Tuesday, June 21, 2011

Failure to launch: Seven reasons business strategies don't succeed

By David P. Mead

Superior execution is one of the strengths of the Colorado success stories we have been profiling over the past few months. But these companies are the exceptions; nearly 65 percent of all strategies fail to reach expectations.

Why do so many business strategies fail? Barriers to successful planning and execution develop in all companies over time. In fact, some of the very things that help a company succeed at early levels can prevent them from succeeding at the next level. The key is to address these challenges so that the path to execution is uncluttered. Below are seven reasons company strategies fail to deliver desired results:

1. No clear definition of success
Fuzzy goals lead to fuzzy outcomes. While it seems obvious, many organizations simply don't articulate the specific goal of a business strategy. If the goal of your customer intimacy strategy is to form deeper customer relationships, that's fuzzy. If the goal is to increase customer retention by 10 percent and increase annual revenue per customer by $10,000 and net profit by $1,000, that's clear. Here, forming deeper customer relationships is simply the mechanism to achieve the goal.

2. Too many goals
When everything is a priority, nothing gets accomplished. Many so-called strategic plans have too many goals, objectives, success drivers, strategies, initiatives and so on. Worse, it's not clear how these various appendages are linked. Is it any surprise these plans sit on shelves and collect dust? Choose to do fewer things, but do them much better.

3. Metrics and alignment - Either no metrics or vague metrics
Many plans are simply a brainstormed list of things to get done by unspecified people at indeterminate times. A plan with specifics outlines who will do what by when. It takes into account the sequencing and timing of tasks, activities and resources. Make certain that the goals of everyone in the organization are aligned to the few key objectives.

4. Visibility - Progress isn't measured and managed

Ever notice how plans placed in the spotlight flourish while those left in the dark shrivel? Any plan worth executing is worth tracking. A monthly meeting with a tight agenda can quickly determine what actions have been taken; what progress has been made; what will be accomplished over the next month and by whom, and what, if any, challenges have emerged. This builds commitment, accountability and confidence in the process.

5. You lack the right people
Some of those nice people who work for you may not be the right people to get the job done. That statement makes you uncomfortable, doesn't it? Many have been loyal, are committed to the culture, and may be friends and family. However, if you are truly committed to winning, or achieving success - however you define it - then at some point you have to take a long, hard, honest look at the capabilities of your people. Point them in the right direction, support them, develop them - give them a fair chance to succeed. But if they can't get it done, then your responsibility is to get people who can.

6. Flexibility - Failure to update the plan to stay real
Reserve the right to do what makes sense. Plans are based on assumptions that can change over time. If they do change, then the plan may need to change. A "recalibration" meeting every 8 to 12 weeks is a good forum to test your assumptions and determine which, if any, have changed. The meeting may result in either a revalidation or redesign of the plan. It ensures the plan stays real and relevant.

7. Reaction to failure - Failure is met with indifference or an inquisition
Is your team serious about its definition of success? Your response to failure sends a clear message about your commitment to winning. Just as importantly, it sends a message about your credibility. Do you ignore a failed initiative and move on to the next big thing (which conveys that you really weren't that committed and you shouldn't be taken seriously)? Do you look for scapegoats (which communicates that you don't take personal responsibility and can't be trusted)? Or do you first look in the mirror, take responsibility, then publicly commit to getting it right, and effectively engage your people to make it happen? Your choice speaks volumes about who you are as a leader.

Monday, June 20, 2011

Don’t be held back by past success

The greatest challenge can be the SECOND strategic success.

By David P. Mead

The business is profitable. It generates cash. There seems to be no end to new ideas and plans to invest and grow the company. But ideas seem to almost never get evaluated, or if evaluated, never are seriously considered. The company continues to focus on the familiar strategy, with the founder maintaining, “This is what got us here.” Many small and midsize businesses can be held back by past success. Their early strategies are so powerful and deeply ingrained in the fabric of the company that change is all but impossible.

Continuous rebuilding of strategic direction is not only healthy, but important to company growth. Where once a change in strategic direction occurred every generation or two, the pace of change now requires a new direction every three to five years…much faster in technology industries. Yet we find that “strategic renewal” is rare in closely-held entrepreneurial companies. The reason can often be traced to the source of their success.

The business strategy which ultimately emerges from the entrepreneurial survival phase is the product of years of trial and error. The successes and failures of personal interaction with customers, products and markets forge the confident and unshakable strategic view of the founder. Entrepreneurs with highly creative and successful strategies are often so charismatic and strong-willed that few managers have the self-confidence to challenge by fighting for fundamental change. Admiration and respect for the accomplishments of the founder can also discourage open disagreement. After all, if the strategy could be improved, wouldn’t the founder have already done so?

There is another reason that strategic change is difficult in successful entrepreneurial organizations. The founder surrounds himself or herself with people who believe in the founder. These people tend to view the world in the same way. This homogeneous group is reinforced through hiring, training, and leadership. The similarities are further strengthened by a shared company culture. This singleness of purpose helps greatly as the founder’s initial strategy fosters rapid growth, and consistent delivery of products and services is essential. These people are the implementers of the founder’s vision. However, when a fundamental change to strategic direction is necessary, these same implementers are not likely to contribute a creative perspective. They are more likely to review the reasons for past success than they are to visualize a different future.

In short, the founder’s creative strategic insight and charismatic organizational leadership will typically create blinders to the urgent need for fundamental change. When everyone shares the same perspectives and experiences, we have a very vulnerable business – even if it is successful today.
Studies of the strategies of entrepreneurial companies confirm this. The founder invents a great business concept. New strategies, however, rarely emerge until a new generation of leaders emerges. If talented potential successors eagerly advance their new strategies before they are in control, painful, destructive conflict often results.

Founders of successful companies have found ways to avoid the pitfalls of strategic stagnation:

• Share the credit for past successes. Describe them to the organization as group insight rather than as “my strategy”. Stress that change is critical to survival. Express frequent concerns about competitive threats to the current ways of doing business. Do not let anyone become comfortable with the status quo.

• Celebrate the diversity of opinion in the organization. Look for ways to recruit new people with different backgrounds and experiences into the company. Consider hiring people outside your industry.

• Make strategic planning everyone’s responsibility. Encourage everyone to challenge current strategic assumptions. In management meetings, ask everyone to identify the critical assumptions for continued success. Ask your outside board of advisors, or outside board of directors to question your intended sources for future growth.

• Be open to new ideas. Be “non-defensive” in your thinking. Encourage “non-linear” thinking and “what if” questions. Avoid justification of past actions or quick responses such as “we tried it before and it didn’t work.”

• Don’t accept a poor economy as an excuse! Too much credit is given to strategies that succeed in a good economy, but cannot hold up during a poor economy. Don’t accept a poor economy as an excuse. Make your company and its management stand on its feet regardless of the economic climate.
The greatest challenge for an entrepreneur to create the second strategic success. The critical review of the reasons for past success is a vital part of the process. If the founder and leader of the organization will demonstratively lead the challenge to his or her own aging strategic insights, new ideas and perspectives will be encouraged and the company will profit from consideration of a greater number of strategic alternatives.

Tuesday, June 7, 2011

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

Since the beginning of this year, I have met with the CEOs or owners of over 120 private companies. These companies range from new technologies, products and services in such diverse fields as education, web conferencing, burgers, trucking, logistics, steel distribution, medical devices, focus groups, outsourced services, and social media. Some of these 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 homebuilding or construction have been severely impacted by the economy. However, blaming stagnancy solely on the economic malaise that has descended on the US since 2007 may be an oversimplification. I believe in some cases, the recession has just highlighted the differences between the good, well-managed companies from those whose fortunes rise and fall with the economy.

Companies that have become "Colorado success stories" over the past four years share certain traits:

1. Lifestyle or Equity Value. 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 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).

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. NewsGator, a pioneer in enterprise social computing, uses a facebook-like platform to communicate project status to a broad audience of employees. Employees not involved directly with the project are encouraged to post suggestions and comments.

3. Hire for the next level. 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, the designer and marketer of protective cases for smartphones, has grown 1500 percent over the past three years with a flexible approach that re-evaluates operating plans every 6-8 weeks for possible adjustment.

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.

6. Focus on a superior customer experience. Dan King of ReadyTalk calls it developing "emotionally-connected" clients; Maria Vogt and Sonya Yungeberg of government contractor, Ayuda Management, 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.

7. Play offense instead of defense. If you do anything long enough it becomes a habit; then it becomes part of your culture. Many companies have created defensive cultures with several years of cost-cutting and deferring or eliminating new projects and new products. "NO" has become the operating word for "stuck" companies. Successful companies are looking for opportunities to develop and test new business models, new products and new projects. They see this market as ripe with opportunities to grow and innovate. "HOW" is their operating mantra.