Vision Building Exercise

Purpose of this exercise

A clear, shared vision for the business is essential.  It informs strategic decision-making, underpins performance of the management team and is the basis of effective communication to employees and staff.

This exercise helps you and your colleagues describe your vision for the business in a semi-standardised way.  This will allow you to compare different perspectives as a team and so come to a common vision.

Instructions

Appoint someone to keep track of time.

Read the guidelines below then write down your vision for the business.  Check back against the guidelines to see that you have incorporated them as far as possible.  Read it out to the rest of the team and discuss.

Guidelines - what makes a good Vision Statement?

-          It must be motivating for you.  It must be something that you think is worth achieving and which matches your values and beliefs

-          It should describe a particular point in time.  This might be when you plan to exit or when you plan to achieve “success” as you see it.  It should have a date

-          It should describe what the business will be in concrete terms – how large, what it will be known for, what it will be able to do

-          It should have a personal goal that describes how you will be spending your life.  This might include your working life or your personal life or the options you would have by then

-          It should have some concrete financial dimension – usually sale value, turnover or profit

Discussion
Appoint someone to take notes on a whiteboard or flipchart.

As each person’s vision is explained, look for areas of commonality and difference.  Are the differences fundamental or simply differences of degree?  Where are people’s values appearing?

Coalesce the discussion into bullet points – don’t worry about the detailed wording now.  Check these bullet points against the guidance above.  They will form the skeleton of your Vision Statement

Is Business Growth Optional?

A significant proportion of owner-managers are averse to growing their business.  Often the reasons put forward are lifestyle choice, reluctance to employ more staff or fear that quality will suffer.

They of course have a choice – but here are some reasons why growth is necessary for an owner-managed business:

-         Sub-scale businesses suffer from “feast and famine”.  Even relatively modest wins can overload the organisation whilst a slight downturn in sales can be life-threatening

-         A resilient client base implies a large number of clients and the ability to replace them.  It is less risky to be bigger

-         Clients, particularly  big important clients, are intolerant of suppliers who are unable or unwilling to grow to meet their demands

-        There is a minimum size at which a business becomes self-sustaining; that is, where the organisation survives the loss of any individual or client and the capability to survive and thrive is proceduralised within the business processes

-         To be compelling for staff an organisation has to have a vision of something bigger than just the people involved.  They want to be on a meaningful journey that allows them to achieve their potential

-         An organisation has to adapt, evolve and learn in order to survive in a changing environment.   Whilst smaller organisations may be more agile they struggle to carry the overhead of this development capability

-        The bigger members of a species generally get the most food and their pick of mates.  Business is an ecosystem and, all other things being equal, smaller businesses lose out to larger ones as the latter improve margins through economies of scale and spend more on marketing, product development and so forth

-         Even if you have a unique advantage over your competition it is advisable to sell more, invest in developing that advantage and so exclude competition from that space - or risk losing the advantage.  In this way, a behaviour aimed at survival leads to growth

-         Research shows that survival rates improve with business size, particularly where this is combined with a wider range of products*

So growth may or may not be an end in itself but is a by-product of survival - and in turn makes businesses more likely to survive.  Being too small is not a sustainable position.

 *“When is more better? The impact of business scale and scope on long-term business survival, while controlling for profitability”, Bercovitz & Mitchell, 2007

To learn more, contact Nick Bettes via his website

Why is it important to control the amount of stock you hold?

Why is it important to control the amount of stock you hold?

-         Holding stock is expensive.  You have to pay for the room to store it and you have money tied up in it that is not generating a return

-         Holding stock consumes cash.  If the value of stock you hold is growing then you are leaking cash from the business

-         Conversely, if you can reduce your stockholding (through sales rather than write-offs) then you inject cash into the business

-         Any stockholding is a buffer and so indicates an imperfect process

How can you limit the amount of stock you hold?

-         Limit the range of items you sell as far as possible within the constraints of your market proposition.  Ensure that specifying or purchasing anything else (“off-catalogue”) is subject to a higher level of control

-         Set up consignment stock arrangements (you hold the stock but only pay your supplier when you sell the item)

-         Incentivise or constrain your salespeople to sell slow-moving or obsolescent stock

-         Beware volume deals unless you are sure you can sell the stuff quickly

-         Ship older stock first – adopt a strict first-in-first-out approach

-         Avoid limited-life stock as far as possible within the constraints of your market proposition

-         Control purchasing so that only certain people are allowed to raise purchase orders, particularly where items are being purchased for direct supply or off-catalogue

-        Use an effective purchasing and inventory management system that allows you to monitor key ratios and drill into the detail if they drift

-         Make sure van stock or equivalent is included

-        Enforce stock receipt and issue controls and recording  even if you don’t have a special storeroom or a storekeeper.  Make effective stock control someone’s responsibility

-         Carry out a monthly stock-check and reconciliation – don’t leave it for a year

How do you know if you are holding the right amount of stock?

-         The right amount will vary by industry, company and time of year

-         You need to track the ratios that tell you that you have too little stock (stock-outs, delayed fulfilment or service, lost sales) as well as those that tell you that you have too much (slow-moving items, obsolete items, write-offs)

-         Stock turns (annual turnover/stock value) is a good top-level KPI

Take a look at further useful briefings on my website

Revenue Resilience: A Simple Guide

What is revenue resilience?

-         Not all revenue is equally certain.  A business which relies on winning a small number of large contracts each year may well earn the same revenue and profit as a business that gets its income from a large volume of contracted subscriptions and a third company that gets all its income from ad-hoc repair and maintenance across a moderate number of existing customers

o   In theory, the riskier nature of the project business should result in higher profit margins (returns to the shareholders) and the stable nature of the subscription business, lower - but this is not always the case in practice

o   Don’t confuse spreading payments for a project with spreading both the cost and the income by using a different business model.  The first impacts cash flow and actually increases risk – so should require an even higher return.

-         All other things being equal, businesses should strive for as much locked-in recurring revenue as possible

How can you translate one-off into recurring revenue?

-          Some examples of spreading payments are

o   A photocopier which is paid for by charging a small amount for every copy made

o   Mobile phones, where the phone is given free in return for a fixed term monthly contract

-         Each of these relies on a higher total income over the life of the contract to cover the cash flow hit and the risk of default.  It is also necessary to build in a compelling proposition to renew the contract before it expires in order to build revenue resilience

-          Some examples of additional recurring revenue are

o   Software license maintenance

o   Membership of a user group

o   Subscription services

o   Service and maintenance contracts

-         An alternative way of looking at this is separating future income from resource or asset limitations

o   Translate a single consultant’s time into a course to be sold online in perpetuity

What is the proposition for the customer?

-          Possible benefits that would induce a customer to sign up for a long-term contract are

o   Access to a continuous stream of new content

o   Access to special offers and discounts

o   A known fixed charge covering all repairs (a form of insurance)

o   The right to free future upgrades

o   Continuous tuning and maintenance of the original product

Customer concentration

-          One final source of revenue risk is over-reliance on a single or a few customers – avoid this

www.nickbettes.co.uk

Why do you need a sales commission scheme?

The underlying assumption is that rewarding salespeople financially for performance will encourage them to work harder and sell more in pursuit of those rewards.  This view is not borne out by academic research but in practice sales commission schemes are almost universally used.  A carefully-designed commission scheme when implemented on top of good management practices and a solid sales process is a useful management tool – but it is not a substitute for these things.

How to design a sales commission scheme

-          Commission schemes are usually implemented at individual level

-          Ensure that the rewards incentivise the behaviour you want.  You may want different behaviours from an account manager and a sales representative

-          Think carefully about the balance between basic salary and commission.  The two combined form the OTE (on-target earnings) and the balance will have a strong impact on the motivation and behaviour of the salesperson:

o   The lower the proportion of basic salary the higher the OTE, since you are transferring risk to the salesperson

o   A high basic may mean that salespeople do not need any sales to achieve their minimum acceptable income

o   A low basic may result in aggressive sales behaviours or high staff turnover

-          Decide whether the scheme should be based on sales revenue or gross margin:

o   Revenue is relatively easy to measure but may result in unwanted price discounting

o   Gross margin supports prices but is more difficult to measure and can be open to manipulation

-          Implement appropriate controls on the sales process:

o   A pricing model or pricelist

o   Sign-offs

o   Commission payments only after contracts are signed

-          Understand that every commission scheme will have unwanted side-effects:

o   If a salesperson feels they are not going to achieve targets they will hold back new opportunities to the next year

o   Individual targets will prevent salespeople working as a team or spending time on anything that does not contribute to the current target

o   Salespeople will go after the easiest opportunities, which might not be the ones that matter most strategically

-          Check that you can afford all possible outcomes and that better performance against the commission scheme results in improved net margins for the business under all circumstances

-          Make sure that commission targets in total exceed the sales income budget – assume a conservative proportion of target sales will actually be achieved

-          The overall commission scheme rules should be published annually and each salesperson should have a written copy of their own targets and rewards, signed by them and their manager

-          Review performance with each salesperson monthly

Find out more about our business advice, business coaching and business consultancy for buusiness owners in Reading, Berkshire on our website.

Are you indispensible?

Does every business decision have to be taken by you?
Are you unable to get away from the business for even a short time without things going wrong?

Ambitious business owners overcome many challenges to grow their business - but sometimes the biggest challenge is to make their business work without them. After the business reaches a certain point, owners find that their time, effort and knowledge is the main constraint on future growth.

They struggle to delegate anything meaningful to their staff, or develop their staff so tha they are ready for more responsibility.

This seminar "The Owners' Trap" will tell you how to break free of these constraints.

Learn how to raise your game by visiting my website.

Delegate to grow

If you can't delegate you'll never grow your business past the point where you are working as hard as you can.

- Most business need more staff as they grow. Delegation is an essential technique for successfully distributing the tasks that you perform currently to these new staff

- One day your business will have to run (and continue to grow) without you. Even if this day is not in your plans yet, a resilient well-run business cannot rely upon one person

- Development and growth are great motivators for most people – so you should be actively seeking to increase the responsibility you give to your staff

- Your objective should be to delegate everything you do

How do you delegate successfully?

- Classify your staff to assess their readiness for delegation – plot knowledge & ability against attitude, decide who is ready now and what needs to be done to ready the others

- Evaluate what you could or should delegate – and start with the assumption that everything could be delegated if you really wanted to

- From the above two points identify who could do what

- When you have chosen someone, clarify what the value proposition is from both sides – what would you gain and what would they gain. Why would they want to do it?

- Clarify expectations

o Timescale

o Definition of success

o Level and limits of authority and responsibility

- Give them time to come up with their own plan to achieve this – and then agree it together

- Communicate the change and the reasons to all staff (and externally as necessary)

- If necessary provide time management or other training

- Once you have delegated, plan and carry-out regular reviews

o Provide guidance so they stay on track

o Share your experience

o Give praise and feedback – make sure they are learning

o DON’T take it back at the first sign of trouble

When not to delegate:

- When you don’t understand the problem

- When it’s too late

- Key tasks that amount to “ownership”, such as setting strategy, values and culture

What stops you delegating?

- Fear

- Lack of trust in others

- Insecurity about your own role, capabilities and knowledge

It’s about LEADERSHIP.


This seminar "The Owners' Trap" will give you techniques for effective delegation - as well as the other steps you need to take to take your business on to the next level..

Learn how to raise your game by visiting my website.