultimate success of your company.