When Rifco first started offering business turnaround consultancy services, we knew that cutting costs and increasing revenues were key.
So, typically after cutting costs for a client, we would focus on the sales and marketing strategy, which covered the older model of 4 Ps, (Price, Product, Promotion, and Place). But, after some recent analysis, we’ve realized the game has changed dramatically, and we should now focus on the following 7 key steps for Business Turnaround:
A. Strategic Planning
B. Personal Professional Development
C. Company Culture
D. The Unique Selling Proposition
E. The Money
F. Systems and Processes
So, in this article we will discuss each of these key steps in detail.
A. Strategic Planning
There are 3 key areas to Strategic Planning:
- Business Strategy
- Business Plans
- Exit Plan
1. Business Strategy
Your Business Strategy is all about making clear and specific choices regarding what your business will become. It’s all about focus. You can’t be everything to everybody. Strategy must start with the vision for your business, (what will your business become, and how will people measure it’s success). Strategy must also include your Mission and Values Statement, (what you believe, and how will you act to realize your vision). It must also clearly state how you can generate a competitive advantage in any market. Finally, it must also determine your core market by understanding both financially attractive markets, and how those markets are related to your business.
2. Business Plans
All businesses need multiple Business Plans. The first is your internal Business Plan, and this is how you measure yourself and your business. The second is your funding Business Plan. Why are these two plans different? Simple. Investors think in a very specific way. As a small business owner, you are selling two things: your product or service, so you make that irresistible to your prospective customer. Second, if you are seeking investment, you are selling your business’ equity. That is a completely different sell, and as such requires a completely different plan. At Rifco, we call this the equity marketing paradox. So, for one plan you need to think like a customer, and for the other plan you need to think like an investor. Ask yourself: What are the critical questions those two different groups of people will ask you?
3. Exit Plan
Without an Exit Plan, what are you really working towards? There are five ways to exit your business. 1. You can sell your business (trade sale, or as a sole proprietor), or merge it with a similar business. 2. You can float your business on the stock market. This is difficult and expensive, but it works well for high growth businesses, especially in the technology, telecommunications and pharmaceutical industries. 3. You can give your business away. Sounds strange, yet we have seen this happen dozens of times. For example, you might give it away if you are bored of it, tired of it, or just cannot continue to work in it anymore. 4. Out of choice, or out of necessity, you can simply shut your business down, and close the doors, (96% of start-ups suffer this fate within just ten years). 5. You can franchise your business, and to do that you must set it up and optimise it, so it works like a finely tuned watch. At Rifco, we have done this for a few clients, by developing bespoke Operations Manuals, and drafting the necessary Contracts.
B. Personal Professional Development
Be your absolute best! Starting a business is one of the most difficult and riskiest things you can do. However, it can be deeply rewarding, and truly fulfilling, if you get it right. To maximise your business’ success, you need to be personally firing on all cylinders, so to speak. Focus on these 3 areas first:
1. You need to be the absolute best you can be. Utilize ‘Personal Effectiveness Tools’, such as Time Management, to set yourself up for high achievement every single day. You can ensure that you don’t have any ‘off days’, and that you are fulfilling your maximum potential at all times.
2. ‘Leadership and Management’ are somewhat overused words in business, but this is a critical subject. There are some critical parts to leadership and management that require specific attention. Ensure you work ON your business, rather than IN your business. Keep your business independent of you personally. Have a think about what kind of legacy do you wish to leave. Develop your own personal brand. Also spend time thinking about crisis management, and what you would do in the event of a critical emergency.
3. Finding a good ‘Work/Life Balance’ is a critical aspect of your business, and your personal life too. More than 40% of entrepreneurs we interviewed in 2016 had suffered either a relationship breakdown, or serious health problems as a result of going into business. You need to ensure you work hard, and also play hard! Find time for your close personal relationships, your children, your hobbies. Manage your personal and professional time properly, and make sure both your employees as well as your family and friends get the most out of you.
C. Company Culture
Building a healthy Company Culture is essential. People are the lifeblood of any business. You can have the world’s best systems, processes, products, services and mountains of cash, but without people, your business will not work. How do you hire the ‘right’ people? Do you hire superstars, or ‘smart creatives’, as Google refers to them? Or do you hire people that are ‘just good enough’ to do a set of tasks required of them, and which they will be accountable for? E-Myth author and small business expert, Michael Gerber maintains that if your business processes and operations manuals are well-defined, you only need hire individuals to perform certain tasks that are ‘just good enough’. This would ensure management by delegation, versus abdication. Your employees will not go off track, and only do exactly what is required of them. Conversely, Chet Holes, author of the Ultimate Sales Machine, maintains you should only hire superstars. Extraordinary people who can do much more than is required. In our opinion, it is best to have an 80/20 mix. 80% of your employees need to be systematised, following specific rules, and doing specific everyday tasks. Bookkeeping, shipping and receiving, manufacturing, HR, sales administration, marketing campaigns, etc. The remaining 20% can be ‘superstars’, and these individuals work well in sales or other business development roles. In summary, ‘superstars’ on deck, and ‘just good enough’ employees in the engine room.
D. The Unique Selling Proposition
Who cares what your business does? Your business proposition is critical, if you are to not only to thrive, but simply survive. What are the key elements of a strong business proposition?
1. Why do customers buy? To sell anything successfully, you need to either solve your customer’s problem or assist them in achieving a specific goal. A big mistake most business owners make is trying to sell using features. Colour. Performance. Quality. Price. None of that matters until the buying decision has been made. People buy based on emotion, and how you strike at those emotional chords will determine your success. The emotional chords include fear, pain, vanity, lust, ego, envy and pride. Do you think anyone buys a Ferrari because of colour, styling, fuel economy or speed? No. Look at the last five emotions. If you are selling a high-performance sports car, you need to trigger all of those five emotions.
2. Benefits are equally important. Would you ever go out and buy a drill? Yes you might, but you are not buying a drill, are you? (the feature). You are actually buying the ability to drill a hole in something, (the benefit). Do people buy flights or train journeys? No, they are buying access to the destination. The journey is the feature. The destination is the benefit.
3. Marketing is one of the most over-used words in business, but what does it mean? How do you determine your routes to market? How do you communicate with your prospective customers? And how do you qualify them? Everyone you target, and everyone who touches your business is a ‘suspect’. You ‘suspect’ they want to buy your product. The first step is converting them into a ‘prospect’. You need to qualify them. Do they have a particluar pain you can solve, or a goal you can help achieve? Are they ready to buy now? Do they have the budget? Can you efficiently get your product into their hands profitably? If you cannot answer these questions, keep qualifying them.
4. Unique selling proposition, or differentiation, is all about what makes your business stand out from the rest of the market. More importantly, how can you beat the your competitors to win business consistently. You need to identify what sets you apart, then leverage that differentiation. A great way to easily identify your USPs is to contact your top 10 customers, and ask why they repeatedly buy from you, and not your competitor. That is your answer, and must be your theme, your anthem, your reason for being.
All businesses need cash. Investment. Funding. Working capital. It doesn’t matter what you call it, or where it comes from. What matters is how do you generate cash fast?
Where does funding come from? The four main options are:
- Equity investors
- Debt providers
- Grant funding
- Internal sources.
How do you secure funds from all four? And what are the advantages and disadvantages of each? (Note: If you are looking at raising funding in the future, from investors or lenders, then watch out for our future article on “The Ten Funding Questions You Will Be Asked”.) Equity investors will want a share of your business. Lenders, or debt providers, will want some security, and you must obey a set of covenants (financial rules) consistently. If you don’t, you could face penalties, or worse still, they could call in the entire loan. Grant funders will typically want you to match what they provide (personal funds, debt or equity). Internal funds come from your cash flow, which in turn is governed by how effective your business is at generating cash through trading. If people who owe you money, (debtors or receivables), pay you faster than people who whom you owe money, (employees, lenders, creditors or payables), then you will generate positive cash flow. For many businesses, the opposite is true, thus when they try to grow, they run out of cash. The business may be profitable over a certain period, but if they run out of cash, the business could go under. Remember the old adage: “Sales revenue is vanity, profit is sanity, but cash in the bank is reality!”.
Lastly, we will also focus on Financial Engineering, and how it can improve the financial value of your company, as well as cash flow.
F. Systems and Processes
You must play the game to win, which means using clear and concise systems and processes. Every business needs established systems and processes which much be followed, measured and controlled. There are many systems operating in any business. Some are hard systems (for example, machinery), and some are soft (for example, your sales system, or your organisational system or ‘org chart’). The ‘org chart’ is possibly the most important system in your business. Remember what Michael Gerber says about employing ‘just good enough’ employees? You can do this if your org chart is clearly defined. How do you structurally organise your employees, to give you the most efficient and effective system? There are three parts to this. First, you need to structure your business today, so it reflects how you want it to tomorrow. List every position in your business for when it’s structurally complete. You should have more positions than employees. That’s fine. It’s a road map. Second, list all of the tasks that each role or function must perform. And also list when each task must be performed. Hourly, daily, monthly, quarterly or ad-hoc. Next, determine how you measure performance of each task, and the standard to be met. Finally, document each and every task in your company’s Operations Manual, so anyone who performs the task, in the specific role, can do it perfectly, each and every time. That is how McDonalds was built, and it will work in your business as well. Documenting processes also gives you redundancy for when employees leave certain positions, and new employees take their place. Additionally, if the tasks are well documented, then ‘just good enough’ employees can slide into new roles far more efficiently. And added benefit is you cannot be held to ransom by employees who are ‘indispensable’ in key roles.
Finally, we will discuss how you build your ‘external tribe’, as opposed to your ‘internal tribe’. Even micro businesses can build world-class partnerships in the external market. Your external tribe should consist of the following:
Leverage your business contacts to help grow your business, as well as strategically focusing and managing it as well. Leverage the expertise and networks of your professional advisors: lawyers, accountants, funders, consultants, and even your bank.
Customers are arguably the most important partners you have. Without customers, you don’t have a business. Customer service is critical to your business, and it’s a major part of your USP and pricing structure. Include your very best customers on your advisory board. Have them help you to be successful, and you will convert them into raving fans who will tell everyone they know. Word of mouth is the king of marketing.
All businesses have suppliers, and some are more critical than others. Without an effective supply chain, your business will suffer. Keep your critical suppliers very close to you, and put them on your advisory board. In my experience, this will allow you to have the best terms and prices with your critical suppliers, whilst simultaneously improving your competitive edge and cash flow. I know many suppliers who have funded their customers to help them grow.
If you want to grow your business quickly, and either can’t or don’t want to use debt finance, an investor can be your knight in shining armour. There are different types of investors. Individual investors will have expertise in your particular market niche. There are also investment funds, either venture capital (small to medium businesses), or private equity (medium to large businesses). If you have a compelling Business Plan, you will get the money. The question you need to ask yourself is what else do you want in return, in addition to cold hard cash? Don’t just pick an investor on the best terms, (lowest equity dilution for funds invested), but also look at how they can add value to your business. Can the investor help you by introducing new customers from their networks? Can they fill in a skills gap in your business and give compelling, critical advice? Does the investor have a strong track record investing in your sector? Your investor needs to be a sparring partner, not just a piggy bank.
5. Joint Venture Partners
How can you make money selling someone else’s products or services? Just because you don’t make a particular product, or provide a particular service, doesn’t mean you cannot sell it. Identify attractive and related products and services that are complementary to what you do, then partner with (or acquire) businesses that do those things well. For example, if you sell technology hardware, partner with a software or service company that can add value to the customer over and above the particular hardware you sell.
6. Bolt On Acquisitions.
You can bolt on other businesses that are complementary to your business. Two amazing things happen when you combine two businesses via an acquisition, or a merger. Firstly, you can cross-sell products and services between the two complementary businesses. And secondly, combining operations will allow you to take costs out of the business. Combining sites, equipment, employees, marketing activities, etc. saves money. So sales increase via cross-selling, and costs reduce as a percentage of the higher sales, and shared assets. Consequently profits increase faster than sales.
The A-G Strategies for Business Turnaround is a step-by-step guide to help you turnaround your business, and if you follow each step, you will win half the battle! Having an experience professional consultant will help you further, by guiding you and your team to success. Rifco can help. Talk to us today about the ways in which we can help you improve your bottom line, and turn your business around.