Six Steps to Help Companies Weather the Inflationary Storm

 [Editor's Note: In a recent edition of Issues for Growth, Vol. No. 11 we wrote about "Inflation Uncertainty." Numbers from Bureau of Labor Statistics show that inflation was 6.2% year over year for October, the highest surge in 30 years. While there is still some debate about whether inflation is transitory or not, companies cannot ignore the possibility of systemic, longer-term inflation in their planning. This article from HBR illuatrates 6 steps that companies can take to weather the inflationary storm.             - dpm]

 

6 Strategies to Help Your Company Weather Inflation ¹

With the economic recovery gaining steam amid an uncertain pandemic path, companies are scrambling to deal with increasing commodity prices, supply constraints, and higher wages caused by labor shortages. In the first half of 2021, the producer price index (PPI) rose 10% in the G7 countries. The PPI measures the prices of goods immediately postproduction and serves as a critical indicator of the pressure facing companies.

The last time the world saw a similar bump in PPI was in in the first half of 2008, the early months of the Great Recession. Companies that weathered that storm the best took decisive steps to counter rising inflation by pushing through price increases consistent with PPI — but that alone was not enough. The best performers also took significant steps to boost productivity, primarily by cutting costs. Our analysis of the performance of 5,700 global companies found that those that cut costs to improve productivity the most during previous inflationary periods achieved higher total shareholder returns (TSR) — 27% was the median — than companies that took less action. (We determined productivity by measuring EBITDA and revenue growth.) The evidence is clear: Even as many companies deal with inflation by devoting more energy to adjusting prices or finding new sources of growth, cutting costs remains an important part of managing in this economic environment.

But what are the steps that typically make a difference?

BorgWarner, a U.S.-based automotive supplier, faced major challenges in the 2008–11 inflationary period and deployed a number of levers to outperform the market. The company reduced work and the labor required to perform it, including shifting production capacity in line with customer demand. It centralized information systems to support more efficient back-office processes, created a global procurement organization to spend and buy better, and focused capital spending on the most important strategic issues. These actions helped the company attain 43% compounded annual TSR growth.

We found that companies achieving such gains from cost programs during inflation focused on similar tactics. However, this current inflationary period is unique: Labor markets are volatile, consumer demand has not dipped the way it did in 2008, and supply chains are more constrained. As they prepare for higher inflation in this new environment, companies will need to make moves that not only cut costs but also build more scalable growth platforms, positioning them to strategically reinvest in programs that deliver greater resilience and stronger purchasing and pricing capabilities. They need cost programs that allow them to grow top-line revenue and reduce their dependence on volatile labor markets while improving employee retention. Successful companies deploy six tactics to achieve these goals. We’ll look at them one by one.

Get spending visibility:

 High-resolution spending visibility is the foundation of any expense management capability. It enables managers to fully understand where money is spent and who spends it. In an inflationary period, it is critical to establish repeatable, end-to-end, actionable visibility of spending by cost category, business process, function, and business unit. This is the foundation for all other productivity efforts. It enables the right level of accountability throughout the organization to ensure that all decisions are made knowing the full impact on the P&L.

Differentiate between strategic and nonstrategic spending:

 In any disruptive environment, odds are higher that executives will make choices that jeopardize the company’s long-term strategy. It’s not uncommon to make broad-based cuts that are not aligned with the company’s strategy — and as a result, will not yield optimal return on investment nor maximize shareholder value in the long run. Instead, clearly distinguish between strategic and nonstrategic cost-cutting, the protecting of signature customer and employee experiences, and fiduciary requirements, for example. Use consistent, accessible financials to prioritize higher ROI investments. A sustainable cost management system should fuel a company’s strategy and enable the business to out-invest competitors, at scale, on strategic costs in both good and bad times.

Managers must identify where investments should be pulled back and cost savings realized; where you can more selectively trim costs to improve the return on operating expenses; and where you can boost growth through greater investment in the strategic capabilities needed to achieve differential results. This investment posture sets the stage for reshaping the P&L, cost structure, operating model, and capabilities that will enable the chosen strategy. It helps leaders agree on such basic decisions as which capabilities need to be best in class — built to enable and sustain competitive advantage — vs. best in cost. It positions a company to make better decisions about deploying increasingly scarce resources to reinvigorate its strategy and maximize shareholder value in times of economic disruption. That includes investments in people, for example. For companies like Walmart and Target, for instance, the decision to invest to allow employees to pursue debt-free education is a strategic investment to differentiate the retailer in the competition for labor.

Unpack the drivers of spending:

 With improved visibility and a clear sense of how costs align with strategy, the next step is to develop a more robust understanding of the real drivers of cost in an inflationary environment. Dissect the rate (prices paid) and consumption (quantity or volume), including the underlying drivers, for critical cost categories. This step enables companies to create granular, trackable initiatives linked to a unique driver of a broader cost category. It sets the stage for a host of possible moves. Among the biggest: establishing a preferred vendor program to increase buying power, reevaluating the right make-vs.-buy mix for core functions like software development, and deploying AI-powered sourcing tools to generate automated insights from spending data, flagging savings and compliance opportunities in real time.

These steps can deliver real, near-term savings. One energy company conducted a full review of its applications and identified more than 80 that could be eliminated in the short term and save the company an annual $10 million. Getting this sophisticated view of what’s really driving spending is particularly critical in rising inflation because it enables companies to advance to the next three tactics.

Reduce consumption:

 With increased spending visibility and the ability to isolate drivers, companies can tailor their approach to match the inflationary environment. For example, even if companies aren’t able to buy better due to supply chain and producer pricing pressures, they can make sure that they spend better. One way to do this is to set up a spending czar or spending control towers. When a global healthcare company realized that too many acquisitions left the company with cost inefficiency, it empowered a spending czar to break down silos and make decisions across the organization. It was the first big step in finding more than $300 million in annual cost savings.

A focus on spending better can also lead to cross-functional change. One large technology company determined that many of the costs issues it faced while constructing new facilities were created from groups outside of the decision makers on new build projects. Increasing cross-functional collaboration ultimately allowed the company to cut construction time by six months, saving more than $400 million in the process. Setting up cross-function spending controls helps companies zero in on the costs that can no longer be justified or can be avoided by doing the work differently, allowing the company to continually prioritize spending and make sure that any savings identified don’t creep back in as time goes on.

Eliminate work:

 With labor shortages and ballooning labor costs, eliminating the work itself has the greatest impact. Companies that do this well use a clean-sheet mindset, or zero-based redesign, which can help reset the way work is done. This approach forces companies to scrutinize both what activities are performed and how those activities are performed, with specific levers to eliminate unnecessary work and automate.

As inflation looms, companies across industries are reexamining their work and determining what adds the most value and is absolutely necessary, providing both cost savings and the opportunity to deploy dollars and scarce labor resources to what will help them grow. Eliminating work can take many forms. Snack maker Mondelez International is well on its way to streamlining manufacturing by eliminating one in every four products in its portfolio, a goal it set in the opening months of the Covid-19 pandemic. Hotels everywhere are limiting housekeeping by making it an opt-in vs. opt-out service.

Automate:

 After eliminating work, the final tactic is to automate. Technologies like robotic process automation (RPA), workflow, and intelligent document processing can free up workers and make each person much more effective at creating value. At retailers, for example, important associates often spend too many hours, days, and weeks manually inputting item and product data (e.g., case size, pack size, dimensions, website images) when they could be working on more strategic activities, such as analyzing data and generating insights.

In addition to labor cost savings, automation can promote stability in an organization. Our research found that companies that had invested more in automation before the pandemic have weathered the crisis better than others. Meanwhile, in our experience they’ve generated higher revenues and see fewer disruptions to the supply chain, workforce productivity, and demand. Companies can use the productivity gains and cost savings they accrue from deploying the previous five tools to invest in automation.

Despite the importance of automation, digital transformations often don’t deliver the desired results. A Bain survey found that 76% of digital transformations settled for dilution of value and mediocre performance. Orchestration is the most important transformation element in digital leadership — without the right approach a digital transformation can’t move at the speed or scale needed to deliver the results companies need to see. Companies that are successful don’t just invest in identifying the opportunities and potential solutions; they make sure they have the right plan in place to roll out automation. This will be a critical factor for everyone looking to leverage automation to combat inflationary pressures.

Companies as diverse as Cigna and David’s Bridal have been publicly reporting the benefits of automating at scale. The value Cigna realized from automating processes leaped from $2 million to more than $100 million within a year, and the company expects that ultimately to reach $1 billion. When David’s Bridal debuted its Zoey messaging concierge service in early 2020, it reduced contact center operating costs by over 30% and shifted 30% of appointment-booking phone traffic out of stores, allowing employees to focus on providing more value-added in-person services.

***

These and other companies are preemptively building cost management systems that allow them to strategically invest while gaining the resiliency to overcome high inflation. By playing both offense and defense in a disruptive environment, they position themselves to outpace less-proactive competitors long after the volatility ends.

¹ Harvard Business Review by Jason Heinrich, Simon Henderson, Tom Holland, and Megan Portanova September 28, 2021 

Is Accountability a Problem in My Organization?

[Editor's Note: For over 25 years, Mead Consulting has been conducting assessments at client companies to identify barriers and challenges to growth to the next level. Lack of true accountability continues to be the most frequent issue. I thought it might be useful to address accountability in this article. If you are beginning your planning cycle, a lack of accountability may sabotage your ability to succeed.             - dpm]

 Is Accountability a Problem in My Organization?

Speaking with a new client, the CEO asked me to identify the most frequent problem we see with our new clients. I responded, "Lack of true accountability." He seemed skeptical and suggested that we wouldn't find that to be true at his company. So I asked him, "Does every employee feel responsible for the company's success and know what their role is in ensuring that success?" 

It occurs to me that people have become numb to the meaning of the word, accountability, and that it always seems to apply to everyone else, some other department, etc. -"They need to be more accountable for results."

What are some of the attributes in an organization lacking accountability?

Do any of the following look familiar?

Unclear Vision and Direction: Employees do not know the keys to company success - or they all have different views as to what they are.

o Goals may be unclear, confusing, or there are too many different goals

o "We keep adding initiatives and projects and never take anything off the list."

Micromanaging or Command and control: Employees do not feel they have control over how to deliver results

Lack of Job Understanding or Training: "I have never been shown what is expected"; "I didn't receive any training"

"I don't know where to go for help"

Undervalued: "No one cares about my opinion." People do not feel their opinion is valued - that is, every employee

People do not feel comfortable delivering bad news such as the "project is behind schedule" or "we have a major quality problem." So they ignore or sugarcoat things.

People do not feel trusted.

o "I am not confident my efforts will be rewarded"

o "I suspect that my manager (or the company leader) may take advantage of me"

o "I question my manager's (or the company leader's) motives"

o "I am sure they will take credit for my accomplishments"

Departments do not cooperate with each other. We constantly practice the "blame game"

Employees are Not Engaged - "People do just enough to get through the day."

Lack of accountability can paralyze an organization.         

Be honest. Do you recognize any of the above in your company? On the long personal and organizational "to do" list, accountability should be at the top of the list. Lack of accountability can paralyze an organization and prevent it from moving forward. If you see a fatal flaw in yourself, your current leaders, or your organization in any of the above, you should address it immediately. We can help.

The Mead Consulting Group has been helping clients develop and execute Strategic Growth & Execution plans for many years. Check out our website for descriptions of some client success stories.

Managing Inflation's Impact - Why every company should be doing scenario planning - Inflation is but one of the uncertainties

Editor's Note:  I have had a number of conversations recently with business owners and professional service providers about the current operating environment and the possibility of operating in an inflationary environment as we move forward. While some believe the current situation of rising prices is a short-term blip, there is also the prospect of higher inflation for the foreseeable future. The supply chain issues (higher prices, long lead times, and shortages) with commodities like steel, aluminum, copper, chips, etc. have led, in some cases, to customers double- and triple-ordering to secure predictable future supply.

 

I can recall the last inflationary period in the 1980’s, shortages led to long lead times which desperate ordering which led to higher and higher prices. It becomes a vicious cycle.

Most of today’s business owners and senior executives have enjoyed 30 years of low inflation. Most are astonished when I tell them that in 1981, I had a 19% mortgage interest rate (thankfully for me, it was subsidized by my employer). Prices and costs were changing monthly and unpredictably.

 

Managing through an inflationary period requires different skills. That is the reason that many of our clients are doing scenario planning – assuming various levels of inflation.

With great uncertainty and multiple different views of the future, a company needs to do scenario planning, so that it thinks about the different possible views of the future and how it would move or adapt to best position itself and for its leaders to “rehearse” possible actions.

 

The Mead Consulting Group utilizes scenario planning to help clients build flexibility into planning and execution and to help leaders think in broader terms. While scenario planning was once conducted primarily with our larger clients, today, over half of our clients (owner-operated, strategic, and private-equity- backed) have discovered the benefits of scenario planning.  - DPM]

   

 

If your business or industry is predictable, you need not continue reading. If, however, there is uncertainty about the future of your markets or industry, then your company should examine the way it plans. I would submit that there is little predictability in most industries.

 

Making assumptions gives us a false sense of security and puts blinders on us. What is the old line about the word "assume" making an "ass out of you and me?" Not to be profane, but traditional strategic planning totally botched the economic downturn/recovery after the recession of 2008. Traditional strategic planning is based on assumptions. The planning group makes certain assumptions about the future - about variables such as economic, political, social, technological, regulatory, environmental, etc. Making assumptions is just another way of saying we are attempting to predict the future.

 

Really? I would suggest that there are situations where economic, social, political, technological, regulatory, and environmental factors will drive fundamental change in every business and industry of every person reading this e-Letter. It's really only a question of degree, pace, and timing.

 

Various organizations could have avoided significant market pain by utilizing scenario planning. Without being overly critical, these organizations were complacent - and they made assumptions about the future that proved to be very wrong. Each was disrupted - overtaken by forces that were not within their traditional industry competitive analysis.

 

Have the courage to consider the tough questions. How will your business be impacted by the following short list?

• Economic
• Is the US facing a long period of inflation?
• Supply chain issues? How long before it normalizes?
• Longer-term sourcing issues
• Will increasing labor rates make China less competitive? How will outsourcing look in 5-10 years? 
• Impact of climate change
• Technology - How much will technology change your industry?
• Social
• Power continuing to move to the consumer (away from institutions)
• Buyers have equal or greater knowledge than sellers
• Changes in culture, attitudes
• What short-term and long-term impact will the "green" movement have on markets, products 
• Changes in work environment, employee, customer behavior that result from Covid19?
• Demographics
• Is your customer base affected by demographics?
• Labor shortages - Will you be able to hire the right skillsets?
• Aging population in certain markets
• What does the negative birth-rate and aging population mean for European economies like Greece, Spain, Italy, or Iran and Iraq. Now the U.S. is facing similar signs with lower birth rates, lower immigration, retirements, etc.
• Baby boomers retiring, selling businesses, eldercare, etc.
• Pandemics (This was not on many lists 3 years ago)
• The impact of Covid-19 now and the possibility of the next pandemic -   
• Regulatory - The list is endless...
• Health care
• FDA
• Trade
• Tax reform (Elimination of subsidies, elimination of deductions

 

Some organizations may say scenario planning is too difficult and elect to take a simpler course.  Most organizations perform traditional strategic planning or business planning/ budgeting because it is comfortable and addresses a short timeframe. However, we now know that the world is uncertain and interconnected. Companies can no longer ignore uncertainty or try to assume it away.  As author H.L. Mencken is quoted, "For every complex problem, there is an answer that is clear, simple, and wrong."

 

That is your opportunity. Since 2008, we've seen the number of our clients that are doing scenario planning more than triple.  Companies that are scenario planning are examining different possibilities of the future and determining their competitive responses. They are modifying the trends and information that they monitor so that they can develop "early warning" signs. These companies are building flexibility into their planning and adaptability into their leadership and culture. 

Check out the full scenario planning series on our website.

  

For more information on how you can take your planning process to the next level, contact me at (303) 660-8135 or meaddp@meadconsultinggroup.com    

Too Many Shiny Objects and the "Not Going to Do Now" List

 [Editor's Note: Recently, as companies are emerging from the "Covid era," two issues have emerged, The first is that some companies are totally focused on today's issues with little or no attention to the future. The second, is that some companies are "scattered" and diluting their efforts. In this issue, we will deal with the second issue - too many shiny objects.

As we have worked with companies over the years, one characteristic we have noted about successful companies is the ability to prioritize and focus. Many companies have a seemingly endless list of opportunities; the question is "what do we focus scarce resources on first." I hope you find this article thought-provoking. - dpm]

Too Many Shiny Objects and the "Not Going to Do Now" List

On a number of occasions, we have come into new client situations to "validate" an existing strategic planning process. In many instances, we find that the company has documented strategies and initiatives too numerous to fit on an 11X14 sheet of paper - with small font size! We then proceed to ask each of the managers which is the most important strategy or initiative for the coming year. Not surprisingly each manager has a different idea of what is most important.

Too many opportunities... Too little focus

These are not companies without opportunities. To the contrary, these are typically companies with compelling products and services. The problem stems from too many opportunities without an appropriate filtering or prioritizing process. Sometimes, it stems from a creative/innovative Founder or CEO who can see potential technologies, products, services, markets, partnerships, etc. everywhere. In the race to not miss out on these possibilities, the Founder /CEO can push the organization in many different directions. This behavior is so common that it has been coined the "Shiny Object Syndrome." In these situations, the organization pursues many different opportunities, executes poorly, distracts management attention, and in many cases, abandons projects partially completed in order to pursue new ones. Resources are wasted, time is sacrificed, and most importantly, attention is diverted away from core activities.

 

The "Not Going to Do Now" List

In determining strategic direction for a business, it is far easier to decide what you are going to do, than what you are not going to pursue now. The most important tool is the "Not Going to Do Now" list, which outlines projects, initiatives, strategies, acquisitions, etc. that might be interesting to explore at some time in the future, but are distractions to the current strategic direction. During the planning process, items are added to this list. The management team agrees that in order for the organization to pursue an item on the "Not Going to Do Now" list, something must be come off the current strategic planning list.

 

Prioritize

There are a number of techniques to use in prioritizing. Some companies use the following categories to further delineate priorities. Items noted as "Critical" are the focus of the business. Once these have been completed, the "Need to Have" category items are next in priority. It is interesting to note that companies that use this approach rarely get to the "Nice to Have" items, and almost never get to the "Can Be Deferred" items.

 

Critical

Need to Have

Nice to Have

Can be Deferred

Alignment around the Critical Strategies

It is our belief that most companies should identify no more than three major strategies. Companies that execute well on two of the three strategies are usually very successful. The key to success is focusing on a limited number of strategies, communicating the direction, aligning the team and incentives around those strategies, establishing solid action plans and metrics, and holding members of the team accountable for results.

 

Simple to identify...More difficult to do

Like most things in business, Identifying the "to do" strategies and the "Not to do" List is easy to describe and more difficult to achieve. We spend most of our time working with businesses to help them narrow strategies to ones they can execute well, focusing and aligning the team, monitoring the progress, and adjusting course as necessary.

 

If you would like to discuss this in more detail, please contact me.

 

The Mead Consulting Group has been helping clients develop and execute Strategic Growth & Execution plans for many years. Check out our website for descriptions of some client success stories.



If you don't do anything different, what will life look like around here in 12 months?

[Editor's Note: We hear repeately from clients - "We should have done this last year"...or years ago. Many companies that have survived through the Covid-19 period have slipped back into "business as usual." What are you doing to make 2021 and 2022 better years? I hope you find this article though-provoking.                              -dpm] 

Procrastination is defined as "the action of delaying or postponing something." We all fall prey to occasional procrastination, feeling that we don't have enough information, hoping that the situation will improve by itself, or an employee will finally improve a problem behavior.

Do you see yourself or someone you know in the following comments: 

• We're doing as well as industry averages
• The rising tide floats all boats...for now
• Everyone's going through the same problems
• We identified this several times but we didn't follow-through
• He/She has been really trying to improve. Let's give him/her a bit more time.
• We're going to wait until we hire the new manager/director/CEO
• If we let that problem/under-performing person go, we'll never be able to replace them
• We have too much going on, to be able to tackle this now
• We're going to stay where we are ...for now

If we defer taking action or making difficult decisions, it seldom results in a better situation. Twelve months later, we are faced with the same situation, one that usually looks worse after 12 months of aging. If we keep repeating the same things and expecting different outcomes ... Well, we know what Einstein reportedly said about the definition of insanity. 

Business owners and CEOs typically know where the problems are. They may be frustrated because, while the issues have been raised previously, the solutions have not been implemented. Many times, having an experienced, objective outside party can be very effective in not only pointing out the obstacles or issues, but also in keeping the business owner/CEO and the organization focused on execution. 

Are you going to use the same approaches this next year or try something different? So...as you begin to move forward with your plans for 2021, are you going to approach it the same as you have in the past.

 

How has that worked? 

• Were you able to identify new opportunities or turns in the market?
• Were you able to embark on new initiatives that provide your company with new competitive advantages, or an improved cost structure, or an intriguing new business model? 

As you approach the midway point of 2021, ask yourself the question,  "If you don't do anything different, what will life look like around here in 12 months?" What will it take for you to "Decide to Go!"

The Mead Consulting Group is focused on helping business owners and CEOs identify and overcome obstacles to growth and profitability. In short, we help business owners and CEOs "think, plan, and act strategically." Contact me to discuss how to do things a bit differently this next year. 

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The Mead Consulting Group has been helping clients develop and execute Strategic Growth & Execution plans for many years. Check out our website for descriptions of some client success stories. 

Common misconceptions about selling a business

[Editor's note:  2021 is proving to be a big year for mergers & acquisitions. Private Equity firms and strategics have lots of capital to put to work. This eLetter, first published a couple of years ago, received such positive response that we decided to update it and run it again. -dpm ]

It appears that we may be entering the next big surge in business transition activity fueled by the retirement needs of aging baby boomers. The first baby boomers turned 65 years of age in 2010 and we are now in the years with greatest numbers of boomers who need to sell to provide liquidity for retirement.

If you are a business owner contemplating a sale somewhere in your future, consider these common misconceptions about selling your business:  

 ·     I know the buyer - they are in my industry.  Many business owners think they already know the prospective buyers – from their industry. However, in many cases where a sales process is conducted by an investment banker, an "outlier" (either a strategic or financial buyer) surfaces with an offer significantly higher than from those you may know. Many times these come from outside your industry.

 ·     The market will be better next year. Procrastination can cost you. Sellers in 1999 or 2007 will tell you that they wished they had sold while the market was hot. In 2021 and likely 2022, 2015 there are more buyers than sellers – this is unlikely to continue with the aging demographics of business owners. 

 ·     I don't want to sell until I have to --  (Dismal D's). You want to sell when your business is healthy and when you don't have to sell. Life can take cruel twists and turns. Business owners without a plan can find themselves subject to the "Dismal D's" - Death, Disability, Divorce, Dissenting Owners, Declining market, Debt overload, or just pure burnout. It is hard work to sell your business. You'll need plenty of energy and motivation to maintain performance during the sales process.

 ·     The investment banker or M and A firm will build value or help create my business strategy. No they won't - that's not their job! A good investment banker can help you yield value, attract a broader market of potential buyers and get a deal closed, but they don't have the skills or background to build value.

Danger point: Some small M and A firms will offer free or low cost strategic or operational services and advice in order to get your sales transactional business, but these are either young, inexperienced associates or people who have not really run a business like yours. They may be very good at selling your business, but what they don't know can hurt you. If an investment banker is offering to help you with your business strategy, you should question why. Stick to investment bankers that stick to their core competency - selling a business.

 ·     My lawyer (or CPA) (or Wealth Manager) will help me find a buyer. Finding a buyer is very different than finding the best buyer, the right buyer. Investment bankers do this every day. Most professionals understand what they do well....and what they don't. Find the right tool for the job!

 ·     I met a guy in my CEO peer group /My investors know a banking firm. Selling your business may be your most important business decision. Get help in making an informed decision about selecting an investment banker or other professionals such as accountants, tax counsel, and transaction attorneys. Learn about possible (but undisclosed) conflicts of interest, differences between firms, level of expertise that will work on your company, etc. Have you checked with previous clients that were both successful and unsuccessful? Mead Consulting clients use a checklist of questions to help make the appropriate choice.

 ·     It only takes 6-12 months to exit a business. Nothing could be further from the truth. In order to realize the maximum value it may take you 1-2 years to prepare the business, 12 months to do the transaction, and then you may have to remain for 3 more years with the company after the sale. Rushing a company to market without proper preparation will cost you as buyers will discount values for companies without an adequate strategic growth plan, strong management, or a clean review of due diligence issues.

 ·      Selling will only take some of my time. The biggest mistake business owners can make is to allow business performance to slip during a sales process. The primary reason for deals to either fall apart - or become heavily discounted - is deterioration of revenue and earnings. Business owners can dramatically underestimate the amount of time and energy it will take to both sell the business and maintain performance during the process.

The Mead Consulting Group helps business owners navigate through a successful sales process, including preparation (value creation), selection of the right team (investment bankers, transaction attorneys, tax counsel, etc.), and the sale process itself. We focus on maximizing value and leverage the business owner's and management's time so that they can focus on maintaining business performance. Contact us for more information.   

  ___________________________

The Mead Consulting Group has been helping clients develop and execute Strategic Growth & Execution plans for many years. Check out our website for descriptions of some client success stories. 

Seven traits of Colorado success stories: Why some companies grow and others get stuck

[Editor's Note: Over the past 13 years, we have met with the CEOs or owners of over 350 private Colorado companies. These companies range from new technologies, products and services in such diverse fields as education, technology, construction, trucking, logistics, medical devices, outsourced services, among others. Some of these companies are growing - some quite rapidly; others are stagnant or stuck. Some of the traits successful companies have in common - may surprise you. - DPM]

Some companies are growing - some quite rapidly; others are stagnant or stuck. Why are there such differences? Certainly companies that depend on some industries such as home-building or construction were severely impacted by the economic downturn. However, blaming stagnancy solely on economic malaise is an oversimplification. The recession - and subsequent "selective recovery" has highlighted the differences between the good, well-managed companies from those others whose fortunes rise and fall with the economy. We have found that industry, size, and the overall economy are not necessarily the determinants of company success.

Companies that have become "Colorado success stories" share certain traits. While this is not intended to be an all-encompassing list, this list is intended to provoke some thought about what breeds success.

1. Lifestyle or Equity Value.

How many of you have ever been involved with a company where the owner was conflicted about current compensation or cash flow vs. investment for the future?

Be clear with what type of company you want to be. A lifestyle company can allow the owner to call his/her own shots and to move at his/her own pace. It is run for the cash flow and lifestyle benefits of the owner(s). In an equity value company, the owner strives to build real assets with a scalable, tangible value that can be bought and sold. This leader is willing to sacrifice some short-term gains in order to invest in growing the market value of the business. These "equity value" owners focus more on building value as seen by potential buyers: sustained improvements in revenue/EBITDA, and a strong management team that can operate and grow the business without the owner's constant involvement.

There is no right or wrong answer to the lifestyle vs. equity value question, but owners must be clear in the distinction. Straddling both lifestyle and equity value camps is sure to generate both lower current cash (compensation for the owners) as well as lower growth and value potential (lower equity value).

See the article we have published before Which do you have - a Lifestyle Business or an Equity Value business? which delineates some of the characteristics of Lifestyle vs. Equity Value companies. Lifestyle companies tend to have a short-term focus; they tend to run at the owner's pace or comfort level. Investment in the business may be secondary to a passion of the owner, such funding the as sponsorship of a team, or sport, or the arts. While these companies may have some elements of other management styles, in the end, there is a centralized nature to decision-making and authority. Likewise, since there may be limited empowerment or upward mobility for managers, high performers are not attracted to Lifestyle companies, or do not remain.

2. Empower employees.

Companies can't grow beyond a certain point if all of the real decision-making stays in the hands of the owner or a small group of managers. Growth companies look to empower employees to make decisions. They also develop a culture that allows employees to make mistakes and a mechanism so that they can learn and grow from the mistakes. 

3. Hire for the next level. Then develop them!

Companies that want to grow understand that they need talent that can manage at the next level. Successful companies hire people who can grow 1-2 levels higher in the organization so that the talent pool is constantly being strengthened. These companies also understand that paying more for top talent more than pays for itself. 

4. Develop flexible strategies you can execute well.

Traditional approaches to planning and execution assume away uncertainties and set a fixed plan in place for a year or more. Successful companies are developing multiple possible views of the future, developing a plan and actions, then revisiting the plan every 8-12 weeks to adjust to changes in the market or the competitive landscape. Otterbox (now Otter Products), the designer and marketer of protective cases for smartphones and other devices, grew dramatically from $15M revenue in 2008 well over a Billion in revenue with a flexible approach that re-evaluates all strategic operating plans every 6-8 weeks for possible adjustment. Other companies are utilizing scenario planning to develop and "rehearse" their responses to different possible future states in order to maximize their competitive position. See our article "Why every company should be doing scenario planning" and the 5-part series on Scenario Planning.

5. Develop an adaptable organization.

Successful companies focus on creating a culture of adaptability. They develop an organization, and leadership that can react quickly and make necessary course corrections in response to market opportunities.  

See the  7-part series on "Creating an Adaptable Organization."

 

6. Focus on a superior customer experience.

Some clients calls it developing "emotionally-connected" clients; Others call it "under-promising and over-delivering". These companies focus on wowing the customer and build systems and hire and reward people who want to delight the customer with every interaction. Engagement of customers is key.

7. Play offense instead of defense. 

If you do anything long enough it becomes a habit; then it becomes part of your culture. Similar to the last downturn, duting the pandemic many companies have created defensive cultures with cost-cutting and deferring or eliminating new projects and new products. "NO" has become the operating word for "stuck" companies. Successful companies look for opportunities to develop and test new business models, new products and new projects. They see the market as ripe with opportunities to grow and innovate. "HOW" is their operating mantra.

Conclusion: Examine your company. Do you live the traits of successful companies? As we asked in our last eLetter: "Have you Decided to Go!"

Let us know your thoughts. Email me or post your comments.

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