Strategy

I often hear phrases like the following attributed to success in business.

” She was in the right place at the right time.”

” It’s all timing.”

” He was fortunate enough to have BLANK.”

” She is lucky to have great people working for her.”

I don’t want to dwell on the motivations of the observers for ascribing “luck” or “chance” to the entrepreneur’s success.  Nor do I want to delve into the psyche of the entrepreneurs that allow themselves false modesty when they claim the same phenomena.  I simply want to share some examples from my past and others who have had some success.  In all of these cases, luck had very little, if anything to do with it.  If this sounds like bravado to some, fine.  That is not my intention.  My purpose is to move as many of us as possible into action. To get us on the road of “creating our own luck” if you will.

In all of the following examples, there is a recurring theme.  Watch for it.

* Inspired by his boss, my roommate from college went on to found and operate the largest privately held payroll services firm in the U.S.

* My best friend growing up, took over and successfully grew a high-end home remodeling business that was previously owned by a friend of his father’s.

* After attending a software developer’s user group meeting, I have some great prospects to hire for my new business.

* A good friend joined the most powerful entrepreneur network in the world and tripled his business in three years.

* I had a successful exit with my software business, do in large part, by the negotiation efforts of a local CPA referred to me, by my long standing business mentor.

The common theme in these successes is people.  The people you surround yourself with.  Your Network of Help.  In every case, there is a human relationship involved.  Someone that has committed themselves to helping another be successful.  Look for and cultivate these relationships.  Success rarely comes from how smart we are or how hard we work.  If we think we were “just in the right place at the right time”, look closer.  A far more likely possibility is that you or someone else put you there.

Luck has little to do with it.

To your success!

Scott

An article in the WSJ extols the virtues of Open Book Management.  OBM is a concept that became popular a decade or so ago when some business owners came to the realization that they were not getting a sufficient level of productivity and devotion from their employees.  The fix, was to share and educate employees on company financial information. The theory being that if employees were better educated and had empathy for the company’s situation they could solve problems and be more productive.  

Most of the case histories that have been written on OBM have been fantastic success stories.  When employees understand how the company makes money, employees suddenly change their behaviors and invent solutions to problems that had mystified management.  Here are the untold stories:

* Once employees found out how much money the owner was making they demanded to participate in the profits. Rarely, was there ever an offer by the employees to take on risk in the business via a variable compensation plan or loaning the company money (like most owners do).

* Employees saw how profitable certain lines of the business were and decided to start their own company, competing with their former employer.  They were also armed with all of the company’s financial data.

* Employees began making value judgements on departmental expenses.  Most prevalent of which was the disdain for the highly compensated salespeople that generated all of the revenue for the company.

As B2B entrepreneurs, there may come a time when we entertain the idea of opening up our books to our employees.  When the time comes, lie down until the feeling goes away.  If you feel your employees don’t understand how your business makes money, then you have two choices.  More education (without sharing your P&L!) or find new employees.  I have done both.

Financial information is not a right or a privilege for your employees.  You take the risks.  You reap the rewards.

Your thoughts?

To your success!

Scott

Treadstone Group, my software professional services company, was doing fine.  We were generating seven figures numbers of revenue from a couple hundred clients.  However, like most B2B professional firms we were subject to peaks and valleys in posting monthly revenue numbers.  Utilization would sway violently from 55 - 90%.   

The swings in revenue were impacting our business negatively in the following ways:

Cash Flow.  We needed to keep large cash balances available to combat shortfalls in consultant utilization.

Employee Stress.  Our consultants would go from a relative calm pace of client engagement to frenetic activity of up to 110% utilization.

Growth Planning.  Forecasting growth in the business and the need to hire additional consultants was next to impossible.

Business Valuation.  The big killer. More about this later.

Boiling the problem down, we were running a project business.  We moved from one project to the next.  Quote it, do the work, move on. Sound familiar? Sure there were usually some bits and bobs after formal completion of the project, but by and large, we were always looking for our next meal.

Fixing this fundamental weakness in our business model required a total rethinking of our “offers” to our clients.  Instead of focusing on a software implementation project, a temporary concern, that our clients had,  we needed to focus on recurring concerns that were fundamental to the daily success of our client’s business.

Our first step in crafting new offers was to spend more time listening to our clients.  Seems obvious, however we had lost sight of this.  We began listening for pain and opportunity.  Here is what we found.

Our clients didn’t like being billed on an hourly basis for sporadic help/support of their systems.  Billing hourly made them far less likely to ask for help. Kind of a bad thing when you need help with a sophisticated ERP system.  Clients also wanted much faster response to their questions.  Internally, we had made a promise of 8 hour turnaround.  Not good enough.

Our solution was a fixed, annual fee support agreement.  Clients were thrilled with their new ability to contact us as often as they needed for an annual cost that they could put in their budget.

For Treadstone, it allowed us to eventually get to 30% of total, recurring, dependable, bankable revenue from these contracts.  As time progressed, we invented more offers that allowed us to take the recurring portion of revenue even higher.

Armed with a dependable stream of cash flow, we grew the business with confidence as opposed to apprehension.  And when it came time to exit the business, our recurring revenue stream increased the valuation of the company substantially.

What offers can you invent to take of recurring concerns your clients have?

To your success,

Scott

When is the right time to expand our service business?  When is the right time to increase our capacity to make more offers and fulfill on more requests from clients?

This is one of the toughest questions the B2B service professional faces.  In a service business, the most significant increase in capacity and potential for increased earnings comes from hiring more people.  For the solo practitioner, this can be a very scary step.  Another mouth to feed.  Another personality to manage. In this post, let’s focus on the financial metrics that can signal us to expand our service business.

The question to ask is:

“will the future revenues of the business be at least enough to cover the fixed costs of an additional person AND maintain the current level of profitability we currently enjoy?”

Let’s take the case of a marketing consultant who currently bills $150k annually.  After expenses, the consultant clears $125k.  The consultant is considering hiring a junior consultant to conduct training and brainstorming sessions for the client base.  The junior consultant commands a salary/benefits package of 75k.

How confident are we that the business can generate $150k plus the additional 75k to cover the consultants cost?   The answer lies in the predictability of future revenue streams.  The predictability of future revenue is determined by the composition of that revenue.  

For the service professional, the most important revenue stream to establish is recurring revenue.  Revenue that comes from fixed price annual client contracts.  All service professionals should devote time and effort to crafting offers of recurrent help to clients. Our skills and offers should be aligned with fundamental business concerns that businesses have and cannot ignore.  Here are some examples:

* updating the company website with new content, graphics, etc.

* training salespeople

* strategic planning

All of the concerns are not one-time events for a client.  They all are fundamental and recurring to the business.

So……………….my rule of thumb is, only hire the next resource when there is an equivalent $$ amount of recurring, bankable, revenue to support the associated costs.  Using this rule, we can afford to invest in good talent and provide them the long-term career opportunities top talent seeks.

Your thoughts?

To your success!

Scott

It’s a great time to be a SoHo (small office / home office) business!  Independent consultants, designers, writers, technicians all have distinct competitive advantages in bad economic times.  Here are some of the reasons why:

Customers look to outsource.  During poor economic climates, businesses seek to reduce fixed costs in favor of variable costs.  In a recession, companies are much more “project oriented”…..asking the question, “what resources do we need to accomplish a specific objective”.  Customers will first look to outsource to the B2B service provider (variable cost) before hiring an employee (fixed cost).

Customers need help.   This may sound counter intuitive.  Our “common sense” would have us believe that all customers when faced with a recession look to cut all spending.  Not true.  In bad times, customers desperately seek offers that will allow them to increase revenue and decrease costs.  All of our offers should be framed in that context.  Ex.  show the customer how a new website design will drive more traffic and increase conversions and sales.

SoHo’s have low overhead.  By definition, you have lower overhead relative to your larger competitors.  This allows you to package more cost effective offers in times of economic uncertainty.  Listen to your marketplace.  Look for customers shifting from larger service providers to smaller, more nimble, more cost effective providers……….like you!

Tools have never been better.  The tools to run your business have never been better.  High speed Internet, business software, Skype, Twitter, blogs, you name it.  You have the tools to compete with the big guys. You can be just as efficient, just as professional.

Don’t let the bad economic news get you down.  Boundless opportunities exist for the SoHo.   Do you agree?

Action:  Carpe diem!

To your success!

Scott