When my clients offer a great service, that means more cash, more profits, and a brand that keeps getting better and better.
This CFO lives where no man has gone before. I live in the middle of nowhere. My nearest town has a population of roughly 180. My next nearest town boarders the Missouri River with a population of 1,200. And the home of my mailing address is pushing 2,800 (wow, that’s huge).
So that’s why we finally broke our piggy bank to access the visual outside world (and pro sports)–we purchased Directv. And Tom Peters would be proud. No, not proud of my financial decision, but of the service provided by Directv.
These guys have perfected the service process. First, they make sure you know when your tech will install the product. Not once, not twice, but three times by phone and twice by e-mail. Impressive.
When the tech shows up, the first thing he does is flash his badge. Overall, he did a good job. Plus, he was from South Africa. And that meant conversations about two movies I like–Invictus and The Power of One.
Well, he wasn’t great. He didn’t train us that well because when we wanted to watch the last quarter of Monday Night Football after our weekly family night at the Mountjoy household, we couldn’t get any channels. So I did something I never, never do–get help. Customer support was awesome. She nailed it. She was kind and very patient.
Now how did Directv get good at the service process? Designing a process, training, and continually improving the process until it was perfected. And I’m betting they still are not happy. And do you think this process is easy to replicate? Hardly. And as I said earlier, this spells happy customers, customers that will stick around for a long time, and lots of cash and profits. It’s these types of customers that will tell others.
I’ve created a tool that describes what I address above. It’s a simple tool that allows my clients to grade their own services. At the most, the grading scale will have up to 10 areas to assess. I’d highly recommend you do this in your business and go through this process monthly in the early going, then back off to quarterly. Every single employee should participate. Low grades need to be fixed ASAP.
Your Service Checklist
Before you implement such a system above, consider the following questions:
1. Is your service process consistent with excellence being your number one objective?
2. Does your service process include customer feedback throughout the process — before, during, and after?
3. Do you have a method of surveying your customers after each service provided?
4. Do you provide continuous feedback to your techs on how they can be getting better?
5. Do you call customers randomly to thank them and ask if there is anything else they need?
Below is a fascinating analysis of the top industries of 2010. The source is www.anythingresearch.com. No surprises, except for maybe one. Barber shops are the highest fragmented industry. I thought law firms, CPA firms, and general contractors would head the list. Not so.
Do you have start-up fever? While translation services cracks Inc. magazine’s top ten, the rest of the list can be found at their website.
Even non-profits need tools to determine if they are winning or losing.
I’m not a non-profit expert, but I do believe in a framework as outlined by James Greenfield who wrote Fund-Raising Cost Effectiveness: A Self-Assessment Workbook. Below is a simple scorecard based on the nine-point performance index.
The most important part of this scorecard is to immediately address what went right, what went wrong, and necessary actions to improve. If you work in a team environment, I’d highly recommend you use Google Docs to maintain this spreadsheet so that board members and key team members have access to the performance throughout the campaign.
Yeah, wouldn’t that be great?
Just imagine for a minute what your life would be like if that were the case.
However, steady, planned, and constant growth should be the norm in your company. If fact, there is no reason why you cannot be growing 15% per year, even in this economy.
And for starters, here are some quick ideas:
1. Internally, study your lead to close ratio over the past six months. Track it monthly. Is it constant? Does it vary monthly? Regardless, pull your sales team together and find out what it takes to increase it another 5 to 10 percent. Is it price? Quality? Reputation? Other? You have to know those answers.
2. Externally, review your current customer portfolio. What are other needs that could be addressed? What opportunities exist. This is exactly how one of my growth clients added sales growth–adding a new product line and creating a separate business to manage this new offering. I’d suggest you do this by pulling your management team together and meeting off-site to do this (and do it twice a year).
3. So you can’t grow? You must be a contractor, restaurateur, or a business tied to the old economy (major automotive). If that’s the case, then focus on shareholder (your own) value. Do some serious and realistic what-if scenarios by modeling your business over the next three years. Your scenarios should include 1) no growth, 2) five percent sales losses annually, and 3) ten to 15 percent sales losses. Go ahead and throw in a two to three percent sales growth scenario.
Show these scenarios side by side. What does cash flow look like? The bottom line after taxes? Retained earnings?
Is it worth keeping this no-growth business? Maybe it’s time to cash out while you can (if you can).
4.There’s one other method for sales growth. But I only recommend it for mature CEOs that ‘get it’ in terms of leading as opposed to micro managing. Besides grooming and coaching your best, your other job is studying acquisition targets that make sense for your current portfolio of businesses. Many, many opportunities exist. The hard part is finding the right one that fits with your other business(es).
If you are in that 15% crowd, what are some of the ways you are growing?
There are many great books out there on cash flow for the CEO, entrepreneur, and key members of management. But an obscure book called Cash Rules by Bill McGuinness is my favorite. Below are two of my favorite excerpts from that book.
“Knowledge of cash-flow dynamics should be a qualification for virtually any responsible job in your organization. This doesn’t mean that you need a company full of accountants, but you do want each key player to see and understand the cash-flow issues clearly. Each one should have a definite awareness of how his or her personal effectiveness and efficiency affect your company’s cash flow. Accomplishing this goal involves some basic education and training, as does any new discipline.”
“Many small- and medium-size organizations think they cannot afford a trained and experienced chief financial officer. In fact, they cannot afford not to have that kind of expertise. But even among those companies that do have skilled CFOs, there is no guarantee that the cash-flow way of thinking will get integrated into the organization. The fact is that everybody on your management team needs to understand how cash-flow dynamics affect his or her department if your business is to prosper in the long term.”
Outstanding. Couldn’t have said it better myself.
So just what is your cash flow IQ? Try these questions:
1. Do you know your projected cash position for the next 4, 8, and 12 weeks? You should and it’s easy to do. In fact, you should be doing this forecast every single week. No excuses.
2. And along those lines, do you forecast your cash flow over a rolling twelve-month time period every single month? Piece of cake. Simple stuff.
3. And you are getting timely, accurate, and meaningful financials between the 3rd and 5th of every month, right? If not, why not?
4. And does your controller or accounting manager provide your 1 to 3 three key numbers every single day which helps you to know how you are doing?
5. And finally, are you hitting your targets for keeping working capital at a minimum (quick turnaround on AR and inventory)? Again, it’s not rocket science.
So how did you score?
Don’t worry if you didn’t do well. You are in good company with other CEOs. But the key is education. So what is your next step to raising that IQ?
I cherish my personal library, and many of those books are special. While it’s a reprint, one of my favorite titles is Of Plymouth Plantation. Essentially, it’s the 40-something-year diary of William Bradford, the long-time governor of the Plymouth Colony of Massachusetts.
Bradford was one of the original colonists that migrated from Europe to the new world on the Mayflower. No, they weren’t pilgrims. They were called separatists. And no, they didn’t come to the colonies to escape religious persecution in England. They did that when they fled England finding a new home in Holland.
It’s been 15 or so years since I’ve read this amazing piece of history, so here’s my best at sharing my favorite three leadership traits of Bradford.
1. He cared more about the people than himself. In reading this book, it’s hard to pick up on this man’s ego. If he had one, he kept it check. And he was amazing during that first harsh winter. About half the separatists died that first year. Brutal. But Bradford was a source of strength, confidence, and leadership for those knowing the end would be near and the survivors. Man, we’ve got it so good.
2. That book describes my all-time favorite economics story. In the beginning, those Plymouth colonists tilled and harvested the land and the crops went to a central storehouse–to be shared with all. Well, that didn’t work too well. So Bradford came up with an idea. Try letting the colonists work for themselves x-days per week (I can’t remember if it was based on days or if part of the land they tilled was their own). The experiment worked. It worked so well, that the central storehouse was dropped. But needy people were still cared for–by the colonists.
Now that’s leadership. Communal living was part of their heritage, a way of living. But through vision, creativity, and leadership, Bradford took a risk. And it paid back handsomely. And I truly believe we are benefactors of that great decision some 400 years ago.
3. While Bradford was a great leader, he had help. Men like Brewster and Standish come to mind. There were others. Behind every great man, there are one or two mentors he/she leans on. Bradford was no different.
I cannot define leadership. But I can point it out. And right now, I’m pointing to William Bradford, a member of Mark’s all-time Dream Team.
Everyone has a bad day. No one is immune. Not even Mr. Rogers.
Give in or fight it? I have a better solution. Gratitude. Being thankful.
Several years ago, I was wiped while working on financial due diligence for an M&A gig I was working on. It was 2:00 p.m., the day before a major holiday. I had not eaten lunch yet and I desperately needed a break. And ‘brake’ I did (you’ll find out what I mean in a bit).
So I left my Buttonwood office and headed over to Schnucks where they have a great salad bar.
As I was halfway through Green Meadows, I was stopped behind a school bus where kids were being dropped off in their neighborhood. So far, so good until I looked in the rear view mirror. Thank you God for giving me a great wife and three adorable kids. You see, this big (monster looking) SUV was headed right toward me and he wasn’t going to stop. Lights out, or soon to be–so I thought.
To this day, that indelible image carved into my memory is so vivid it still seems so real. As I write this line, I’m tensing up a little thinking about being pushed into and under that bus. I didn’t measure it, but I think my head wound up four to five feet within the fender of the bus.
So back to the original question. When I’m having a bad day, I sometimes look at photos of the accident, and I am thankful I’m still alive. Very thankful. You have no idea. Accordingly, when I think about that accident, I’m reminded I’m here to make a difference–I have too. And my objective is to do that with my family, my friends, and my clients (which are like family members to me).
So for me, being thankful isn’t an annual event, it’s a daily exercise (and sometimes more).
Now then, what are you thankful for? And what are you doing about it?
I was recently reading the Kauffman Index of Entrepreneurial Activity which was last updated in May. According to their research, entrepreneurial activity reached a 14-year high in 2009 where 340 out of every 100,000 adults created a new business each month.
And how did Missouri rank? Not well. The graph below shows how Missouri compares to the top state each year along with the lowest ranking state.
According to the data, Missouri’s highest index was in 1996 when 340 adults out of every 100,000 (.34%) created a new business each month. In 2009, that index was .27%, but only good for a rank of 34. In fact, Missouri has never cracked the top 20 in this annual index. It’s highest ranking was 20 in 1998 as reflected in the graph below.
So what does the data mean? I’m not sure. However, Western states have the highest entrepreneurial activity along with Southern states. Oddly enough, the Midwestern state have the lowest scores.
Alarming? Yes. Solutions? I don’t know. But I know this–higher taxes will not help fuel new business in Missouri.
I’m guessing about monthly, I read about an employee fraud story where thousands have been stolen from their employer. And then I wonder how many employees are stealing that have not been caught. A few? Many?
During my early days at KPMG Peat Marwick (St. Louis), we were taught the reasons people steal:
-1- A financial need exists
-2- The opportunity exists
-3- And the illegal action is rationalized in the employee’s mind
And interestingly enough, my first audit job was at a community college where we found a serious embezzlement scheme. While I did not see how the illegal actions unfolded, I’m confident the three reasons above fueled this theft.
I do not want to make this a long discussion about all the ways to reduce employee theft. Instead, I want to mention one simple way to cut down (if not eliminate) on such theft. SIGN ALL CHECKS.
Yes, sign all checks. And this varies in my client base. In some cases, the owner is OKAY with having the accounting manager sign. In others, the owners are adamant in signing checks. Even in a $50 million dollar business, this can still be done (even in automated systems).
Here’s why this control is important. The typical employee embezzlement scheme is to create a fictitious vendor and then pay checks to that vendor–generally in small amounts that will go unnoticed.
If you cannot sign the checks, have the accounting manager keep the ‘pile’ (check stub, invoice, PO, shipper) for your review after the checks have been signed.
I know, this activity keeps you from growing your business. But this little insurance policy may keep you from losing it too.
Turns out an investment in a major league baseball team may not be that shabby after all. The owner of the Houston Astros is wanting to sell his team which he bought for about $120 million in 1992. At a minimum, he sells for $425 million. At the most, he garners close to $600 million. Not bad.
As I was reading the Yahoo! story about this, I was reminded of some parallels to selling a small to mid-sized business. Here they are in no particular order.
 First, I find it so hilarious when I ask owners what they think their business is worth. Everyone–and I mean everyone–thinks their biz is worth many times what a handful of strategic buyers would pay for it. And frankly, it’s because they do not know how pricing of a business should be determined.
So here are a couple takeaways. First, think like a buyer. The higher your business is priced, the lower the return on his/her investment. You may think that’s their problem, not yours. Not true. If a certain return cannot be realized, they will probably find a different way to grow their business (they may just not do it by buying your company). So this is where your wishful thinking needs to turn into a realistic mindset.
And finally, like the investment group representing the Astros states, the market will dictate price. Yes, go ahead and do some rough calculations. Figure your normalized earnings for the last three years and next three years. Arrive at some multiples that make sense. Those numbers (I call it back-of-a-napkin arithmetic) begin to be your floor for a selling price. Never provide these numbers to the seller. Let the buyers do their own math.
And the best way to maximize the sale price is to have a great investment banking firm with tons of leads with a wide sales funnel. More leads spells more potential buyers which means more offers. The result: maximum sale price.
Final takeaway on this point–find a solid investment banking firm with a proven background. And yes, they are out there. Personally, I like the people at the Woodbridge Group. Great people, great service, and they deliver. Additionally, Senior VP, Larry Reinharz is absolutely awesome in my book.
 Second, keep the strategic thinking in motion. Never shut down the ongoing ideas. And here’s a better way to say this. Continue being an entrepreneur even if you want to sell your business.
Every single year, you should be working on 2 to 3 key priorities that maximizes value in your business. Key byproducts of this planning process are better customers, better supply chain, and better employees.
And of course, identifying key priorities each year is not the stopping point. Now it’s time to execute. Do this year after year, and you get the big check. It’s just a matter of time.
 Third, it’s business as usual. Do not be in a hurry. Let the buyers be the ones in a hurry. If you rush, you may be rushing your return lower, and you do not want that.
Patience is the key. A few years ago, I was heavily involved in seller due diligence on the financial side. The deal took nearly two years to pull off. Once, it appeared to die. Thankfully, the seller was financially intelligent, understood deals can get sidetracked, and was extremely patient. And that ‘patient’ part left a big impression on me.
Take your time. Let the investment banker worry about the selling of the business. You just worry about executing your key priorities.
 And last, keep making the business better. This is similar to point number two, but it bears repeating again. When you are ready to sell, don’t check out mentally. One of my clients thought he had a buyer for his business a couple years ago. It just didn’t work out. And for me personally, I was disappointed for this client as they are like family to me.
But here’s the cool part. Through the first 10 months of 2010, sales are up 26.4 percent and earnings are up 90.1 percent (and 2009 was a great year too). Do I need to say more? Keep at those small wins day after day, after day.
So let’s do a little role play. Let’s assume you are the owner of the Houston Astros. What would you be doing over the next 12 months?
Want my answer? That’s easy. I’d buy lifetime season tickets behind home plate. Then I’d get to work. You see, I’ve got my priorities in place.