Nine Keys to Improving Business Success Business, whether for profit or non profit, is a challenging environment. It can be difficult to have a clear strategy for success. Here are eight keys that can help any business owner of manager bring order to the strategies and tactics of keeping a venture on a healthy path. Before proceeding be clear that what follows is not about product or business development. This takes the view that we are focused on a business with defined lines of products and services and a clear view of who their markets and customers are. This is about improving the core performance of an ongoing enterprise. If you are interested in applying globally recognized improvement strategies, there are several models of high performance business that provide a wide range of approaches and tools to apply to any business or organization. In the US, the two prominent versions of these globally developed and deployed methodologies are the Criteria for Performance Excellence of the Baldrige Performance Excellence Program (http://www.nist.gov/baldrige/) and lean enterprise1 Donâ€™t be deceived by the obviousness of what follows. Business is really not that complicated in principle; the difficulty comes in putting the principles into practice every day. 1. Increase the number of prospects 2. Increase contacts with current customers 3. Increase contacts with past customers 4. Improve conversion rate 5. Increase average sale per customer 6. Improve Gross Margin % 7. Control fixed costs 1 There is no official body that governs lean enterprise approaches to high performance. The Lean Enterprise Institute (http://www.lean.org/) is a good starting point to investigate this American fork of the Toyota Production System.
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8. Select, develop, and prune your human resources 9. Manage by the numbers â€“ fact-based management drives success The first seven keys are explicitly built on the template of a standard Profit and Loss Statement. The first five focus keys on the top line, gross sales of the business. The sixth, Improve Gross Margin % focuses your attention on how effectively you convert sales dollars into gross margin profit. The more you have at this point in the business process, the more you have to pay for fixed costs and happily the more available for your Net Profit line. Control fixed costs calls on you to have in place regular disciplined processes to use just as much of your gross margin dollars as are required to sustain the business and its growth and no more. At this point in your business processes, every dollar not spent is a dollar more Net Profit. Since it is literally and absolutely true that your employees are your most valuable resource key eight, Select, develop, and prune your human resources, focuses attention on the how you hire the right people, train them effectively, and as required prune out any dead wood. All of these human resource management practices must be carried out regularly and effectively. Finally, key nine, Manage by the numbers â€“ fact-based management drives success, brings attention to the importance of a fact-based management system that supports a high-performance culture and priovides metrics to measure and guide performance improvement projects.
Putting the Five Keys to Top Line Success into Practice The first five keys drive the top line sales of your business. The first three of these focus on increasing the number of prospects and customers (current and old) who come to your business whether in person or virtually (or both). The fourth key, improving the conversion rate, is the process you use to get the highest ratio of sales from these contacts. This is your sales process. Finally, the fifth key, improving the average sale per customer, targets methods to increase the typical sales value of each sales event. This is a combination of your product strategy and your sales process. When you multiply the number of potential sales events times the conversion rate times the average sales per event, you come to your gross sales. All five should be addressed
through systematic business processes designed and implemented to provide reliable, repeatable performance. Push Marketing versus Value-Centered Marketing and Sales â€“ The First Three Keys. The first three keys, increase the number of prospects, increase contacts with current customers, and increase contacts with past customers, are usually viewed through the lens of traditional marketing strategies: lead generation, prospect development, and sales. Traditional marketing uses the push messaging tools of print, TV, and radio advertising as well as direct mail and other promotional tactics to push messages to the target audience. There is much still to be recommended in viewing this process in that fashion. However, in our current environment, traditional push marketing methods can be enhanced or entirely replaced by more effective tools of interactive, value-centered marketing. The valuecentered approach focuses on the world as seen by the customer. It obeys the rule that customers define value2. Value-centered marketing and sales starts from the idea that we need to speak to customers about the benefits of our products and services. Benefits as seen and articulated by them, not the company. This value-centered approach is not new. â€œValue sellingâ€? and other variants on this name have been around as formal selling processes for over thirty years. But, in the last ten years the Web has forced a shift away from the traditional push marketing model towards a values-centered approach. The Web has made it mandatory for businesses to engage in a conversation with prospects and customers. If you do not offer real information and benefits people will simply click away and be gone. If you do not provide modes of two-way communication, people will not stay with you very long. The oldest tools of value-centered marketing are forums and message boards, support forums, and wikis. More recently social media (Facebook and Twitter being the most prominent), email newsletters, videos and more have become prominent elements of the values-centered marketing environment. Finally, the age
2 Customer defined value is a central tenet of all high-performance management systems.
old face to face interaction in person, or via video conference, brings the values-centered approach full circle to the most fundamental moment between company and customer. To help in thinking about how we might develop a communications strategy, we can replace the traditional sales funnel3 (left) with an Involvement Funnel (lower left) that suggests engagement patterns with prospects and customers that better fits the interactive dynamics of the Web world that we are now irrevocably involved in. Your marketing strategies and sales processes must be tuned to this spectrum of interactions with prospects and customers. Each level of involvement requires and deserves a different mode of communication and content. With the tools available even the smallest business can now engage in an ongoing conversation with their prospects and customers. We will not provide any detailed discussion of Web values-centered strategies here. The topic is too large and any comments here would be so general as to be useless.
Current and Old Customers A few words though about your current and old customers. There is a management maxim that says that the cost of finding a new customer is ten times that of retaining one you already have. Without any real data to back this ratio up in detail it is obvious that retaining today's customers has to be a central part of your business strategy. Similarly, old customers are much easier to bring back into buying mode than finding new ones who must be attracted to your products or services and then building the trust to move them towards a purchase. 3
image borrowed w/o permission from http://www.croan.ie/sales_online.htm
There are many traditional marketing strategies that apply to current and old customers preferred customer events, preferred customer services, and so on. Apply these as applies to your marketplace and products and services. You need to have well designed and disciplined strategies to maintain communication and engagement with these customers. Here is where the Web tools really shine. You can easily provide a stream of engaging new information and reasons for them to interact using email, webbased newsletters, Facebook, Twitter, discussion forums, and so on. But, this is real work and you need to pay attention to it and be persistent. One critical task with old and current customers is to ask them for feedback about your performance. You need to know how they feel you are doing both absolutely and relative to your competitors. You should not wait for negative comments to find there way into the blogosphere or online evaluation sites to discover your failings in their eyes. Be proactive. Ask and then make corrections to eliminate the shortcomings4.
Build Your Customer Database At every point in your marketing seek out ways to capture contact information and demographics from your prospects and customers. While always guarding the confidentiality of their information, and assuring that your customers and prospects are actually opting into communicating with you, be aggressive in seeking this information. Whether in person or on your website, ask for the information and give good reasons why sharing this will benefit them. Without a growing well maintained database of information you will be sorely hamstrung to execute every sales growth strategy.
Key Four - Improving Your Conversion Rate â€“ Your Selling System Now you have your prospects and customers in hand whether in person, on the phone, or at your website. What will be the rate of converting these contacts to real sales? How can you 4 This customer feedback process can also be applied inside the company wherever one process servces the need of another. The former is the supplier and the latter the customer. Internal company processes can carry out exactly the same sort of customer feedback processes to drive their performance improvements.
improve your conversion rate? Having a defined, well thought out sales process is your only path to success. There are many sales processes available for you to work with and we will not explore all of them here. The most important thing for you to do is to develop and improve a formal selling process that works for your business. If your selling process is not formal (meaning written down as a series of actionable steps) you can not begin to understand what is happening nor how to improve it. There are a few fundamentals that underly almost every sales process that are worthy of note. First, product or service knowledge, including the knowledge of how your products are applied in practice is critical. Excepting for the sale of a pure commodity or completely commonplace item, nothing will send customers scurrying to the door faster than a lack of knowledge on the part of the sales person. In the age of the Web, product information to a very deep technical level is easily accessible. It would be a safe assumption that any prospect you encounter will already have “googled” your product. You and your sales people have to pass this test of credibility. A corollary to this is the enormous value of saying “I don't know.” in response to a tough question. This can be very disarming and immediately, counterintuitively perhaps, raise your credibility. Of course, you need to follow up the first statement with, “But, I will find out.” Second, active listening. In order to sell you need to have your mouth shut and your brain engaged actively listening to what the prospect is saying and not saying. This is a critical baseline skill for all sales people. Third, practice FABing relentlessly. This is easy in principle and becomes easier in practice. Just remember, customers do not buy Features, they buy Benefits. Features are the technical and or physical attributes of a product or service. Benefits are the results of using the product or service. When you are speaking of Benefits you are much more likely to be speaking in terms that the customer can relate to immediately and emotionally. Fourth, once a prospect states an objection, a difficulty with your product or service you are most of the way to a sale. They have already started to envision using your product. Your job is
to keep that visioning process moving by effectively removing the obstacles to their taking the purchase step. This is where, down selling, lateral selling and up selling come into play.
Key Six - Improve Gross Margin % At this point we have concluded the keys to top line improvement. Though we have only three keys left do not think that this is any indication of the relative weighting that you should give to each of these keys. The actual condition of your P&L over the last three quarters or last three years will provide you with some powerful indicators of where to focus the most attention. Raise Prices Improving your gross margin can first result from raising prices. To take this approach it is useful to examine where prices come from and what that might mean for raising yours. Broadly prices are determined in the marketplace. But this is a rather nebulous construct at best. On even casual observation one is struck by how rare it is that a product or service is really an apple to apple match. Further, buyers rarely have truly thorough knowledge of the offerings in the marketplace. This then makes pricing derived from the marketplace quite variable. On the other hand, many businesses reflexively take a cost plus desired profit approach to pricing. This may be comfortable because the factors determining the price are all know to the business. But, this is an unfortunate approach for a number of reasons. First, though it may seem easy to know the costs of producing a product or service the variables involved are quite variable and at time downright murky. The cost of materials and labor can change abruptly and significantly. The underlying overhead cost structure must be accurately understood and distributed across the products and services even as the mix of the production of these items shifts over time. Second, because the cost plus approach lacks any market input, this approach may in fact generate prices that net a loss or be so high as to essentially shut out sales at all. What is very true is that the value (benefit) of a product or service is absolutely defined by customers. This leads to an interesting set of questions. First, how do you determine what bundle
of attributes constitute the customerâ€™s valuation. And, second, how do you come to a monetization of the valuation. The most reliable method for understanding why customers value your products or services as they do is to ask them. Being careful not to depend on very small sample sizes, a survey will do the trick. But, this is expensive to do, and most businesses rely on more anecdotal approaches. Pricing based on this approach comes down to some experimentation. First look around and find some companies that are comparable to you in product/service offerings, level of service and any other intangibles that apply. See if you can discover their pricing levels. This market research can help you set a pricing zone. If you are converting a very high portion of prospects you want to sell to into sales without much push back on price, you can be sure that your prices are too low. Raise the prices until you start to experience a higher rejection rate and more push back from the prospects on price. Keep in mind that you are, in large part, interested in total sales even if this come from a small er number of customers. Improve Efficiency and Effectiveness of Producing Products and Service The Cost of Goods (Services) Sold (COGS) line in the P&L is a great source of improved gross margins. It is beyond the scope of this document to provide more than brief discussion of the opportunities here. Nevertheless, the tools available to reduce waste and improve quality in the production processes of products and services are orders of magnitude better developed, more robust and reliable, and extremely effective compared to those available to tackle any issues in sales and marketing. If you are producing products, you might look at your lead times, cycle times, scrap rates, finished quality, on time delivery, and inventories in the form of finished goods, work in process and raw materials. You should be able to get competitive data about order led times and inventories (usually in the form of inventory turns ratios) from industry averages for your sector. Or, consider the feedback you are getting from your customers concerning lead times, quality,
and on time delivery. If you discover that you are higher than average you immediately know that your production processes are not up to par. On the other hand, don't be lulled to sleep by competitive or industry benchmarks. Truly world class manufacturing operations measure lead times in days, inventory turns over 100, on time delivery exceeding 99% to original promise dates, and finished quality over 99.5%. If you are producing services, you can take a similar approach to finding opportunities to reduce waste and improve quality at the same time.
Key Seven â€“ Control Fixed Costs Monitoring and controlling your fixed costs is an important component of every business success program. Fixed costs are sometimes viewed as a zero sum game for a company. This is not a good approach because the fixed costs of an organization are the basic infrastructure that supports the ongoing business processes and feeds the needs of the future through product, services, and market development. Fixed costs also support the development of the human resources of the organization. Having noted that, a regular review and tight budgetary control over fixed costs is essential. It is very common for fixed costs to disproportionally accelerate during surges of top line revenue growth. This is only good if it is part of a strategic investment of resources in the future of the company. The path to controlling fixed costs is to conduct regular management reviews of actual expenditures compared to budgeted expenditures. Attention can then be paid to variances, plus or minus, between actuals and budget. This approach is both simple and maintains focus on what is actually happening in the fixed cost portions of the business. Although many advise that every externally sourced fixed cost should be subject to rigorous competitive bidding to drive down costs, this strategy must be viewed carefully from a management resources point of view. Taking valuable company personnel time, especially in the smaller enterprise, to chase around after small incremental savings may not be wise. If you can
identify a significant rea for savings this approach makes sense. Otherwise, management time is probably better spent making the operations of business processes more responsive and effective in support of the overall enterprise.
Key Eight â€“ Select, Develop, and Prune Your Human Resources No asset of a business is more key to business success than your employees. A business with tremendous financial resources, the latest and greatest products and services, and even good gross margins and fixed cost structures will ultimately fail without engaged, well trained human resources. Developing and sustaining a rigorous and robust set of human resources management processes is at the center of implementing this business strategy. Without delving into issues of compensation, benefits, and the various required compliance issues, three people management practices are critical to success. First, whether hiring from outside or promoting from within, the employee selection process is an obvious starting point. Instead of the typical job description approach, high performance organizations focus on results. What are the results that this job is required to produce? In selecting new hires or promotions, the first step is to look for demonstrated ability to produce the results required. Whatever academic or professional background may be present matters not a lot without an examination of the person's past performance and the results they generated. By results we mean the data that shows performance to customer expectations whether the customer is internal or external. Second, management must take real responsibility for the development of every employee. A robust program of employee training including multi-skilling is an essential component of employee development. With the ready availability of digital images and video it is easier than every to document work processes and provide mechanisms for continuous updates. All of this material can be kept as a digital loibrary and be readily available to every employee to learn new job skills. This development work insures that employees are well trained for their jobs and
trained for more jobs so that they Early reviews of new hires and promotions as well as regular reviews of everyone else needs to focus on each person's performance in producing the results required. When there are shortcomings in a person's performance, management must first confirm that all of the training, tools, and resources required are readily available to employees. Management can not criticize employee performance if any of these three elements is missing or not adequately supplied. Third, pruning is good for gardens and just as good for companies. The most immediate time for pruning comes within a brief time after a new hire or promotion. Despite the best efforts and a sound hiring process this is one of the least reliable business processes. Many claim that roughly 50% of all hires and promotions are unsuccessful5. This means that it is imperative that new hire and promotion performance be reviewed quickly. Varying with the cycle time for a particular job to produce results, a review might be conducted within a few weeks or months. If the performance is falling short of required results, the manager must examine how well he or she has done the fundamental job of providing the employee with support in training, tools, and other resources so that the employee can be successful. Whatever failings should be repaired immediately. Meanwhile, short term performance improvement objectives should be mutually set. Another performance review should follow as soon as the cycle time of the job permits. If at that point the performance is not where it needs to be, the person should be moved to a more appropriate job or terminated. Failure does not beget improvement, just more failure. Management must face up to their responsibilities to the employee and the organization and let matters linger.
Key Nine â€“ Manage the Business by the Numbers â€“ Fact-based Management Drives Success Every high performance management system is built on a fact-based approach. Facts are mostly numbers. Facts are wonderful as tools for managing the performance of the organization. 5 I have searched for studies of this phenomenon without success. Nevertheless, folk wisdom over a long period of time and my own experiences suggest that there is a significant failure rate in hires and promotions.
Facts liberate the organization, and enable critical thinking and energize team-centered work. Facts belong to everyone in the organization not just top management. Facts lead to root cause analysis6, waste elimination and improved performance. Facts are about the results generated by people and the organization, they are not about personalities or politics. The first eight keys point to important portions of every company's performance. Looking at these in your company can easily determine where to focus your attention. Where are the areas that will generate the best results for the company. Having selected a few critical improvement areas, you can set up performance objectives that can be expressed in numeric values. It is important that these metrics be actionable. This means that the metric directly refers to actions that will drive improvement. For example, on time delivery performance is not an actionable metric. You need to know what part of the production process is failing in order to improve on time delivery. Once that is determined those responsible can focus on improving that metric which, provided you have done good root cause problem analysis, will drive improved on time delivery performance. For example, if there is a production bottleneck, say in packaging, improving the throughput in packaging will improve on time delivery (provided that the rest of the down stream processes in shipping for instance have adequate capacity).
6 Root cause analysis is a fundamental tool of all improvement programs. It intends to uncover the cause of failure that is fundamental so that a correction made to that error source will eliminate the problem completely.