Top Ten Criteria for Hiring a Consulting Firm to Help Your Small or Middle Market Business

[Editor's Note:In today's market, there are folks and firms that purport to have all the answers to issues facing small and mid-size businesses. Firms and individuals pop up with articles in local newspapers, blogs, and business magazines with all the answers. New models with fancy and catchy acronyms like RED and FAST appear on the scene. Sometimes, it is difficult for companies and business owners to determine who can really help them navigate the road ahead.

We offer the following comments about what companies should be looking for in a partner to help them realize their potential. This is a reprise of an article published several times over the years. . One of our long-standing clients suggested to me that it might be valuable to update it again.            -dpm] 

 Top Ten Criteria for Hiring a Consulting Firm to Help Your Small or Middle Market Business 

Focus: Beware of "one stop shop" firms that say they do everything. These include accounting firm add-ons, investment banking/M&A firms, or interim CFO firms. Accounting firms provide valuable services - audits, tax assistance, internal controls, and compliance. CFO firms provide accounting, controller, and finance functions. Investment banks/M&A firms provide a great service in the transactional work of selling your company. 

The firm you engage needs to specialize in helping companies in your size range with your range of strategic and value issues ... and have the track record to prove it!  

Execution:

Most consulting firms focus on the front end (their plan and their intellectual input). Make certain you feel comfortable with the execution and their proven ability to assist you in achieving results.  

Overcoming Barriers to Success:  

Most consultants do not actually help organizations understand - and overcome - what is preventing them from being successful at the next level. Those can be tough discussions, but you can't make real progress until these barriers are addressed. 

Value: Many consultants focus on the top line (revenue line) without understanding the key drivers of value.

Flexibility - to YOUR needs:Most firms have a "one size fits all" model and they will squeeze all clients into that same model. 

Tell the Hard Truths: Most firms do not offer truly independent objective advice - they will not tell clients the difficult truths since they want the follow-on business. If it seems too good - or too easy- to be true, it usually is. There are no magic pills or magic bullets. Success in business is generally the product of good direction and hard work.

Been in Your Shoes: Most consulting firms will not have folks that have actually been in your shoes (as owners or CEOs) - and emerged successfully. It's very different when it's not your capital at risk. Ask if they have ever led a company through a period of rapid growth, weathered a downturn, or led a business through a successful sale.

Beware the "Temporary" Consultant: Beware of individuals or firms that sprung up recently. Firms with less than 5 years experience many times exist only as long as it takes for the principals to find their next full-time job, or to have their traditional business volumes return. That could leave your company in the lurch when they lose interest in you.

Talk with Their Clients - Present and Past: Talk with owners of client companies of the consulting firm. Ask them, in the end, what results were achieved. Did the consulting firm exceed expectations? Get specific about the numbers.

Aligning Their Interests with Yours: Will the consulting firm share in the risk /reward proposition with you? Are they willing to risk a portion of their fees based on your company's results?

Small and middle market companies are typically the most significant asset of the owner. They are the product of many years of tireless effort and risk. Selecting a partner who will work alongside you to help your business achieve its potential is an important decision.

 

What are your thoughts about these key points? Share your reactions below.

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 If you would like to discuss how we might help your company accelerate the process of adding value and moving your company to the next level of performance, please contact us.

Five ways for you to fail - Using customer profitability to become customer-centric Part 2

Part 2 - Using customer profitability to become customer-centric
   Five ways for you to fail

[Editor's Note: This is Part 2 of a series on customer profitability. I hope you find it useful.  - dpm]

We hate to present things in negative terms. However, many companies try hard to be customer-centric, but their efforts fail to add value to the company. Frequently, they commit some - and sometimes all - of the following sins:

DENIAL
Do you insist that the differences in the profitability of your customers aren't important or aren't measurable with current systems? Do you deny that you have unprofitable customers? If you try to calculate customer profitability, do you exclude some operating or capital costs? Does every cost in your company get allocated to a customer?

THE GROWTH ILLUSION
Are you adding lots of new customers without knowing how much they cost to acquire or how long they're likely to stay? Most important, do you know about the economic profit (operating profit minus a capital charge) you can expect from each new customer?

THE ILLUSION OF AVERAGES
Do you make decisions based on average customer profitability (profitability by segments or markets)? Are you aware of how much profit comes from the best 20% and the worst 20% of your customer? Are you unsure about which specific elements of customer behavior cause customers to fall into the top and bottom groups?

FAILURE TO ACT Do you fail to make specific managers fully accountable for acting on customer profitability? Is your strategic plan disconnected from the economic profitability of customers?

FAILURE TO DRIVE COMPANY VALUE
Have you stopped short of figuring out how much each customer segment contributes to your share price or overall company value? Have you told your board and your stakeholders how you're using your knowledge of customer profitability?

 

Focusing on customer profitability is key to becoming a truly customer-centric organization. Calculating net profitability by customer is the start. Sustainable improvement to company performance requires changes to strategy, structure, organization, culture, and measurements.

 

Improvement can start immediately! The good news is that many of our small and middle market business clients see measurable profit increase within the first three months of implementation.

Scenario Planning Part 5: Why every company should be doing scenario planning!

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.

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 of the last five years. 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.

In Scenario Planning Part 4 – Benefiting from Disruptions, we discussed how various organizations (e.g. Blockbuster, Kodak, Encyclopedia Britannica) 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 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?

·        Technology - How much will technology change your industry? Will your business or industry be affected by any of the following

o   Mobile ordering; Mobile product/ price comparisons

o   Mobile payments

o   “Showrooming” in brick and mortar stores and buying online  (e.g. Best Buy and Amazon)

o   Contextual offers/specials, loyalty programs, other specific knowledge about customers

o   Social commerce

o   Apps for everything

o   Efficient visibility and management of supply chains (from end user order entry – directly impacting each step of the supply chain)

·        Social/Environmental

o   Power moving to the consumer (away from institutions)

o   Buyers have equal or greater knowledge than sellers

o   Changes in culture, attitudes

§  Will today’s 20-something millennials abandon the desire for home ownership?

§  What long-term impact will the “green” movement have on markets, products

·        Demographics - Is your customer base affected by demographics?

·        Aging population in certain markets

o   What does the negative birth-rate and aging population mean for European economies like Greece, Spain, Italy, etc.

o   Baby boomers retiring, selling businesses, eldercare, etc.

·        Economic

·        Will the new housing construction market stay at the bottom for another 10 years?

·        Is the U.S. facing a period of structural high unemployment?

·        Long periods of “stagflation” or inflation

·        Will increasing labor rates make China less competitive? How will outsourcing look in 5-10 years?

·        Regulatory – The list is endless…

·        Healthcare?

·        FDA?

·        Trade?

·        Tax reform (Elimination of subsidies, elimination of deductions (e.g., mortgage interest), business expenses, etc.?)

Some organizations will 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. We’ve seen the number of companies doing scenario planning triple since 2008.                                                                                                                                                                                 

Since 2008, the number of our clients that are doing scenario planning has more than tripled.  Companies that are scenario planning are examining different possibilities of the future and determining their competitive response. 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.

Scenario Planning – Part 4: Benefiting from disruptions - benefits of scenario planning

Editor's Note: This is the fourth 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

Events that disrupt business occur every day. While it is impossible to predict exactly where and when these disruptions might happen, scenario planning can help organizations protect revenue streams, increase profitability, and ensure business continuity despite major upheavals.

In Scenario Planning –Part 3 Are you ready for disruptions?, we discussed three examples of companies that were caught flat-footed by disruptive innovation. What could these companies have done with effective scenario planning? In each case, there were early signs:

·      Blockbuster— by Netflix and Redbox (Coinstar), now video streaming. Customer dissatisfaction with the inconvenience of having to travel to physical locations, pricing, and late fees - in Blockbuster’s case. New business models (mail and kiosk) addressed customer dissatisfaction with the cost and inconvenience of brick and mortar stores. Video streaming has been coming for over a decade. The primary driver to its arrival as a mainstream competitor was the availability and speed of broadband and wireless. Was anyone at Blockbuster watching this? Was anyone listening to customer dissatisfaction with exorbitant late fees? Perhaps, if Blockbuster management was monitoring its own customer response (complaints) and tracking the scaling of broadband, it could have initiated steps to provide alternatives – either through internal pilots, new products, or acquisitions. Instead, it viewed competition in a traditional manner - as coming from the other brick and mortar video rental companies. When new competitors began to gain steam, Blockbuster’s response was slow and awkward.  Clearly they had been totally unprepared and management had not thought through what competitive actions or responses should be taken.

·      Encyclopedia Britannica – by the internet providing content online. We could lump many print publishers in this category. In fairness, the inability to decide how to monetize online content has paralyzed many management teams in the publishing business. However, lessons learned in other industries dating back to the transistor radio have taught us that many times disruptions occur first on the fringes or lower end of markets. Wikipedia (the “free encyclopedia”) may have seemed to be a joke to EB executives at first, if they noticed it at all, but the sheer volume of visitors to the Wikipedia site could have been seen as a precursor to today’s online content world.  

·         Kodak—transition from physical media to digital media. Kodak may be the poster child for the need for effective scenario planning. Kodak actually invented the disruptive technology – digital photography. In Kodak’s case, management clearly did not want digital technology to cannibalize its “golden goose”, the exceptionally profitable film world. So rather than understanding, monitoring, and acting on the drivers of digital photography, Kodak management spent years executing defensive strategies, attempting to protect the existing revenue stream.

Disruptions have occurred in just about every market over time. Mature industries with little change for decades, are now being transformed by technology which is enabling changes to business models, industry economics, and competitive balance. You cannot prevent disruptions from occurring, but you can be aware, prepared, and capable of turning disruptions into opportunities.

Business benefits of scenario planning

As the Boy Scout motto indicates, “Be prepared.” Disruptions are a risk only if businesses aren’t prepared. Effective scenario planning requires senior managers to take a broader view of their roles. By being prepared, companies can avoid the pitfalls of becoming irrelevant through disruptive innovation. Scenario planning benefits include:

·         Management preparedness and confidence. By reviewing possible scenarios and the impact on competitive balance, management can “rehearse” the appropriate steps that would be taken in the event a certain scenario begins to occur. Just as an athlete visualizes his or her performance in a certain critical game situation, when potential disruptions occur, management can respond in a calm, confident, thoughtful manner.

·         Building an adaptable culture. By developing a flexible approach to planning, companies can build adaptability into the culture. Adaptable teams perform far better than those that are mired in a static approach or limited view of the world.

·         Greater customer loyalty and retention. Companies that know where they are headed instill greater confidence in their customers. This confidence often translates into greater loyalty, which protects important revenue streams. In addition, by moving swiftly when disruptions occur, companies can keep their customers from worrying and switching to other vendors. Don’t underestimate the “coolness factor” of being a leader – Apple benefits from a “halo effect” for being on top of latest innovations, being fearless about cannibalizing previous products and models, etc. Customers want to be “seen” using Apple products because Apple is perceived as knowing where they are headed.

·         Increased revenues. Companies that are prepared for disruptions can attract more customers. This is because customers want suppliers on whom they can rely on for a steady stream of products and services.

·         Reduced costs. Companies become inefficient when they don’t have a roadmap. By establishing confidence and a clear direction based their ability to monitor, predict, and react to, possible disruptions, companies can be more effective and efficient.

·         Enhanced employee productivity and retention. A common direction also instills confidence in employees, increasing their productivity and company loyalty.

·         Creating new business opportunities. By anticipating market disruptions and technology trends, visionary companies can create and enter new markets to ensure future revenue streams.

¹ Excerpts from Scenario Planning: Are You Ready? By Dave Evans and Rick Hutley, Cisco IBSG Innovations Practice

Next:  Why every company should engage in scenario planning