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Sunday, 27 January 2019

Can You Define the Purpose of Your Business? It Answers the “Where Are We Going?” Question!

Some years ago I attended a meeting in London to hear Theodore Levitt, the renowned Professor of marketing at Harvard, and apart from being totally inspired, I came away with a little mantra that I have used on many occasions since.

It is: if you don’t know where you are going any road will take you there.

Coincidentally I recently discovered a version of the same mantra which goes like this:

“If one does not know to which port one is sailing, no wind is favourable". (Lucius   Antaeus Seneca (4BCE-65CE) Roman stoic philosopher).  There is nothing new under the sun!

In both cases, of course, it is a matter of purpose, not objectives.  Accountants love objectives because they are easily monitored, easily measured and as a consequence can be used for praise or, rather more frequently, for  reprimand.

The definition of purpose is more intangible. Purpose has to have a base line of stated shared values that are immutable and that are based on moral, social, socio-political, environmental and other criteria whereas objectives are, more often than not, financial.

I am an avid collector of maxims and another that I like is:
People need to know two things. How am I doing and where are WE going?.

Leadership is all about the people and their needs (obviously) so that they are kept aware of their personal progress and that of the business, compared to the stated values of the organisation.

Because we are dealing with human beings the “How am I doing?” question is intensely personal and needs to be treated as such via regular and confidential one-to-ones.

The great Dan Pink in his YouTube animations and his book “Drive”, examines more deeply the factors and the environment that motivate people to perform at their best, simply stated as follows

  • Autonomy
  • Mastery
  • Purpose

People need to be given freedom and the autonomy to undertake their role in the best way possible and hence with the most satisfactory outcome.

That freedom to make decisions rather than wait to be told what to do and how to do it results in enhancement of the ability to perform and consequently in improved mastery of the task or subject.

Overall it needs to be achieved  with a sense of purpose that has been constantly instilled and has become the cultural centrepiece of the business.

It is all a matter of at what level the leadership is prepared to trust the people, how far will they go in paying them the respect of accepting and welcoming their abilities and desires and to what extent is all of that recognised and in some way rewarded.

The key to it all is the stated purpose of the business. If that is to generate as much money as possible for the stakeholders then that will be reflected in the culture of the business.

Equally if the stated purpose is, for example, to distribute any profits in such a way as to help solve a social problem then the perceived culture will reflect that decision.

That sense of purpose must be at the forefront of everything we do, of how we relate to our people and the world at large, of the values that we espouse and the way that we project ourselves in general.

Question: Does your business have a stated purpose and, if so, are you proud of it?  More than that, are your people proud of it?

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Sunday, 20 January 2019

Do New Recruits Bring Baggage? It Can Cause Culture Clash!

In the early days of my tenure as a Vistage peer group chairman, we had as a speaker the CEO of what he called a "London based corporate finance boutique". Despite this description he proved to be a very entertaining and insightful speaker.

His main message was that sale and/or acquisition of businesses is fraught with complications about which we mere mortals know little and having heard the stories from several of my members I can fully understand.

The fact is that buying and selling companies is a highly specialised activity and we, who are more interested in the running of companies, don’t normally come into contact with the issues associated with the sale or purchase of a business.

The speaker made several very important points one of which was that it is inadvisable to deal with just one company in terms of a potential buyer. It is far more sensible to hold a metaphorical beauty parade

This was borne out by one of my members who sold his company and made sure that initially he had at least three interested parties to bid for it. In the end he was very successful.

A further point that the speaker mentioned was that while due diligence by accountants was normal for both parties, it is equally important, perhaps even more so, that the question of a culture match was explored and seriously considered.

In his opinion at least 50% of all acquisitions fail and half% of the balance were not very successful. On that basis he suggested that it was usually a clash of culture between the two parties that was the problem.

This is particularly appropriate when a large corporate is acquiring a small entrepreneurial business that has probably been run very successfully with one individual in charge. In that case a culture clash can be terminal.

In fact it can be so traumatic that in many years I have never experienced anybody selling a business and notionally staying in it to be there for more than about six months. The change in culture is just not to the taste of an entrepreneur.

This is not to say that some acquisitions are not very successful.  Usually this is because there is a good match of cultures between the two businesses and indeed between the two leaders

In the normal run the sale or acquisition of a business is to say the least an unusual event but the recruitment of executives from outside the business is very frequently a normal experience.

Consider the potential issue of bringing in an executive from a large corporate into a small entrepreneurial business or vice versa for that matter.

In both cases the experience and manner of working is manifestly different from the other and unless both sides are willing to compromise there can be real problems.

Ideally each side should consider this new situation to be a learning experience and should be able to adapt their own working to develop a change that ought to be for the better.

I know of one case where a marketing executive was brought in from a large organisation into a smaller one and he quite frankly cause real issues in the business until after a while people realised that he was offering some great insights as they started to use them.

The crux of the matter is that it is all down to the leader. In every case the leader has the responsibility for designing and driving a culture into the business and furthermore to ensure that it isn’t just driven downwards by function but it needs to be across all aspects of the company.

The culture of the business or "the way that we do things around here" is the most important factor in the way in which the business is run. It is the most important function of the leader to drive that concept right throughout the business so that success will follow.

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Sunday, 13 January 2019

Unsure About a Decision? Remember That It Is JFDI Time!

It is curious that one of the most important attributes of a leader's activity, that of decision making, can be the most taxing.

I recall a member of my Vistage CEO peer group telling me that his colleague, the Technical Director, was unable to make a decision, which he found irksome to say the least.

He put this inability down to the fact that the director was an engineer and needed to collect all the relevant (and sometimes irrelevant) evidence to substantiate the decision making process.

It wasn't that he was risk averse, or was just that he needed to be absolutely certain that every possible piece of justification had been covered.

The upshot was that he finished up with vast amounts of data, very little information and no intelligence on which he could make a decision.

As a consequence he either went on and on collecting data or just gave up and went negative.

The leader's frustration was understandable; being the owner as well as the leader he wanted decisive people around him who didn't need constant reassurance that the data collecting process was essential to "get it right".

This inability to come to a decision can have several a raft of reasons and sometimes a mixture of all of them.

It must be said that certain functions in a business can lead to this irritating result of indecision; the numerical functions like technical and financial often lead the way whereas sales people can go overboard in the opposite direction.

It's the "ready, fire, aim" syndrome.

If one of the team is inherently risk averse then by definition they are more than likely to be indecisive and hence their value has to be questioned. That form of indecision almost always leads to upward delegation and that has to be resisted at all costs.

Beware of the indecisive one who won't make a decision in case, heaven forfend, failure could prejudice both is/her position and the job itself.

Fear of failure is a very powerful emotion and it takes a combination of personal strength and sensitive leadership to overcome it or at least get it into perspective.

That perceived downward spiral following possible failure leading to the only realistic solution of jumping off Beachy Head is all too real for some people. As I said a dose of reality and getting it into perspective is necessary in these cases.

And what about he leader or executive who shoots from the hip, who is reactive and ready to make a decision often without any evidence to back it up?

More dangerous I would submit than indecision when at least some assessment of the possible risk would be valuable.

It can be a dangerous but exciting roller coaster ride with the outcome in doubt all along the line.

Another issue is decision making by committee.  I remember talking to the Managing Partner of a law firm with 30 partners about how they came to a decision.

I rather naively suggested that he would seek consensus at which he exploded.

"Consensus?  Some hope!  They must have unanimity so that everyone agrees"

Again naively I asked him his they came to a decision on anything.

"We don't,” he said and that was the end of that conversation.

Smooth decision making is the lifeblood of any successful business or organisation for that matter.

There will always be a modicum if risk involved; the art is to assess that risk, decide whether it can be reduced and if not to make a conscious decision to go ahead or abort.

The key is to do it, one way or the other; vacillation does no good to anyone and only spreads uncertainty through the business. 

Remember that it’s always JFDI time!

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Sunday, 6 January 2019

How Many Prices Have You Increased Today? It’s the Road to Success!

Several (actually many) years ago I was retained as a visiting lecturer at Manchester Business School working mainly on short courses for  Senior Executive’s of local businesses.

On one occasion I was discoursing energetically on the need for a business to have a positive pricing policy when I was stopped short in my tracks by  a pair of defensively folded arms and some strong disagreement.

If we aren’t the lowest priced product in the market then we will go out of business” he proclaimed and no discussion or argument would shake him.

A not entirely unusual strategy in those days, it must be said.

Rather to my surprise, a couple of months later he asked me to take a look at his marketing plan. We started by questioning his pricing assertion by asking pretty well every comparable UK manufacturer (about 60 in all) to quote for a range of similar products and guess what?  His prices were just about in the mid-point of the industry. So much for his argument about losing all the business. He didn’t KNOW the truth; he GUESSED it to prove his own opinion.

It transpired that the most visible company in the industry was the largest in terms of sales and profitability.   That was another argument demolished.

Over the years I have used and promoted the “Good, Cheap, Fast” concept making the point that pricing should not be done from an emotional standpoint and people do not always buy the cheapest on the market.

If you want a product to be high quality (good) then it is very unlikely to be cheap and conversely if you want it to be cheap then it is equally unlikely to have a reputation for high quality.

All of this has led me to the understanding that product or service pricing policy is a marketing function and should most definitely not be a purely financial decision.

Just look at a very simple example. A business buys in a product at £10.00 each and sells them successfully at £15.00, a markup of 50%.

The Finance Director suggests at a Board meeting that if we offer a 10% discount then sales would expand so it is given a try. How often have we heard that opinion?

Instead of making a margin of §£5.00 per item, now we make £3.50 and believe it it or not we have to sell over 40% more product just to achieve the same result.

There is a very useful matrix available showing the effects of reducing and increasing prices, how many more items do we have to sell to make a price reduction viable, and even more interesting, by how much can we increase prices without having a material effect on sales levels.

(If you would like a copy of the matrix just email me ivan.goldberg@vistage.co.uk and it will be done)

Many times over have I experienced very doubtful Executives increasing prices and then waiting for the world to end, and are astonished when it doesn’t.

Businesses I have known who have had a reputation for low prices and illogically, top class product quality and service, have decided to increase prices on a regular basis and have not lost any significant business as a consequence.

Go back to the mantra - if you want it good and fast then it won’t be cheap and no more it should be.   I have Vistage members running expanding, successful businesses and are proud that they are succeeding at some of the highest prices in the industry.

Reducing prices in order to increase demand is, in general, an illogical and usually emotional response to market conditions and is a fast road to disaster if you are not very careful.

Give the bullet a good bite and pilot a test price increase.  You will be surprised at how easy it can be.

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