How well are you prepared for what you think will happen in the future? How well are you prepared for what you don't think will happen?

Editor's Note: This is the first of a five-part series on the impact of scenario planning. The Mead Consulting Group has been utilizing scenario planning to help clients build flexibility into planning and execution for almost 20 years. 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

Imagine yourself inside your business in September 2007. Life is pretty good. Your business has been consistently growing with the market. The Dow Jones is close to 14,000, unemployment is 4.5%; oil prices are at $45 a barrel.

You are in the middle of developing your company's plans and budgets for 2008. How likely is it that the assumptions in your 2008 plan accurately forecast that one year later in September 2008 the Dow would be below 9,000; U.S. unemployment would have risen to 6.5%, on its way to more than 10%; and oil prices would have risen to more than $140 a barrel before falling below $40 a few months later?

Uncertainty, volatility and risk are here to stay. Was this a one-time, isolated event? Are we ever going back to life as it was in 2007? Life and planning in businesses have changed. Uncertainty, volatility and risk are here to stay. The world has been transformed from a series of loosely connected, reasonably predictable economies to a complex web of relationships where the global impact of local events is felt almost instantaneously.

The past is no longer a good predictor of the future. In response to such uncertainty, traditional strategic planning and budgeting simply no longer works. Scenario planning, which was pioneered by Royal Dutch Shell in the 1970's, was traditionally used only by large organizations such as AutoNation, British Airways, Corning, Disney, General Electric, KinderCare, Mercedes, UPS, etc.

Today, scenario planning is being widely used by many small and mid-size organizations. In the past 5 years , Mead Consulting has seen the number of middle-market and lower middle-market companies embracing scenario planning grow by more than 3X. These companies cross a broad array of industries from technology, software, education, and consumer, to manufacturing, distribution, health care, and business services. These companies are seeing a dramatic improvement in their management team's ability to adapt to changes in the environment, and to move more quickly to gain competitive advantage. In addition, business owners, boards, and investors are beginning to ask questions that can only be answered by scenario planning.

Traditional strategic planning alone can be based on a foundation of shifting sand. Traditional strategic planning causes us to make calculated "guesses" about the future. We make a series of assumptions about our industry and competition, as well as social, economic, political, and technological factors. Then we develop strategies based on those assumptions. Many times, it is the most senior, most dynamic, or most powerful person in the room that forces decisions about these assumptions. Black swans never seem to make it into the discussion and are seen as unlikely and their consideration is regarded as a diversion, or waste of precious management time.

Really? Since we now know how uncertain the future is, why would we ever base our future on such a faulty foundation?

Scenario planning is largely focused on answering three questions: (1) What could happen? (2) What impact would a given scenario have on our strategies, plans and budgets? (3) How should we respond to maximize our competitive position?

            

Differences between traditional strategic planning and scenario planning
Traditional Strategic Planning	Scenario Planning
Static Plan	Dynamic possibilities
Strives to Maximize return	Strives to pursue possible opportunities
Fear of Uncertainty (Assumes away uncertainty)	Seeks gains from uncertainty
Focus is on "working the plan" and minimizing risk	Maximizes learning and flexibility; Builds adaptability in management and culture
Typically blind to competitive threats from non-traditional sources	Anticipates sources of disruptive innovation and competition from non-traditional sources

Scenario Planning does not replace strategic planning - it adds an important context. Scenario Planning should be the first action your senior management takes before embarking on a planning process. Best practices for companies on a calendar fiscal year show that scenario planning occurs between the months of April to July and strategic planning between the June to September period.

Over the next few issues, we will address the following questions:

·        What is scenario planning and why is it critical for my business in today's environment?

·        How do you build scenario plans?

·        What is the output from this process?

·        Putting scenario plans into action - what are the implications? .Comment on your experiences with scenario planning.

More mayhem - Protecting your company from "mayhem"

[ Editor’s comment:  Surprisingly, we had a significant response to the mayhem piece that we sent last year so I am forwarding it again with some additional sources of “mayhem.” Feel free to forward this email to others that might be interested. – DPM]

In a popular series of television commercials for a property and casualty insurance company, there is a "Mayhem" character who causes unexpected disasters for auto owners. In one commercial, he's a satellite dish falling off a roof onto your car; in another he's your car navigation system, gone haywire, causing a crash. The message behind these commercials is that since mayhem is unavoidable, you need insurance.

It struck me recently that companies generate their own versions of mayhem - things that occur that may on first blush seem to occur unexpectedly or just be unfortunate.  

Here are some examples:

·        Discovering that your employees have been plagiarizing content that is in your products

·        Discovering that you don't have the rights to use the trade name you've been using for 15 years

·        The employees that are developing your blockbuster new product all leave at once

·        A new competitive product offering undercuts your price by 60%

·       Your customers discover that one of your key vendors has been substituting a hazardous or substandard material resulting in product malfunction or customer injuries

·        A new business model renders your product or service irrelevant

·       Discovering that new regulations no longer allow you to ship your product

·        Discovering that there is no liability insurance for all the products in the field that you've made for the last 10 years...and a latent defect has just been discovered

·       Discovering you can’t produce the company’s “S - election” documents for the IRS and it’s the week before you are scheduled to close on your business sale

·       Surprise! You learn that you have a huge tax liability from “built-in gains,” state and local taxes in other states (or countries), etc.

All of these are true. Some might say bad luck. Synonyms for mayhem are chaos, disorder, confusion, turmoil. The dictionary defines it as "needless damage." In truth, all of these examples of mayhem were identifiable ahead of time and most could have been avoided or significantly mitigated.

In tough economic times, companies can be myopic and can ignore the need for strategic planning, competitive scanning, and can defer implementing business processes and controls.

Some thoughts as you enter 2012:

Develop a strategic growth and execution plan (Please- not another “retreat” but a meaningful plan of execution)

·        realistic assessment of where you are (strengths and weaknesses, opportunities and threats)

·        competitive scan looking at traditional competitors as well as possible disruptive threats

·        develop some scenarios of the future (including those at the extremes) and actions to be taken as these versions of the future play out

·        develop specific actions, metrics and accountability to shore up the weaknesses, fill the gaps, address the risks, and take advantage of the opportunities and strengths

·        If you are preparing to sell your business, start now. You want to uncover sources of “mayhem” with time to fix them. Having mayhem discovered during a sales process can cost you.

Don't let another year go by. Neglecting the next steps in your company's growth and maturity can be very short-sighted. You need to protect your company from mayhem! 

What are your examples of company mayhem?

Forget Networking - Be a Connector

I recently saw this piece in SecondAct.com by Alina Tugend. It makes great sense.
                                ---------------------------------------------------------

We all know people like them, people who seem to know everyone. They're always able to help -- or if they can't, they know someone who can. You meet them for the first time and in 15 minutes, you're talking with them like you're childhood friends. They're successful, smart and funny, with a likable touch of self-deprecation. And they're interested in everything.

Who are they? Connectors. Take Maryam Banikarim, senior vice president and chief marketing officer at Gannett, publisher of USA Today. She has a perfect job for a connector -- she helps link Gannett's various newspapers and media outlets "and bring the pieces together."

"I like people and am genuinely curious," says Banikarim, 42. "I like stories and want to make connections. But I didn't know the word for it until my husband read Malcolm Gladwell's The Tipping Point and said, 'I finally have a word for you -- a connector.' "

As Gladwell writes, "sprinkled among every walk of life . . . are a handful of people with a truly extraordinary knack of making friends and acquaintances. They are Connectors." Gladwell describes them as having an ability to span many different worlds, subcultures and niches.

Traits such as energy, insatiable curiosity and a willingness to take chances seem to be the common thread among connectors -- as well as an insistence that connecting is not the same as networking.

"Networking I see as a means to an end," says Jill Leiderman, executive producer of the late-night show Jimmy Kimmel Live. But connecting, she explains, is about using a genuine love of meeting people and making friends to engage and assist one another.

Connectors show a willingness to venture outside their comfort zones. For example, comedy writer Josh Bycel (shown top) visited a Darfur refugee camp six years ago, and on the way home he came up with the idea of raising money for a medical clinic for the camp. In three weeks, he had collected $50,000.

That idea grew into a nonprofit called OneKid OneWorld, which aims to connect schools in the United States with those in Kenya and other developing countries to provide everything from books to clean water.

"I'm a comedy writer. I don't know anything about building schools," says Bycel, 40, who lives in Los Angeles. "But I'm interested in learning. You need to get out and make connections outside of your own world. Being interested in lots of different things by definition allows you to be a connector."

The willingness to reach out to someone you don't know is crucial to the art of connecting, and especially important in uncertain economic times. Those who are in mid-career and may have worked for one company for years should learn connecting skills before they need them.

For instance, most people's natural inclination is to seek out friends at meetings and mealtimes. Banikarim says not to do that. "It's easy to sit with someone you know," she says. "It's hard, but more interesting, to sit with someone you don't know. This is not like high school. It's not just the losers who don't have somewhere to sit."

It may seem as if connectors are born, not made, but that's not necessarily true. Banikarim was forced to learn to reach out to people from an early age. She moved with her family from Iran to Paris in 1979, then to Northern California, where there wasn't an Iranian community. "I was often that new kid," she says. When she started college at Barnard, "I knew it was either sink or swim. The first week of school, I joined every club and went to every meeting. I ended up as freshman class president."

Joining clubs and organizations is a terrific way to find like-minded people, but only go when you have an interest -- and don't attend endless networking get-togethers. Keith Ferrazzi, author ofNever Eat Alone, says he has never been to an official networking event. Instead, he advises, join organizations that focus on the events and activities you love.

Related: Best Second Act Reinvention 2011: E-book Author John Locke

"I have a friend who is the executive vice president of a large bank in Charlotte," he writes in his book. "His networking hotspot is, of all places, the YMCA. He tells me that at 5 and 6 in the morning, the place is buzzing with exercise fanatics like himself getting in a workout before they go to the office. He scouts the place for entrepreneurs, current customers and prospects."

Of course, when you're walking into that first meeting or class and facing a bunch of strangers, the instinct is to flee. That's all right. The point is not to ignore the fear, but acknowledge it -- and then work through it.

"I sort of just run into fear, as I run into chaos," says Banikarim, whom The New York Post named one of the 50 most powerful women in New York City in 2008 when she worked at Univision. "You breathe deep, and you have to remember that everyone is scared."

Perhaps one of the most important attributes of a connector is a willingness to help and to reach out even if there is no obvious or immediate payback.

That means thinking long-term. Jen Singer is the founder of the blog Mommasaid.net, author of five books, a Pull-Ups spokeswoman and an undeniable connector. "The biggest mistake people make is they think 'if I help this person, that will happen immediately.' We have to stop thinking in linear terms," she says.

Helping others out doesn't mean you can't hold some things back. Singer, 44, uses the word "coopetition" -- a combination of competition and cooperation -- to describe her philosophy. "I think this generation understands you share, but also protect your own interests -- you don't give a key to everything you have. It's a line you have to learn to walk."

Finally, a connector also occasionally has to disconnect. Leiderman says her boyfriend "has taken away my Blackberry so I can super-connect with him."

To read the full post, click here.

Baby Boomers again think about selling their businesses - 2012-14 could be your time

We have been writing about the Baby Boomer Business Transition Bubble since 2001. The demographic impact of the baby boomers reaching retirement age has been suppressed in the last few years since the economy has depressed business results and many business owners have been forced to return to basics to help maintain their business' health. Correspondingly, the numbers of business sales have been minimal since 2008.

Baby boomers, however, are not getting any younger.

Over the next several years, the U.S. economy will experience an unprecedented volume of wealth transfers. The result will be a glut of businesses for sale and downward price pressure for most privately owned companies. 
  
 There is a little publicized and understood transfer that will take place over the next 15 years with the inter-generational wealth transfer from baby-boomers to the children of baby boomers.  The entrepreneurial explosion in the U.S. over the last 35 years has resulted in record numbers of well established small- to mid-size private businesses with annual revenues ranging from about $1 million to $75 million. For most of the private businesses started in the 1980s and early 1990s, the owner or owners are now 55 years old and over. Just as the baby boomer demographic bulge threatens the solvency of the Social Security system as boomers approach retirement, the private business owner demographic bulge will seriously strain and possibly overwhelm the available supply of buyers and the support infrastructure for business transition and transactions as these owners approach retirement. We have called this the baby boomer business transition bubble.

How big is the bubble?  

How big is this demographic segment of owners of established privately held businesses? The best estimates indicate that there are approximately 8.1 million established businesses in the U.S. Factoring in companies with multiple owners, approximately 10.2 million owners. These businesses tend to have from 2 to 500 or more full-time employees beyond the owner; have been in business for at least three years; and have a work location outside of the owner's home. These established businesses are in virtually every sector of the U.S. economy.  

The outlook going into the downturn in 2008

From both quantitative surveys and through our frequent discussions with small and mid-size business owners, we saw the early stages of a transition tidal wave developing. A quantitative study by research firm NFO, updated as recently as 2008, showed that among the affluent established business owners (48% of the owners are considered affluent); the numbers of business owners planning to retire were projected to more than double from 350,000 in 2006 to 750,000 by 2009 and to reach over 1,000,000 by 2012. This was up from only 50,000 in 2001.

What happened between 2008-2011?

The answer, from a business transition viewpoint, is very little. Businesses generally suffered a decline in revenue, profitability and cash flow, making them less valuable to buyers. It became very difficult to finance the purchase of a business as credit became tight and de-leveraging began to occur. Transactions were difficult to close. Sellers sought a return to the prices that were paid in 2005-7 which was not realistic given the reductions in value. Companies that performed well during the downturn achieved greater multiples of value as there was a shortage of supply of quality sellers.  

  

Baby Boomer Transition Bubble just got kicked down the road?

In essence, the bubble is still there - it just got kicked down the road. Now, the backlog of sellers is bigger and the situation may become more urgent.  It is true that most business owners have adjusted their retirement expectations and it has been estimated that retirement ages have been pushed out about 3 years on average. Since very few businesses sold during the 2008-2011 timeframe, there is an enormous backlog of business owners who would sell given the right circumstances. Our best estimates are that between 1.2 million and 1.5 million business owners are in that backlog.  

What are business owners going to do?                                               

Most business owners are still focused on their businesses and waiting for an economic turn. They are determined not to miss another upcycle. Based on several recent economic forecasts, there will be an up-tick in the economy for 2012 -13, followed by another dip in 2014, then another uptick in 2015. The concerns about inflation, the national debt, and the world economy have most forecasters pessimistic about the latter half of the decade. Based on these forecasts, we may be the entering the best "upcycle" for the next decade. One business owner suggested: "If it's not likely to get much better over the next few years, I may not get any more if I hold the business for another 5 years. I may be better off selling as soon as possible."  

  

Timing

Timing is always tricky. We believe that demographics will drive the ultimately drive the market. We are advising our clients to prepare their businesses to sell in the 2012-14 window if they plan to sell at all over the next 10 years. Conditions for sale are improving: bank lending for acquisitions is begging to improve, there is an enormous supply of capital to invest in companies, and company results are improving.

What should business owners do to prepare?

Rushing your company to market is never a good idea. In order to build a maximum value at exit, business owners need to focus on improving profitability, building a management team, and growing revenue. Since most the selling price of most businesses will be based on multiples of EBITDA for the previous 12 months, getting a business ready takes time. In addition, such issues as the strengthening accounting and reporting, cleaning up corporate and capital structure. Most investment bankers and M&A professionals estimate that it takes a minimum of two years of focused effort to get a business sold (from preparation through sale).

The takeaway for business owners - sell on your terms.

Most advisors are suggesting that business owners start preparing now to be ready as the transition market peaks.

Consider the following:

1.       The first of the baby boomers turned 65 years of age in 2010; the last of the baby boomers turned 45 in 2010.

2.       The numbers of business owners wanting to sell businesses is at an all-time high and continuing to rise dramatically

3.       The economy has stabilized; even has up-ticked in some sectors; many forecasters believe 2012-14 may be the best years of the decade

4.       It will take 1 to 2 years of focused activity to get your business ready to sell at a reasonable price

  

Additional information: If you would like an independent assessment of the readiness of your business to sell for maximum value, please contact us. We help guide companies through the value creation process and assist them in preparing the company prior to going to market. 

  

ACG Denver has two upcoming programs that may be of interest.

·        Rocky Mountain Corporate Growth Conference held on March 13 -14, 2012

·        "Selling a Business in Today's Environment" - a 4-part series which will run in April-May, 2012 

About The Mead Consulting Group

Helping to create Colorado success stories

The Mead Consulting Group, Inc. has been providing strategic planning & execution, execution coaching,  strategic marketing, business development and leadership development services to mid-size businesses since 1981. We specialize in working directly with owners and CEOs to help their companies reach the next level of success.  Our clients have achieved superior results and consistently out-performed their peers. 

In 2012 many clients are exploring new markets, examining new business models, and gaining new market share while enhancing profitability. 

It's All About Results!

We've stood in your shoes,

worn your hats and

walked your talk

Like no one else, we can help you successfully navigate through

§   Strategic Growth and Execution

§   Increasing Profitability and Cash Flow

§   Maximizing Value for Exit

But, don't just take our word for it. Ask our clients.

For more information, see our website www.meadconsultinggroup.com 

or  contact Dave Mead at (303) 660-8135 or meaddp@MeadConsultingGroup.com 

The most common mistakes companies make about strategy

[Editor's Note: In difficult and uncertain economic times, it is easy to get distracted by the very real details of getting through the "economic day." Sometimes, the development and execution of strategy that leads to a true competitive advantage can get lost in the tactics of survival. I thought this article and book might be interesting for those of you whose companies might have perhaps inadvertently slipped into one of the mistakes about strategy. I hope you find it useful.  -DPM]

Michael Porter is one of the most renowned authors on the subjects of strategy and competitive advantage. In a new book, Understanding Michael Porter: The Essential Guide to Competition and Strategy, Joan Magretta distills Porter's core concepts and frameworks into a concise guide for business practitioners.

"In this excerpt, Porter discusses common strategy mistakes. Key concepts include:

Assuming you can do it better than everyone else. One of the biggest mistakes a manager can make is to assume the best results come from competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results.  Competing to be unique is a much more effective strategy.

Confusing marketing with strategy. It's natural for strategy to arise from a focus on customers and their needs. So in many companies, strategy is built around the value proposition, which is the demand side of the equation. But a robust strategy requires a tailored value chain-it's about the supply side as well, the unique configuration of activities that delivers value. Strategy links choices on the demand side with the unique choices about the value chain (the supply side). You can't have competitive advantage without both.

Overestimating strengths.  There's an inward-looking bias in many organizations. You might perceive customer service as a strong area. So that becomes the "strength" on which you attempt to build a strategy. But a real strength for strategy purposes has to be something the company can do better than any of its rivals. And "better" because you are performing different activities than they perform, because you've chosen a different configuration than they have.

Misunderstanding the definition of business or the appropriate geographical scope

The worst mistake-but the most common one - is not to have a strategy at all"

To read the rest of the entire December 21, 2011 article, see The Most Common Strategy Mistakes

------------------------------ 

In addition to these noted, what other mistakes do companies make about strategy? Please comment. 

What’s Your Plan for 2012?

What’s Your Plan for 2012?

Did you accomplish everything you wanted in 2011? What changes are you planning for 2012? 

Does your plan for 2012 position your company to take advantage of competitive advantages and opportunities? Does your plan allow you to be successful without depending on a rising economy? Do you have the right people and resources in place to execute the plan? Have you broken the plan into actions with specific metrics, dates, and responsible people? Have you subjected your plan to the reality test? Have you thought about both positive and negative scenarios of the future and what steps your company should take in each case? Is there an element of fun and adventure to your plan? Does your plan make your company more valuable at the end of 2012?

If you can’t answer YES to each of these questions, perhaps you are planning more of the same in 2012. As the saying goes:  What is the definition of insanity? Doing the same things over and over and expecting different results.

It’s not too late to put a different approach to work that elevates your company and its prospects.

Protecting your company from “mayhem”

In a popular series of television commercials for a property and casualty insurance company, there is a “Mayhem” character who causes unexpected disasters for auto owners. In one commercial, he’s a satellite dish falling off a roof onto your car; in another he’s your navigation system gone haywire causing a crash. The message behind these commercials is that since mayhem is unavoidable, you need insurance.

It struck me recently that companies generate their own versions of mayhem – things that occur that may on first blush seem to occur unexpectedly or just be unfortunate.  

Here are some examples:

•         Discovering that you don’t have the rights to use the trade name you’ve been using for 15 years
•         Discovering that your employees have been plagiarizing content
•         The employees that are developing your blockbuster new product all leave at once
•         A new competitive product offering undercuts your price by 60%
•         Your customers discover that one of your key vendors has been substituting a hazardous or substandard material resulting in product malfunction or customer injuries
•         A new business model renders your product irrelevant
•         Discovering that new regulations no longer allow you to ship your product
•         Discovering that there is no liability insurance for all the products in the field that you’ve made for the last 10 years…and a latent defect has just been discovered
•         Discovery that a “trusted” accounting clerk has been methodically stolen $800,000 over the last 10 years

All of these are true. Some might say bad luck. Synonyms for mayhem are chaos, disorder, confusion, turmoil. The dictionary defines it as “needless damage.” In truth, all of these examples of mayhem were identifiable ahead of time and most could have been avoided or significantly mitigated.

In tough economic times, companies can be myopic and can ignore the need for strategic planning, competitive scanning, and can defer implementing business processes and controls.

Some thoughts as you enter 2012:

Develop a strategic growth and execution plan (Please- not another retreat but a meaningful plan of execution  

• realistic assessment of where you are (strengths and weaknesses, opportunities and threats)
• competitive scan looking at traditional competitors as well as possible disruptive threats
• develop some scenarios of the future (including those at extremes) and actions to be taken as these play out
• develop specific actions, metrics and accountability to shore up the weaknesses, fill the gaps, address the risks, and take advantage of the opportunities and strengths

Don’t let another year go by. Neglecting the next steps in your company’s growth and maturity can be very short-sighted. You need to protect your company from mayhem!