Limit Your Business Risk & Prepare for the Unexpected

No matter the size of your business – sole proprietor, partnership, LLC, or corporation – you daily face decisions and opportunities that affect your business risk. Many of the choices due to these circumstances are obvious and you will make good decisions guiding your future business operation toward safe territory. However, other choices may appear to be innocuous in their affect on your business but under dynamic market and business conditions can have a significant impact on your business, increasing your risk to grow and perpetuate the business.

At the beginning of the recent recession I was amazed at the number of companies that did not have sufficient cash reserves or line of credit to last more than a few weeks when sales dropped. They did not have enough freeboard in their business to withstand the economic storm and take corrective action to survive. Do you have enough freeboard to deal with the unexpected in your business?

Here are some positive steps that you can take to reduce the impact and risk in dealing with the unexpected?

1. Managing Cash Reserves: Accruing cash to offset unexpected cash (either due to controllable events such as unplanned/ unforecasted expenditures or uncontrollable crisis) demand is difficult to do when you think you are in control. Putting cash on the sidelines may appear to be betting against yourself, that you have a good handle on the future, or that you are convinced that spending the money now versus putting it into an “idle” position is a better business decision. Remember once spent it is not easy to recreate cash when business tightens, squeezing your cash flow from positive to negative. Get counsel from your accountant or trusted advisors on what level of cash to keep in reserve. Rely on outside or objective perspective as your emotional commitment to the business may blur your objectivity.
2. Employee Competence: The competence of key employees or contractors may not be a glaring problem during boom times but can become a critical factor when you least expect or can afford it – particularly during a down market. This may be expressed in what you hear from customers that your employees are promising or how they are servicing the account, which may be retarding additional sales. Employee loyalty is a diminishing characteristic in the work force today, which can result in unexpected turnover, loss of an account relationship or worse loss of a customer if they go with the employee. Choose employees wisely and review their performance regularly to make sure their performance and attitude is consistent with the needs of your business. Owners can become so focused on the tasks of managing the company that they take relationships with key employees for granted and overlook their shortcomings and miss signals indicting their dissatisfaction and potential for leaving.
3. Customers: Customers are obviously important but what risk do they present to your business. Do you have good business agreements in force in case payments are stretched out? Does one customer have more than 10% of your business or margin? Do you have regular contact with customers to measure what is happening to their business and how it will affect your forecast? Good customers can adversely affect your business when you least expect it. Do you have the reserves to see through what ever interruption in normal business occurs, possibly even replacing them, until you are able to recover the loss? If you have customers that represent a significant part of your revenue or margin then you are well served to develop other clients to reduce the potential impact on your business by any unexpected loss of business from major accounts.
4. Key Suppliers: A supplier of critical components or services can also have an adverse impact on your business. Remember you are not just buying a product or service to a specification but you are also dependant upon the quality of the management process to perform sufficiently to protect your interests with timely delivery, at the contracted price, and meeting or exceeding quality expectations. Do you have a strategy to use alternate sources of supply to preserve your ability to deliver to your customers reliably?

Will I avoid all risk if I invest in the areas cited above? No! But it will set a tone for how you and your organization manage the business. It is not a matter of making a mistake but how you respond to those mistakes and reduce them over time, Developing sound business practices and a balanced business strategy that is not only focused at developing the business but also addressing those issues that will impair your ability to deal with the unexpected – and the unexpected will occur!

Style: Is it Important?

Is your professional style important? Style is defined as the way you make decisions or solve problems, resolve conflict and relate to others – peers, subordinates, superiors, customers, etc. Your style can be a make-or-break factor to your success. It is the primary factor that influences the experience someone has when they come in contact with you. In these days of customer experience awareness, style has never been more important.

During the late 80’s and into the ‘90’s through Y2K the technology industry was in high demand for technology professionals and in many cases a pulse was a primary condition of employment. This resulted in organizations with a diverse mix of individuals who expected everyone to accept them as they were – appearance, working habits, attitude, etc. Since the technology feeding frenzy was so great companies and customers overlooked the idiosyncrasies of many of these “professionals” as the price to achieve an objective in a crisis.

As the demand/supply curve came into balance it became necessary for technology professionals to consider how they influenced the customer experience by not just delivering a successful project on time and with in budget but to also successfully demonstrate interpersonal behavior that was harmonious with management and employees. We went so far as to publish a style guide for our on site consultants as to how to deal with key style factors. The following is a few of the more dramatic style factors:

• Improving appearance (including of all things personal hygiene).
• How they initiated proactive contact and communication with customer management and team members.
• Improving their listening skills to detect customer concern or misunderstandings.
• Resolve conflict in a timely manner without becoming personally involved.
• Taking responsibility for customer satisfaction.

The results of this effort were impressive as we saw increased customer satisfaction, trust and confidence in our consulting team, extended project work, engaging with more sophisticated and higher value accounts from referrals and most significantly, increased work satisfaction on the part of the technology consultants.

I have applied this experience in a number of companies that I have consulted with. One of the more significant examples of how style affected an organization was with a private school, which was concerned about the ability of the school to have a consistent interaction with parents – the customer – particularly by the younger generation teachers. The problem was more complex than just a couple of teachers as the communication to the parent that impacted their expectations of what was to happen in the classroom was affected by the formal literature provided the parent, the teacher manual for the teachers and daily communication – teacher-to-student, teacher-to-parent, admin-to-teacher and admin-to-parent.

It was easy for the parent to become confused over the “style” of the school particularly when it came to problem resolution whether it started with the teacher or admin. This was compounded when the teacher (often a younger generation teacher) would receive the parent concern in a defensive way, which escalated the attitude of the parent to a crisis level. The bottom line result was a poor customer experience for the parent, which reflected on the school reputation and brand.

The correction to this style conflict:

• School administration needed to reconcile the inconsistencies in the communication of expectations to parent, teacher and student.
• Administration and teachers needed to visit this subject on a regular basis so that all knew what to do when an incident occurred so that they could execute in a predictable and consistent manner.
• The teacher was often the first to receive the parent concern and they need to hear the parent out (listen) before coming (or jumping) to a conclusion as to what action to take to resolve the problem.
• The teachers needed to accept that resolving parent concern was part of their job and to not take it negatively or personally that the parent was complaining to them and to handle it as part of what they did as a teacher.

The results were reduced parental conflict and improved relations with their customer and improved teacher morale. The style of the organization and individuals was adjusted so that communication was consistent and problem resolution was dealt with in a low to no conflict manner.

Take a look at your style, the style of your organization to see if you have areas that can be improved to enhance customer experience, improve morale and lead you to higher value business. Style is important!

Leadership: You Know It When You See It!

There is a continuous dialog on the internet and in management publications as to what defines leadership. Leaders are often contrasted with managers since a manager heads an organization and therefore must, by definition, be a leader. This is not necessarily the case.

Managers normally have a defined position in the organization and generally operate on the conservative side of the guidelines of their job description. They are comfortable directing activities and addressing problems within a narrow range and when that range is exceeded they seek direction from higher ups or pass it over to peers (HR, Accounting, etc.) in the organization. To vary from this "narrow path" raises the risk component of their job as they are then "on their own", have "stuck their neck out" or have become "independent."

Most managers are out of their comfort zone when they move too far into the risk zone. They are generally risk averse and withdraw to defined areas of responsibility where they are licensed to operate. Unfortunately unpredictable and uncertain business conditions occur at inconvenient times that require someone in the organization to step forward and deal with the exceptional condition that is outside the anticipated management guidelines. Leaders rise up and "lead" either his direct reports or others in the organization to successfully confront, over come obstacles and resolve the business challenge. This is leadership!

A leader is capable of performing as a manager but is also gifted with the innate ability to recognize when they should step out and wrestle a risky situation down into a controllable event. This often exposes the leader to criticism by others who are threatened by their confidence to exceed their management responsibilities and successfully perform outside of the box. This person is a valued asset to the company providing that senior management (primarily the owner in a small company) is not threatened by them and know how to mentor and develop them to greater levels of leadership and contribution to the success of the company.

A leader possesses certain critical skills that will enable them to be effective in operating outside manager guidelines. This skill set often includes the following:

• Vision - They have a good sense of the long range view of how things are supposed to operate.
• High Energy & Positive Attitude - Inspiring a group to move in a critical direction over a short period of time requires energy and a positive attitude to overcome objections and obstacles that will stop and defeat others.
• Anticipation - Able to assimilate and translate various events into a condition that if addressed early eliminates a serious problem from developing.
• Assertiveness - Has strong convictions on why their objectives are important and will pursue them even if they are unpopular.
• Observer of People - They realize that the strength of the team is dependant upon each individual and the leader will mentor team members where they are weak and, where possible, recruit people with key strategic skills that complement the group.
• Accountable - Take ownership and commit to what is the right thing to do and what needs to be done.
• Influencer - Can successfully present the need for others to respond and perform in a manner they might not have done otherwise.

This combination of skills enables a leader to see what needs to be done, energize and inspire people, lead people to focus on “I can!” and not “I can’t!”, draw the right people together into an effective team that results in above expectation performance, and place the recognition for the successful outcome on those who worked the problem and not themselves. It is truly an exceptional experience to be lead by a leader.

As a company owner are you recognized as a leader? This can be a challenge for an owner where their “power” can be mistaken for leadership. You may be termed the leader but do you demonstrate the leadership characteristics that result in empowerment and positive motivation for the organization. This may be difficult to measure by yourself and you may need to rely on an outside resource – professional associate, board member, or consultant – to give you independent perspective. Take the initiative and evaluate your leadership strengths and weakness. Experienced management professionals often struggle with the definition of what makes a leader – but – they are pretty agreed that they can recognize it in someone when they observe how they operate on a daily basis and under special (and stressful) circumstances.

They know it when they see it!

I Want to Be in Business!

Recently I met a business owner who, upon finding out that I was a business consultant, wanted to meet and discuss how their business could benefit from working with me. The objective of the business was to produce a specialty item for sale in grocery stores. This was a home manufactured product and family members were the production and delivery team.

The business had been operating for a year and when I asked if it was profitable I got a suspicious answer. After some wrangling it was revealed that another family member (brother-in-law) did the books for the business but no monthly reports were provided until the end of the year when they discovered they were not making a profit.

I asked what their profit goals were and again received a weak answer. So I backed into the answer by asking what the shelf price of the product was and the cost to distribute it. Subtracting distribution costs from the shelf price left a small number to accommodate per unit production costs and also produce an operating margin. When I multiplied the budgeted margin times the annual volume I asked if this was a good result for their effort prior to covering overhead expenses. A got a very disappointed look.

The end result of the conversation was that they needed to reassess their reasons for being in business because the model as currently operating was not going to lead them toward a profitable experience. The passion and desire to be in business was apparent but they had no idea of what it took operate the business toward a profit goal.

What are some of the basic lessons from this experience that should have been addressed before business operations began?

• In addition to a business plan a financial model of the business should have been developed that would have allowed them to understand the sensitivity of the model to volume, distribution costs, etc. and the level of effort necessary to meet a minimum business goal.
• There was no regular reporting of financial information to understand what costs were being incurred compared to the revenue that they were generating.
• They engaged in a market where there were barriers to doing distribution themselves and or successfully negotiating more competitive distribution costs per unit that ultimately represented a significant part of the unit cost that they could not control.
• Be careful relying on family members for performing significant roles in your business particularly if it is not an important focus for them. Once assigned it is difficult to reorganize without creating hurt feelings and conflict in the family.

While this was a micro-company the issues that affected their success also occur in larger business endeavors. If you want to be in business do your due diligence and get outside input which will be difficult to take but it is better to get objective perspective on the issues that will affect your success before you start rather than after investing time and money to get the same input.

Is Your Organization Ready to Sell?

I recently considered (a pre-January 1st vow) expanding my workout schedule to include weight training in addition to lap swimming to address the rapidly escaping muscle mass that age brings in later life.

I regularly pass a well known gym in the area and thought that it would be convenient using that location for my new workout. I stopped in one morning to get membership information. The lobby desk was unattended so I waited a few minutes until someone returned. During my wait I scanned the counter looking for a brochure that might answer my questions.

I had visited the gym web site the night before but it did not show any schedule of membership rates or packages. A young woman soon returned and I asked to see a club brochure to understand what package/price would best fit my interest.

The woman looked at me sheepishly and said that they did not have any brochures and that sales people came in later in the day - it was 8:30am. I then asked her what the typical prevailing prices were for a membership. She quickly said that she did not think she could do that as everyone was different.

I was getting more confused and was hesitant to ask another price related question. She stood looking at me and seemed to want to leave it at that. So I saaid thanks and said goodbye. It was obvious that no one in ownership/management cared enough to create a customer experience encouraged membership.

It was obvious the woman at the desk had not been prepared for a sales scenario. She did not offer a tour (while she gathered her thoughts on how to address the price question), she did not get my contact information, she did not provide me with a contact name to reach later that day, she was not coached on how to keep a prospective member in the door until they made a buy decision or secured a commitment to meet or connect with someone who could.

• Is this the case at your company? Of course you are prepared to sell - aren't you - but what about your front office? How do you score on the following check list?
• Do you have an up-to-date price list of your products and services to answer customer inquiries?
• Do all people that have contact with customers know how to triage interest from a customer so that they do not get away without taking them to the next level?
• What is your policy on returning inquiries from a customer?
• Phone calls - within the hour or within thee promised period on voice mail.
• Fax - same day or no less than 24 hours.
• E-mail - same as fax or less.
• Are you on time with appointments?
• If customers come to your office for appointments, are you on time. If they have to wait are they notified before the appointment time passes, and are they kept abreast of delays as the time progresses past the scheduled time (i.e. waiting for your schedule doctors appointment)?
• Do you sit in on customer contact calls or visits to gauge the effectiveness of your sales training?
• How regularly due you audit your sales process and materials?
• If you use a web page (server side database) to collect customer requests information is it monitored regularly and are they responded to within the promise response time?
• Is your web page accurate, are the phone numbers correct, are the contact e-mail addresses current?
• If the customer request escalates into a quote is it processed in a timely manner with timely follow up to move the quote into an order.

Be ready to sell! A casual attitude toward a sales opportunity does not differentiate you in the market place and lead to a revenue opportunity. In the case of the gym above, I had heard that they were have trouble with membership. I thought it was due to the economy but now after experiencing the short comings of their sales process, their revenue problems could be greatly eased if they had a better "sales" attitude in their organization. How about your organization?

Are you a Change Agent?

The business climate of today places extreme demands upon executive leadership to constantly adjust the business model to meet a rapidly changing business horizon. New technologies entering the market that obsolete current products and services, global competitors able to offer products with lower prices produced in less regulated and lower labor cost regions, changing preferences of the customer that reduce the product window of opportunity which increases the need for rapid returns on investment represent a few of the issues that keep executive awake at night.

Those that sleep easier are most likely recognized as change agents. Change agents are those who are equipped with extraordinary skills that allow them to anticipate and “lead” an organization through troubled and often chaotic business conditions. Many business organization experts will list the following as success characteristics of change agents:

Analytical
Change agents need to be able to quickly asses the data provided to them and to also recognize that additional data needs to be collected to understand trends and reveal unexpected events. This is someone who can read between the lines and determine if the analysis or numbers “smell right” or not.

Listener
An effective change manager is one who listens well. They cultivate listening opportunities and create an environment that invites information flow in their direction. They have the ability to hear critical comments about the company (even themselves) without shooting the messenger and process the input into timely action and change. Managers who listen and do nothing soon loose the interest of those best positioned to give valid feedback and help the company.

Mediator
Positive conflict resolution is the result of effective mediation where the parties involved are able to return to their respective responsibilities having reached a mutually acceptable agreement. Proactively seeking out and resolving conflict eases organization tension, significantly improves productivity and the adoption of new methods and practices.

Architect
The business model needs to be tailored to strategically meet various business conditions. Business models can quickly age and move from strategic to tactical and from offering differentiated high-value products and services to lower-value price-sensitive commodity products and services. An effective change agent will adjust the design of the business model to achieve and retain a high-value market position.

Teacher and Coach
Change is not adopted easily by most organizations. Change threatens people as it often represents moving into the unknown. An effective change agent will use good communication methods to explain the objectives of the change, teach key performers on what needs to be changed, how to do it and then coach them through the process. Using good feedback techniques the change agent manager will know where to look for problems and obstructions to change and work with individuals to resolve misunderstanding and encourage confidence to perform uncomfortable practices until they experience success.

How do you score as a change agent?
These are just a few of the characteristics and you may not be required to excel in all of them at the same time but you need to be ready to step up and apply the right ones when challenging business conditions occur. Seek others to help you determine where you score. Subordinates may not be the best source of feedback for this purpose. Uses business associates, an organized group of peer executives or an outside consultant to help give you perspective in this important part of your executive development and performance.

Get the Facts!

Our new innovative product on the new 747-400 was experiencing a high failure rate during installation. Boeing engineering pointed the finger back to us as producing a failure prone product. However, due to our recent adoption of SPC tools and processes the failure modes were not indicative of a manufacturing related defect or failure.

Boeing was new to the SPC process and even though they were dictating that many of their suppliers adopt it they put aside our SPC evidence and remained firm in their belief with non-SPC data as their basis. We made repeated requests for Boeing engineering to go out onto the assembly line and talk to the installers to get a first hand understanding of we configuration in which the units were failing. These requests went nowhere and were denied. They were hesitant to do their own due diligence and have engineering talk the installers to get further details – a classic engineering/manufacturing silo effect.

Coincidentally British Aerospace was also putting our product, same design different package, on their new regional commuter jet the BAE 146. I made a courtesy visit to their factory and they greeted me with the news of our product “failing on the line”. I took the opportunity to ask if I could go into an aircraft where the product was installed and talk to the installation team. They immediately complied in an interest to get to the bottom of the problem.

While I did not have any detail failure analysis of these units I suspected that the failures they were having were of the same order as those at Boeing. I was escorted into a selected aircraft that was in the stage of assembly where our product was installed. I was introduced to the supervisor who quickly confirmed that the units were failing at a high rate. I asked to talk to the actual person who installed the units. He was nearby and said that yes, the units were failing but that was not the whole story. When the installed unit failed he would install a second unit and if it failed he then tested the wiring harness and almost in every instance he discovered a short in the wiring harness that was damaging our product. Our product was in fact testing their wiring harness to see if it was defective or not – an expensive proposition.

I asked if the wiring harnesses were high pot tested and they did not know. The engineering manager that I was with took me over to the wiring assembly area where the harnesses were assembled on large tables. The supervisor there said that at that time the harnesses were not high pot tested but they had a request into management to purchase the test adapters and equipment for the test but it had not been approved.

I returned to Seattle and immediately called for a meeting with Boeing where I presented my findings from my visit to British Aerospace. They were somewhat skeptical that what happened at BAE would occur at Boeing. I requested that they provide evidence that the 747-400 harnesses were high pot tested. A week late Boeing engineering reported that in fact the cause of the failures of our product was resolved. An immediate change had been made in their wiring harness process to high pot test them before they were put on the aircraft. Boeing accepted responsibility for all of the return units the “failed” and further failures dropped to a near zero level.

When failure modes don’t add up, trace the problem to its root cause and understand the failure environment. Go to the source and “get the facts” to make sure you are getting the real story. Too often organizational barriers filter information which is further distorted as it is passed through multiple people on its way to you and even within your company. It is amazing how quickly problems can be solved when you have the complete information.

Get the facts!

Resolve Conflict Productively

Conflict in high performance organizations is unavoidable and can often lead to reduced productivity and ineffective employee teamwork but successful organizations are effective at resolving conflict and building on it. Too many owners and senior managers instill conflict so that they keep their organization on the edge. However, pointless and intentional conflict is non-productive leading to organizations that are ineffective, breeding mistrust and insecurity.

Several years ago client complained of a recurring incident with one of his key field project managers over what he considered to be core performance issue. I was familiar with the project manager and when I approached him on the subject he viewed the incident from a completely different perspective which revealed an obvious communication problem. I invited both the owner (my client) and the project manager to a breakfast meeting along with another peer project manager. I described the issue that was a concern to the owner and both project managers immediately described a broader set of circumstances that the owner was not considering when looking only at the one issue.

To his credit the owner recognized the problem immediately. While he was upset over the issue he had never taken the time to sit down and explain his reasoning on why he felt it was a job requirement that the project managers should perform first over all other priorities. His past method of dealing with it when he observed this occurring was to get excited and to take over instead of sitting down and going through what he felt should have been done and to understand why it had not been performed.

The project managers commented after the meeting that it was the first time that they had really talked about the business with the owner and that they now felt they had a good base line on which to discuss other issues with the owner instead of experiencing a blow up and confused signals as they interacted with him in the field.

Six months later I asked the owner how things were going with the project managers and he said that as a result of the breakfast meeting many other issues had been dealt with and the project mangers were doing very well and were now managing more project dollars – cost effectively – than they had before.

The key here was resolving the conflict quickly and establishing a foundation for communication and implementing a policy to resolve misunderstanding rather than carrying frustration and mistrust about on a daily basis. Resolving conflict is not a function of who wins and who loses but the company being more effective and productive with employees who are confident that they can interact effectively in demanding situations and when needed quickly get to the bottom of conflict issues, resolving them efficiently and in the end building a stronger organization.

If you are the owner of a company or senior manager look for ways to reveal conflict in your organization.

• Make contact with your employees informally so that they can see that you are approachable and can share issues of concern.
• Be proactive in discussing "conflict" issues that will encourage feedback and identify who and what are at issue.
• Follow-up to make sure that the conflict has not resurfaced under different cover.
• If necessary, remove chronic sources of conflict through reassignment, reorganization or release from the company.