My first question is:  

When were things ever certain?  

The moment we convince ourselves that our business, our industry, our life are static and certain, we’re toast.   Static plans designed for a dynamic world are bound to crash and burn.  And, while current times seem especially dynamic, the truth is: the world is dynamic.  Always has been.

The real challenge isn’t planning for uncertainty, it’s planning for reality.

One gift of the pandemic is that it has disabused us of the notion of certainty.  Uncertainty is now explicit…in our plans, in our business, heck in pretty much all parts of life. 

You may be hearing:  

“We can’t fill that position…there may be no job in six months.”

“We can’t budget…we don’t know what next year will be like.” 

“We can’t launch new products…we don’t know if people will buy them.”

Here’s the truth:  

WE’VE NEVER BEEN CERTAIN OF THE FUTURE.

Seriously.  Never.  But we went around making job offers, approving budgets and launching products anyway.  I guess we were ignorant about the inherent uncertainty.  And, our ignorance was bliss.

So, how DO you plan for reality?

1. Start with Strategy. 

   Boil it down to its purest form.  How can you deliver what your customers value in a way that is financially sustainable for your business?  Write it down and make sure your teams are aligned.

2. Rightsize the Timeframe.

   Plan for a time period where you can see the horizon.  Depending on the situation, you may be looking quarterly, monthly, weekly – or even according to certain milestones – COVID opening phases, for example – that don’t match a calendar.  

3. Craft an Operating Plan.

   Translate your strategy into specific actions over your rightsized timeframe. The plan should be simple, consider current events and include all departments/operating units. 

4. 1. • Set Priorities: the smaller the planning horizon, the smaller the number of priorities…and no matter what, there should be no more than five
      • Agree on realistic goals for each priority
      • Identify the key levers for each priority and agree who is accountable for each lever 
      • Align department action plans with the priorities, goals and timelines
      • Develop an ‘actionable budget’ for each time horizon that reflects the priorities and supports day-to-day spending decisions

4. Put the Plan in a Larger Context.

   Planning for shortened time horizons doesn’t mean ignoring long-term implications.  Whatever your planning horizon, zoom out and consider longer-term scenarios if things continue, get better, or get worse.

   • • Isolate the two or three factors that most influence which scenario is likely to unfold
     • Determine what – if anything – you can do to increase the likelihood that things improve – or at least continue as-is
     • Identify “no regrets” actions you can take to make the business stronger regardless of which scenario unfolds
     • Consider proactive measures that will reduce risk
     • Develop a ‘directional budget’ that covers the next 12 months and includes the impacts of the possible scenarios; the directional budget provides visibility to longer-term financial opportunities and challenges to consider while planning and executing the actionable budget

5. Monitor, Monitor, Monitor…and Adjust.

   With shortened time horizons, plans need frequent review.  And because businesses may be struggling, these reviews should be robust.  Identify the most important metrics – cash balances, unit sales, inventory, etc. – and monitor them relentlessly.  Be prepared to act quickly based on both positive and negative variances.
   

6. Remember that Cash is King…or Queen.

   Cash management is different from typical financial management, and in times of uncertainty, cash becomes more important. Do you have it, how do you generate it, and how can you protect it?   Cash is especially important if accounts receivable stretch past 90 days, you carry inventory or if margins are slim.  Ideally, create cash reserves to cover: operations (6+ months), facility repairs and maintenance (6-12 months), capital projects (1-3 years) and growth opportunities.  It takes time and discipline to build up reserves, but it will pay huge dividends in the long run – both financially and emotionally.

Uncertainty isn’t new.  Startups and small businesses navigate uncertainty day-in, day-out.  Think about how much more flexible, adaptable and successful we’d be by permanently adjusting strategic and financial planning to better reflect reality – our inherently uncertain reality.  Companies that don’t consistently learn and adapt eventually disappear.  Don’t be intimidated by uncertainty, embrace it. 

Contact enlight to discuss how small changes can make your business more successful regardless of which future scenario unfolds.  

Do your employees think of their work as a responsibility or a burden?  How does your answer affect your culture, employee retention or financial performance?  And how does it impact the emotional well-being of your employees?

I recently caught up with a former client and friend who’s about to retire.  She confessed that her excitement about entering the next phase of life was eclipsed by relief to be leaving her workplace.  

“I’ll finally be free of the burden I’ve shouldered for so long.  I know I should think of it as a responsibility, but it’s been a burden.  And, I’m exhausted.”

I was struck not only by the comparison between burden and responsibility – but also by the accompanying guilt.   As we talked, we realized it wasn’t the actual work that felt burdensome.  In fact, she loved the customer-facing side of her job and had a strong personal connection to its success.   But, her company’s culture and internal politics, including years of passive-aggressive treatment by her superiors and colleagues, made the role feel like a burden.  

There are two surprising things about her situation:

1. Her superiors and colleagues had no idea how their actions impacted her – and they didn’t seek to create such a demotivating, emotionally challenging work environment
2. She felt an immense amount of guilt about the weight of the burden – she  blamed herself for the realities of her day-to-day work experience

My client’s experience creates a teachable moment for all of us.  Here’s the rundown of the attributes of the situation that compounded her emotional burden:

Her Project Was Untethered  

Although tasked with a special project that she took very seriously, my client’s superiors and colleagues viewed the work as a “box-checking” exercise.  Without acknowledging the importance of the project to the company’s strategic objectives, they passive-aggressively refused to approve her detailed plan and budget and didn’t embrace their role in ensuring the project’s long-term success.      

She Was Consistently “Iced Out”  

Because the work wasn’t regarded as critical to the success of the organization, neither was she.  Her boss excluded her from meetings and never mentioned her work when communicating about his team and their accomplishments.  

Bad behaviors were rewarded  

Even though her immediate supervisor refused to engage and develop team members equitably, he was considered a superstar in the organization.  Some managers were consistently rewarded and praised despite their demoralizing leadership style.  It felt like the organization sought results at any cost, including employee morale and mental health.

She Felt Invisible  

My client’s superiors and colleagues didn’t value her expertise and had no vision as to how it could contribute to the company’s success.  Furthermore, they were unwilling to invest in her – they never provided improvement feedback or coaching for how to be more effective.  Desperate to be valued, she spent years without their support.  Instead, my client felt constantly shut down.  And worn down.  And demoralized.  And hopeless.

Sadly, her experience is pervasive in all types of businesses.  And, for certain employees, the weight of the burden is even heavier.  People of color, immigrants, women and other minority groups already carry extra emotional burdens related to the cumulative challenges of work, home and life.  When their day-to-day work experience increases the burden they carry it can have real impacts on their performance, productivity, satisfaction and health.

What about your company?  How many of your employees feel burdened?  Is it damaging your company’s culture?  How does it impact employee retention?  What’s the financial impact?  How does it affect your employees’ health and well-being?

What do your answers say about you as a leader?

Especially in times of crisis, we should aspire to bring out the best in all employees.  Don’t let your behaviors or those of your leadership team burden your employees.  They’re already dealing with enough.  

Contact enlight for help assessing your company’s culture and pinpointing clear actions for improvement.  

“Your silence will not protect you.” – Audre Lorde

In my most recent blog post, I asked if you were a hero or a coward. I am here to confess that I am a coward.

Last week I started writing about leadership, but in light of recent events, I’ve decided to scrap that draft, instead opting to say what needs to be said, and what I should have said years ago…if I’d only had the courage.

True leaders value every human and strive to bring out the best in them.

True leaders see every human for who they are, for all their humanity. Not just for their work performance or the HR box they check.

True leaders stand up for what is right – in the office and in life.

It is next to impossible to be a true leader while riding the coattails of race and privilege. We can’t be. Our complicity in the racial hierarchy has ranged from turning a blind eye to outright enslavement to murder in broad daylight. Those of us who have unjustly benefited must help those who have unjustly suffered.

Black lives matter.

Black lives matter. Period. If we can’t say it and mean it, we aren’t true leaders. We have four hundred years of wrongs to right. We either work to be anti-racist, or we are racist. Period.

Our friends and colleagues of color have been trying to get us to listen for years. Four hundred years, actually. And we refused.

“He must have done something for cops to detain him or arrest him or shoot him…or kill him.” Black people are murdered before our eyes. By police. By white people. And that’s just the visible injustice.

Black people also suffer from the prolonged health effects of racism. Black families have been robbed of generational wealth, largely thanks to policies and practices like redlining that were/are completely legal. Black children lack opportunities due to inadequate access to education and unconstitutional funding of public schools. Black men rot in jails because of bias in the justice system. The list goes on.

The keepers of privilege must dismantle the system. We don’t expect the battered wife to stop her husband’s abuse, and we can’t expect people of color to end racism. If they could, they’d have done it ages ago. It’s up to us. And we better get started because we’ve got lots of work to do.

I’ve been trying to understand white privilege and my role in institutional racism for over a decade. But I’ve kept that work “on the side,” separate from my day-to-day business. I didn’t trust my clients and colleagues to have the courage to consider the world from this perspective. I worried it would hurt my business. I was a coward.

That ends today. I commit to living my life as an anti-racist. Every day and in every aspect. I’ll make mistakes, and I’ll learn and try to do better.

George Floyd did not die. He was murdered. Words matter. Black lives matter. We can do better. I hope you will join me.

In The Hard Thing About Hard Things, Ben Horowitz tells a story about how he handled a delicate situation when he was five years old.  He says it shaped his life.  “It taught me that being scared didn’t mean I was gutless.  What I did mattered and would determine whether I would be a hero or a coward.”  

The COVID-19 outbreak is one of those defining moments.  Ask yourself – are you a coward or a hero?  The good news is if you don’t like the answer, you can take action to change.

“Every time you make the hard, correct decision you become a bit more courageous and every time you make the easy, wrong decision you become a bit more cowardly.  If you are a CEO, these choices will lead you to a courageous or cowardly company.” 

Ask yourself these questions:

How do you respond to threats?

A hero is fearless, composed and proactive.  

• Fearless – Looks for, recognizes and acknowledges threats from the inside and the outside
• Composed – Defines the threat and distills the response into smaller parts that are easier to understand and actionable
• Proactive – Takes “no regrets” actions to mitigate threats and strengthen the company for the long haul

A coward says, “Our product is better than these new lower-priced competitors.  We don’t need to worry.”

A hero says, “Our products may be better, but we’re seeing sales slippage since these cheaper alternatives entered the market.  We need to understand what our customers think about the tradeoffs and how it changes our response.”

“There comes a time in every company’s life where it must fight for its life.  If you find yourself running when you should be fighting, you need to ask yourself, “If our company isn’t good enough to win, then do we need to exist at all?”

How do you communicate with your teams?

A hero is authoritative, honest and hopeful.  

• Authoritative – Provides clear direction, even in times of uncertainty  
• Honest – Admits what they don’t know, anchoring on what they do know and control and providing honest performance feedback 
• Hopeful – Always builds a bridge from the current state to a brighter future  

A coward says, “I have no idea what will happen after our PPP funding period ends.”

A hero says, “I’m not sure what will happen after our PPP funding period ends, but I’m doing everything in my power to make sure we can continue to operate.  And I know the rest of you are doing your best, as well.”

“Can the leader articulate a vision that’s interesting, dynamic and compelling?  More important, can the leader do this when things fall apart?  More specifically, when the company gets to a point when it does not make financial sense for any employee to continue working there, will the leader be able to articulate a vision that’s compelling enough to make people stay?” 

How do you engage with your customers?

A hero is open, accountable and adaptable.  

• Open – Listens to customers and understands how the current situation impacts their life or business
• Accountable – Lives up to promises, doesn’t make promises they can’t keep and immediately notifies customers of issues
• Adaptable – Looks for ways to feasibly address customer needs, increasing opportunities and loyalty

A coward says, “I’m too busy trying to solve our quality and delivery issues to listen to more complaints from customers.”

A hero says, “I will personally meet with our top customers to hear their concerns and let them know what we’re doing to solve the problem.”

Everybody faces challenges sometimes.  The way you choose to navigate your challenges will define your customer relationships for years to come.  Don’t mess it up. 

How do you invest your time?

A hero is focused, disciplined and flexible.  

• Focused – Understands the fundamentals of the business and focuses on what is most important to get right in the moment
• Disciplined – Understands the big picture and sees most of the challenges that are looming, but doesn’t get distracted or overwhelmed
• Flexible – Learns from experience and knows when to refine the company’s fundamentals

A coward says, “I don’t have time to think about the future because I’m too busy putting out fires.”

A hero says, “In a crisis, the most important thing I can do is ensure we are focused on the things that will determine our fate and eliminate as many distractions as possible for my team.”

Time is money.  And in organizations, poor time management has exponential negative impacts on the business.  If the leader is focused on the wrong stuff or overwhelmed, so will the team.  Now more than ever, companies need heroes to keep everyone focused and aligned.  If you’re not sure what to do, narrow your team’s focus to core functions while you consider alternatives and gather more information.

So…are you a coward or a hero?  Being a leader is hard work.  And especially in times of crisis, it can be lonely work.  It’s not always easy to muster the courage to be a hero, but we all have it in us.  enlight can help you stay focused or correct course…contact us.

At enlight, we couldn’t agree more.  As we discussed in our market insights overview blog, customers are the only people who are consistently putting money into your business.  Understanding how they use your products and services to create value for their businesses is fundamental to your company’s growth and prosperity.  

You Already Capture Customer Satisfaction And Net Promoter Scores®, So You’ve Got It Covered?  Right? Wrong!

From our experience, you can find some data about customers floating around most companies – customer satisfaction, purchase history, etc.  But there are some common problems:  

1. At best, it’s just a collection of facts and has no mechanism to link them together to make them actionable.  More commonly, it’s actually distributed throughout the company in the various silos – sales maintains purchase history, customer service or marketing maintains customer satisfaction, engineering has info about product specs, etc. – and nobody even thinks to try to connect them.
   
2. Survey design and analysis are complex.  There’s an entire field of study about it.  With experts and everything. How you ask the questions matters.  What survey method you use matters. How you recruit respondents matters.  How you analyze the results matters. How you use the findings to guide decision-making matters.  One mistake in the chain can be amplified to way over (or under) state results – and drive misguided decisions.  Most customer surveys we’ve seen were designed in-house without the benefit of expertise in one (or more) of these areas.
3. Many companies maintain a set of shared beliefs about individual customers and their relationship with them.  This narrative is often based solely on the salesperson’s perceptions and misinterpretation or misremembering of the past.  These perspectives are largely myths, but they can have a huge impact on how the customer is viewed and treated. 

At best, this information is more like blind men touching an elephant than actual insight that can drive strategic action. (Remember the fable of the blind men and the elephant?)  Insight requires you obtain a deeper understanding of your customer through information, helping you understand their motivations and needs.  This understanding guides you to serve them today while helping predict their future needs. And sometimes, you need information from sources other than your customers – because you need to put them into the context of how they operate day to day in their market.  That’s why we focus on market insight at enlight.

Here’s How We Do Insight Right

At enlight, we are committed to helping companies improve performance – and a crucial step is to understand your entire value chain.  Not just your product.  Not just how you close the sale.  Not just customer satisfaction. We want to understand it all – especially the parts between your customers and the final end-user, because ultimately, the end-user drives all upstream product-related decisions.  Ultimately, your customers’ customers drive the success of your business. 

I’m going to write that again because it bears repeating and it’s often overlooked:  

Developing quality and actionable market insight doesn’t happen overnight.  Our approach involves three main pillars of work:

Discovery Interviews
Exploratory conversations with individuals throughout the value chain to obtain insider industry input, map challenges and opportunities – and widen the conversation beyond what’s always been done.

Quantitative Research
Anonymous phone or web surveys of customers, potential customers and potential stakeholders that drives custom market segmentation.

Ethnographic Research
Field observation of customers, potential customers and targeted stakeholders to provide context and clarity for the work.

While each pillar is strong on its own, the combination of all three data sets is what’s really powerful – creating insights beyond typical customer satisfaction and financial tracking.  Understanding how each type of data adds value to strategic decisions is what we do best.   

Look for more details about each pillar in upcoming posts, starting with a deeper dive into enlight’s Discovery Interview methodology, and how it can transform your company’s customer relations, marketing, strategy and business performance.

Do you know…

How much your customers value your products?

Why your customers value your products?

What drives the quantities they purchase?

After you answer these questions, consider whether your team would answer the same way.  Every decision in your company should be aligned behind a common understanding of these business foundations – and that’s harder to accomplish than you might think.

The Business:  A tier one automotive supplier was struggling to sell aluminum parts to major OEMs.  The aluminum parts were more expensive than the traditional steel versions, but they offered benefits such as lighter weight and higher performance.  Sales teams pitched improved fuel efficiency from the weight savings but the automakers just weren’t interested.

The Challenge:  At the time, cars sold in the US were getting bigger and bigger.  SUV sales were driving industry growth.  The Toyota Prius was only for treehuggers.  Gas was cheap so consumers didn’t care about gas mileage. Aluminum parts improved MPG, but consumers certainly weren’t willing to pay a premium for it.  Automakers had no room for extra costs they couldn’t recoup in their sales price.

The Market Insight:  Better MPG wasn’t a selling point, but aluminum parts have other performance benefits.  Aluminum has a higher strength-to-weight ratio than steel, meaning the weight savings doesn’t compromise strength or safety. In the 1990s, Ferrari realized that using aluminum instead of steel allowed them to make larger cabins and trunks – accommodating the needs of professional athletes for more leg and headroom – and the ability to put two golf bags in the trunk.  When the Ferrari Modena debuted in 2003 with an aluminum spaceframe, it boasted a 10% increase in size and a 28% reduction in weight… meaning speed and performance were actually improved.  A new value proposition was born: OEMs could improve speed, performance and comfort with aluminum parts. And, those are things that many customers care about – especially in high performance and luxury vehicles.

The New Strategy:  The product was the same, but the target customer and the story were different.  When the sales team stopped talking to purchasing departments about improved gas mileage and started talking to high performance and luxury vehicle platform managers and designers about speed, performance and comfort, they were able to increase prices, build strategic partnerships and drive more sales.

Who Are Your Target Customers?  What Benefits Do They Seek?

As the case study demonstrates, defining your target customer and the benefits they seek is fundamental.  For many businesses, there is more than one person involved in the decision. Successful companies know who – specifically – values their offerings by understanding:

• Who consumes the products or services?
• Who chooses or specifies the products or services?
• Who influences the purchase?
• Which segments are most likely to value the products and services?
• How to identify customers in the most attractive segments?

Once you understand who your target customer segments are, you can specifically define how these segments benefit from your products or services over your competitors.  Questions involved in this part of the analysis include:

• What specific product functionality do customers value?
• What financial benefits do customers seek?
• What are the emotional aspects of the purchase?

You may believe you’ve already examined these questions over and over again, but as my mentor, Ronee Hagen, former Chief Customer Officer at Alcoa, used to always say:

“Customers are the only people who are consistently putting money into your business.”

Getting and keeping customers is the only way your business will survive over the long term.   Shouldn’t you strive to understand them better than they understand themselves?

How Do Customers Shape Your Business Model?

OK, so you have a solid understanding of your customers and how your products or services meet their functional, financial, and emotional needs.  The next step is to incorporate these insights into your business model. Optimizing your business model ensures you’ll profit from serving target customers – those customers who value your offerings most.

Business Model Key Questions

Customers are at the heart of these questions; not the sales team, not R&D, not leadership’s past experience, not what competitors are doing – and certainly not your best guess.  Successful strategies embrace the customer’s needs, meeting customers where they are.

We’ve seen time and time again how deepening a company’s understanding of their customers can bring big returns.  Regardless of the industry and no matter the client or the market, this work has helped cross-functional management align and drive business value.  In upcoming posts, we’ll dig deeper into how we do the analysis and how it’s helped our clients.

In our last post about the Value Creation Vector, we dug into the second lever, Growth Potential.  Today we’re going to look at the third lever: Management Tenacity. Sadly, this lever is typically least interesting to management, even though it’s often the easiest way to generate value.

You may wonder why Management Tenacity is an easy way to generate value.  The best I can tell you is that Management Tenacity captures how effectively and consistently your company and leadership do all the things they know they should do to be effective.  It’s the business equivalent of diet and exercise. And, just like many of us eschew diet and exercise guidelines in favor of a magic pill to heal what ails us, many execs distract themselves with silver bullets – acquisitions, expansions, etc. – instead of rolling up their sleeves and getting to work.

As a refresher, here’s what I wrote about Management Tenacity in the original Value Creation Vector post:

It’s safe to say no one has ever hired us to improve management tenacity.  And, that’s a crying shame. This is where the low-hanging fruit abounds. Always.  A few small tweaks to how the management team works have lasting impacts on financial performance, longevity and morale – all with little or no financial risk.

When we assess a company’s management tenacity, we evaluate several factors that create Near-Term Value, Position the Company for Long-Term Value and Unlock Hidden Value.

Create Near-Term Value

As with the other two factors, we start by assessing Management Tenacity factors that can have a near-term impact on your company’s performance.  The basic tenant remains true: small changes in these factors can have significant and immediate impacts on corporate performance.

The factors we consider are:

1. Financial Management – Does the management team monitor the right metrics to guide day-to-day decision making?  We want to understand if the management team considers:

• Profitability by Customer, Product and Market
• Financial Statement Alignment
• Financial Metrics Alignment
• Visible and Transparent Financial Metrics

2. Executive Alignment – Is the executive team aligned on the foundational tenants of the business?  We want to understand if the management team is aligned about:

• Strategy
• Metrics
• Investor Priorities
• Culture and Values

3. Execution Management – How effective is day-to-day management of the company?  We want to understand if the management team has established:

• Comprehensive Operational and Strategic Metrics
• Visible and Transparent Operational & Strategic Metrics
• Clear Accountability
• Effective Internal Communication

Position for Long-Term Value

There are several management tenacity factors that can improve a company’s performance over the long-term.  These factors – just like the long-term factors for Profit Potential and Growth Potential – improve the company’s proactivity, productivity and resiliency.

The factors we consider are:

1. Management Model – What is the executive team’s approach to enterprise management?  Is the approached shared across the management team? How is it codified?  We want to understand how the management team approaches:

• Employee Engagement
• Use of Data
• Collaboration
• Leadership Style

2. Customer Intimacy – Does the company really understand its customers?  Is there an institutionalized means of maintaining understanding as customers change?  We want to understand if the company:

• Objectively Understands Customer Needs
• Objectively Understands Influencers
• Understands Customer Business Models
• Understands Customers’ Pressures and Trends

3. Innovation Management – How does the executive team define and pursue innovation?  We want to understand if the company has a robust innovation platform, including:

• Portfolio Approach
• Product/Service Innovation
• Process/Cost Innovation
• Innovation Process

Unlock Hidden Value

As with Profit Potential and Growth Potential, Management Tenacity factors that unlock hidden value are often overlooked and not necessarily intuitive.   However, they make the company stronger and improve results.

The factors we consider are:

1. Strategy Clarity – Does your entire company understand the strategy and how it is operationalized?  We want to remove hidden contradictions and/or confusion about the strategy that limit success:

• Clarity About Target Customers
• Clarity About Target Customer Benefits
• Clarity About Business Model
• Strategy is Broadly Understood

2. Org Structure Alignment – Is the company structured to effectively execute on the strategy?  We want to eliminate hidden friction from org structure misalignment by ensuring:

• Key Roles Are Understood
• Staffing Alignment
• Reporting Relationships: Clear and Appropriate
• Operational Metric Alignment

3. Employee Alignment – Has the executive team equipped employees with the knowledge and tools they need to align their actions with the strategy?  We want to remove hidden friction from day-to-day employee decisions that contradict each other or the strategy by ensuring:

• Individuals Understand Their Role
• Individuals Understand Others’ Roles
• Incentive Alignment
• Individuals Understand Connection to Customers

Congratulations!  You made it through the three Value Creation Vector levers.  Your profit potential is in order, your company is well-positioned to grow that profit, and management is aligned and committed to the work.  Whether you seek to grow your company, improve its profitability or both, applying our Value Creation Vector will position your company to achieve its goals.

In our last post about the Value Creation Vector, we dug into the first lever, Profit Potential.  Today we’re going to look at the second lever:  Growth Potential. Once we have assurance that you’re maxing out the profit potential of your business, we want to help you grow the sh*t out of it.

As a refresher, here’s what I wrote about Growth Potential in the original Value Creation Vector post:

Once you’re comfortable that your company is performing at its peak, attention can turn to growing the “machine.”  Assessing growth potential in a structured way helps focus energy first on why to grow – then where and how to grow.

So, what do we consider when we assess a company’s growth potential?  We evaluate several growth factors that Create Near-Term Value, position the company for Long-Term Value and Unlock Hidden Value.

Create Near-Term Value

Just like with profit potential, we start the growth potential assessment with the near-term factors because small changes in these factors can have significant and immediate impacts on growth.

The factors we consider are:

1. Sales Effectiveness – Is your sales team operating effectively and using the most effective best practices?

We want to understand if the sales team:

• Identifies Potential Customers
• Converts Customers
• Utilizes Sales Tools
• Monitors Individual Performance

2. Market Penetration – How big is the market opportunity with target customers and has the company sufficiently penetrated that segment?

We want to understand the basics of the current target customer segment:

• Target Segment Size
• Target Segment Growth
• Target Segment Penetration
• Market Share & Potential

3. Market Potential – How big is the opportunity?  How broad is your reach?  What are the basic dynamics of the market?

We want to understand the basics of current geographic coverage:

• Geographic Reach & Potential
• Online Reach & Potential
• Synergy
• Seasonality

Position for Long-Term Value

The factors that help a company capture long-term value require more time to plan and operationalize.  Just like with profit potential, these factors improve the company’s proactivity, productivity and resilience over the long-term.

The factors we consider are:

1. Competitive Position – What is your competitive situation, and do you have a realistic understanding of it?
We want to understand whether the management team has an objective understanding of:

• Relevant Competitors
• Competitor Strengths
• Competitor Strategies
• Competitive Market Share

2. Potential Target Segments – What new customer segments are likely sources of growth?
We want to understand the extent to which your management team has identified:

• Target Customer Benefits
• Adjacent Segments
• Value Chains
• Target Segment Margin Potential

3. Potential Adjacencies – What new products or services are likely sources of growth.
We want to understand if leadership has identified:

• Potential Customer Needs
• Product/Service Opportunities
• Customer Inspiration & Input
• New Products and Services Margin Potential

Unlock Hidden Value

The factors that unlock hidden value are often overlooked and not necessarily intuitive.  However, they are often the most important, making the company stronger and improving growth potential.

The factors we consider are:

1. Target Customer ‘Fit’ – Are current target customers really a good fit with your company’s strategy, goals and capabilities?
We want to understand if there are hidden limitations in the current target market because of:

• Customer Benefit ‘Fit’
• Willingness to Pay
• Segment Size
• Option Value

2. Customer Retention – Is your company running in place because all the growth is negated by lost customers?
We want to size up hidden growth limitations from customer attrition:

• Retention Metrics
• Retention Accountability
• Culture of Service
• Retention Plans

3. Marketing Effectiveness – Is your company sending mixed signals through its marketing and ‘self-sabotaging’ the growth potential?
We want to identify any hidden marketing factors that limit growth:

• Marketing Reach
• Marketing Relevance
• Brand Alignment
• Customer Attraction

You have your profit potential in order and your company is well-poised to grow that profit over the near and long-term.  How do you make sure all that potential value is realized? That’s where Management Tenacity comes in. We’ll discuss the critical but sometimes forgotten importance of Management Tenacity in an upcoming post.

In my last post about the Value Creation Vector, I provided an overview of the tool and how it can drive focus, prioritize actions and deliver results for companies. Today, I’m going in more detail about the first lever:  Profit Potential.

I wrote this in the last post, but it bears repeating:

Profitability is the ultimate barometer of a company’s health.  Optimizing profitability is the easiest way to assure long-term viability.  Job one is to assess the company’s potential to improve profitability. Even if growth is the ultimate goal, why grow something that’s mediocre (or worse), when you can grow something that’s healthy and profitable?  I know, I know, improving what you already do may seem boring compared to shiny new objects (growth! innovation! acquisitions!) that are often hard to resist. But, I’ve yet to encounter a company that has maxed-out its existing Profit Potential.

So, what do we do we consider when we assess a company’s profit potential?  We look at several profitability factors that Create Near-Term Value, Position For Long-Term Value and Unlock Hidden Value.

Create Near-Term Value

We start the assessment with the factors that impact near-term profit potential because small changes in these factors can have significant and immediate impacts on profitability.  These factors practically generate free money for companies.  How can that be bad?

The factors we consider are:

1. Management Metrics – What are the key metrics the management team uses to monitor company performance and drive decision-making?
We want to understand if the metrics are:

• Strategically Aligned
• Internally Consistent
• Comprehensive
• Visible and Transparent

2. Sales Management – How effectively is the sales team managed to sell current products or services to current customers and potential customers?
We want to understand if the sales team has:

• Sufficient Customer Coverage
• Appropriate Sales Metrics
• Effective Sales Incentives
• Accountability for Discounting

3. Pricing Alignment – Are current prices, pricing strategy and day-to-day process pricing management aligned with each other – and with the company’s overall strategy?
We want to understand if current pricing is set to maximize value creation by assessing:

• Pricing Calibration:  Too High, Too Low, On-Target
• Cost Calibration:  Accuracy, Completeness
• Discounting Frequency and Magnitude
• Current Price-Setting Methodology

Position For Long Term Value

By definition, factors that help a company capture long-term value require more time, first to determine the appropriate action and, then, for those actions to impact profitability.  In addition to improving profit potential, optimizing these factors makes the company more proactive, more productive and more resilient over the long-term.

The factors we consider are:

1. Revenue-Driver Management – Does the company understand what drives revenue and apply that knowledge to day-to-day decisions?
We want to understand if the management team:

• Understands Revenue Drivers
• Assesses Revenue Drivers With Metrics
• Ensures Metrics Are Transparent
• Maintains Accountability For Revenue Drivers

2. Cost-Driver Management – Does the company understand what drives costs and apply that knowledge to day-to-day decisions?
We want to understand if the management team:

• Understands Cost Drivers
• Assesses Cost Drivers With Metrics
• Ensures Metrics Are Transparent
• Maintains Accountability For Cost Drivers

3. Brand Image Alignment – How well is the brand aligned with day-to-day operations?
We want to understand if the company has achieved:

• Brand Honesty
• Marketing Material Alignment
• Competitive Differentiation
• Sales Alignment

Unlock Hidden Value

The factors that unlock hidden value are often overlooked and not necessarily intuitive.  However, they make the company stronger and improve profit potential.

The factors we consider are:

1. Business Model Clarity – Has leadership helped employees understand how the company makes money so day-to-day decisions contribute to improved profit potential?
We want to understand if the entire company understands the reality and importance of:

• Revenue Drivers
• Cost Drivers
• Individual Impact on Results
• Collective Impact on Results

2. Employee Dynamics – Does the company understand how important employees are to driving value and are they effectively managing the workforce to reflect their importance?
We want to understand if the company is assessing and managing:

• Culture Alignment
• Workforce Strategy Alignment
• Comp and Benefits Alignment
• Employee Retention

3. Balance Sheet Strength – Has the company managed the balance sheet to support profitability and cash flow?

We want to understand the ability to improve profit potential through:

• Accounts Receivable Days
• Accounts Payable Days
• Fixed Asset Utilization
• Leverage Ratios

Let’s say it one more time:  Profitability is the ultimate barometer of a company’s health. The most successful companies get their existing house in order before seeking expansion.  No matter your industry, systematically addressing the factors that impact Profit Potential will position your company for successful growth.

For nearly 15 years, we have been fortunate to serve great clients. Although each situation is unique, most clients seek to grow their company or improve their profitability – or achieve both results at once.  However, at the beginning of most engagements, the client is often focused on growing the business but doesn’t have a handle on their profitability – or their ability to improve it.  Or, perhaps they’re having an internal debate about the importance of growth v. cost cutting v. operational efficiencies.   Or, maybe they just don’t see a clear path from where they are to where they want the business to be in the future.

Solving this quandary is where we deliver value.  It may sound simple, but helping our clients address the right questions at the right time is one of our differentiating skills.  What are we trying to accomplish?  What are the most important questions to answer first?  What data do we need?  How can we eliminate irrelevant noise?  What questions come next?

Order Matters

I think of sequencing our client engagements much like the concept of “Order of Operations” in math.  Remember that from middle school?  (Maybe you learned it in elementary school…I went to public school in rural Kentucky, so cut me some slack!)  The image at the left provides a quick refresher in case you’ve blocked out the details.

Like solving a complex equation, successful consulting engagements pace the questions so clients address the right questions or decisions in the right order.  Trying to address everything at once or addressing them out of order can be paralyzing.  All too often we find clients – and their executive teams – muddling through questions and decisions, creating a continuous loop of uncertainty.  Or worse, they’re stuck in a debate where the loudest, most powerful voice in the room wins, regardless of what is actually best for the business.

We provide a structured, efficient approach to work through the right stuff at the right time.  Laying out an appropriate order of operations simplifies the work.  You can almost hear the collective exhale as client teams sigh in relief.   One of the tools we use is the Value Creation Vector.  This tool helps us zero-in on the most important factors for each client, depending on their situation and needs.  The Value Creation Vector isolates factors that address profitability, growth and effective management and relates them the opportunity for value creation.

Why “Value Creation Vector”?

We developed the Value Creation Vector tool to capture an effective order of operations for helping clients drive real results to the bottom line.  We focus on the right questions in the right order, taking the client’s goals and current performance into account. We call it the Value Creation Vector because it assesses both the magnitude and direction of the opportunity.

Examples of real-life client dilemmas we’ve encountered:

Acquisition Allure:  We want to grow, and we need a West Coast presence, so let’s acquire ABC company.  They seem to be successful, and it would be so easy to make a deal.

Pricing Problems:  We want to grow sales, so we’re going to lower the price of our most popular products.

Chicken & Egg Growth:  The VP of Sales says he can move lots of new products if only the VP of Manufacturing will figure out how to make them.  The VP of Manufacturing wants to build a plan for new products before they try to sell them, and thinks the sales team should focus on increasing volume for existing products.

With the Value Creation Vector, we quickly assess the current state to determine where to start and what to do next.

The model includes three levers:  Profit Potential, Growth Potential and Management Tenacity.  Each lever captures key elements that create value over time.

Lever 1 | Profit Potential

Profitability is the ultimate barometer of a company’s health.  Optimizing profitability is the easiest way to assure long-term viability.  Job one is to assess the company’s potential to improve profitability.  Even if growth is the ultimate goal, why grow something that’s mediocre (or worse), when you can grow something that’s healthy and profitable?  I know, I know, improving what you already do may seem boring compared to shiny new objects (growth!  innovation!  acquisitions!) that are often hard to resist.  But, I’ve yet to encounter a company that has maxed-out their existing Profit Potential.

Lever 2 | Growth Potential

Once you’re comfortable that your company is performing at its peak, attention can turn to growing the “machine.”  Assessing growth potential in a structured way helps focus energy first on why to grow – then where and how to grow.  For example, all too often leadership is fixated on making an acquisition – sometimes they’ve even identified the specific company! – but they can’t articulate ‘why’ the move is good for the business.  Acquisitions that don’t clearly support a company’s existing growth potential never live up to expectations and can ultimately destroy value.

Lever 3 | Management Tenacity

It’s safe to say no one has ever hired us to improve management tenacity.  And, that’s a crying shame. This is where the low-hanging fruit abounds. Always.  A few small tweaks to how the management team works have lasting impacts on financial performance, longevity and morale – all with little or no financial risk.  Honestly, it doesn’t get much better than that.

In upcoming blog posts, I’ll outline how we use the Value Creation Vector to quickly get clients on the same page and on the right track.