Monthly Archives: April 2016

Watching out for red flags (Part 2)

LAST week, I highlighted the need to have a fundamentally sound business formula if a company wants to sustain its growth momentum amidst a tough and challenging marketplace.

In my speech at a Singapore Vietnam Business Forum held at Radisson Blu in Cebu last Wednesday, I reiterated the three pillars that are absolutely critical elements in growing the business enterprise. These three elements are strategy, structure and staffing.

If you granulate strategy, it primarily covers your vision, mission, value proposition, differentiation and goals. If the focus is on structure, the areas that must be given attention are culture, operations, distribution, revenue stream, customer service, partnerships, sourcing and controls. And finally, for staffing, the key metric is simple–it will all boil down to the right and qualified professionals that will carry your vision and growth plan in the next five to 10 years.

My speech was meant to reinforce my earlier article after I received a deluge of emails from mostly 2nd and 3rd generation family members collectively pointing to the grievous habit of senior generation leaders in solely focusing on the short term and mostly transactional way of running the enterprise and ignoring many red flags that will naturally compromise the viability of the business.

That said, I will now complete the list of red flags to educate and challenge business owners that sales is just one of the major pillars for businesses to sustain growth.

It’s all about inventory

Keep a firm grasp of inventories to avoid burdensome financing costs on excess inventory and to maintain liquidity. In the end, it should always be about forecasting and a good balance between sales velocity and keeping the right amount of inventory. An imbalance will always have cash flow implications.

Watch your accounts payable. It will haunt you to no end.

Keeping current on your payables is essential to retaining good credit status. However, you have to set priorities. Study who must be paid first to keep things running, followed by primary suppliers and so on.

The idea is to design a debt structure, which includes your payables position, banking relationship, financing terms and the need to factor receivables, that supports growth and doesn’t constrict cash flow.

Your profit and loss (P&L) is everything

Purchasing, labor and manufacturing overhead, and operating expenses, when ignored, can become burning costs. It is important that you “spend smarter” by tightening up routine expenses, examining the costs and options of things that are usually taken for granted (representation, transportation, etc.).

It’s all about hiring the right personnel

No business can survive and prosper without competent people. Qualified people can power the drive toward greater productivity and profitability. Pay them well to retain them. Constantly hiring and training personnel because of a high turnover rate due to a poor working culture is an additional operational expense.

Most entrepreneurs are aware that hiring an unqualified employee can do more harm than good. If you feel investing on training and skills is an expensive proposition, try ignorance. As the saying goes, “Pay them peanuts, you’ll end up getting monkeys!”

In the end, having the right HR plan and cultivating the right culture in the workplace will be reciprocated by a productive and educated workforce. Believe me, investing in people is worth every centavo.

Watching out for red flags (Part 1)

BUSINESS evolves on three fundamental pillars–strategy, structure and staffing.

Without one pillar, the whole ecosystem collapses. Entrepreneurs have the tendency to cut the process short. It is with certainty that they will end up growing the business and will pay the price of losing the business by default. And it’s all because of a heavy reliance on “gut” or “eyeball” management.

The current environment is fraught with dangers and all entrepreneurs will face the possibility of failure. And “popular wisdom” holds that failure is not only possible but probable for the small business owner seeking to launch his or her own enterprise. It has long been said that four out of five new businesses fail within five years of their establishment.

In an online magazine referenceforbusiness.com, business failure is defined as the closing of a business that results in financial loss for at least one of the business’s creditors. An associated term, business dissolution, refers to the formal termination or closure of a business as well, but with dissolution, financial loss (for the business owners or for the business’s creditors) is not necessarily a part of the equation.

Lots of small companies go out of business for reasons that probably shouldn’t be called “failure”. The owner may have gotten bored, may be disappointed with the returns, or may simply want to try a greener pasture. Nonetheless, thousands of small business ventures do fail every year. “Companies stumble for many reasons,” observed Clyton Christensen in Across the Board.

“Among them bureaucracy, arrogance, tired executive blood, poor planning, short-term investment horizons, inadequate skills and resources, and just plain bad luck.”

These factors—as well as myriad others—can have a debilitating impact on an operation, as many small business surveys will attest.

Failure to heed the warning signs

Most small business failures do not come out of the blue. Certainly, business failures that result from catastrophic natural disasters or the sudden death of a key business member cannot be anticipated, but most businesses expire as a result of more mundane factors.

New customer complaints and surges in returns are often early warning signs of operational problems. Basic financial tools such as balance sheets and financial statements, meanwhile, can be very helpful tools in helping business owners diagnose what is ailing their company.

Systems may be used in alerting the owner or executive to critical areas in his business so he could strengthen his management technique through some form of financial preventive medicine. A review of the following critical areas, from which danger signals may emanate, will alert business owners to their soft spots. Below are early warning signs that can escalate into clear and present dangers for the business:

Cash Management

A good entrepreneur should know where company funds are at all times. He/she must keep an eye on cash flow — the lifeblood of the business. Many elements such as payroll, equipment and supplies, etc., are predictable to the extent that they can be planned and provided for by means of an expertly prepared cash flow forecast.

Study what activities are not contributing their fair share to the maintenance of cash flow; these should be eliminated.

Understand what it takes to get a revolving line of credit before you start your business. It’s always easier to get money when you don’t need it, so don’t wait until you’re desperate. Develop your business plan using conservative projections and don’t be overly optimistic. Profitable, fast-growing businesses can also run into cash crunches that can ultimately lead to bankruptcy. That’s why ongoing cash-flow analysis—tracking the money coming in and going out of the business—is a must.

A business executive who is beset by multiple difficulties and responsibilities may call on a turnaround expert or coach to help him chart his needs — what to expect on the basis of current operations and how to monitor the cash flow to spot trouble as soon as it starts.

Concerns about accounts receivable

As interest rates rise and loans become harder to get, smart customers seek financing from suppliers by simply paying bills less promptly. Did you or your sales people ever surrender to the temptation to make a sale to a known credit risk — just for the sake of a sale? Do you have a collection procedure? Do you need a factor to smooth out the peaks and valleys of your cash flow, and for protection against bad debts?

Like the biology of plants, something is either growing or dying. Sales income is used to pay for expenses, so there is a clear financial impact of not having as much sales money available to pay for expenses. There is no better barometer of market/customer acceptance than revenue.

To be continued…

Lessons from the world’s youngest self-made billionaire (part 2)

I AM back in Saigon for work and education. And the past three days have been spent in meetings, sessions and exchanges with visionaries, owners and country heads of businesses. As a business coach, it makes real sense to reflect on Zuckerberg’s life and business lessons in a more personal manner. Thus, I will complete this article starting with the third lesson below. As always, having the right people can make a huge difference in running a business.

  1. People

In an article released in http://www.entrepreneur.com, Zuckerberg highlights the need to develop the habit of thinking in terms of the people inside and outside of your business who are responsible for every element of your sales, marketing strategies, and activities.

It’s amazing how many entrepreneurs will work extremely hard to think through every element of the marketing strategy and the marketing mix, and then pay little attention to the fact that every single decision and policy has to be carried out by a specific person, in a specific way. Your ability to select, recruit, hire and retain the proper people, with the skills and abilities to do the job you need to have done, is more important than everything else put together.

In his best-selling book “Good to Great”, Jim Collins discovered the most important factor applied by the best companies was that they first of all “got the right people on the bus, and the wrong people off the bus.” Once these companies had hired the right people, the second step was to “get the right people in the right seats on the bus.”

The most innovative companies allow their employees the freedom to develop their interests and to take risks. Facebook has an interview process that only selects employees who are the right fit for the company’s culture. Once they are in, they take part in intensive training that teaches them the “hacker way” of fast, creative coding that Zuckerberg prizes.

“I think as a company, if you can get those two things right–having a clear direction on what you are trying to do and bringing in great people who can execute on the stuff–then you can do pretty well,” Zuckerberg explains.

Lesson: Get the right people on board and wrong people off the bus. And where possible, hire for attitude, not skills. Skills can be taught, passion can’t.

  1. Product

To students and professionals of marketing out there, Mark has this to say: “To begin with, develop the habit of looking at your product as though you were an outside marketing consultant brought in to help your company decide whether or not it’s in the right business at this time. Ask critical questions such as, ‘Is your current product or service, or mix of products and services, appropriate and suitable for the market and the customers of today?’”

Facebook is utterly committed to its product. Every innovation is to further its goal of connecting people in the simplest way possible. Facebook’s philosophy is to “move fast and break things” and this has ensured the rapid growth that has allowed the company to lead. Zuckerberg’s complete belief in his product has also given him the strength to persevere with some of the most unpopular changes in the face of huge opposition, even within his own company.

When Zuckerberg announced Facebook as a platform, people thought he was crazy. But expansion into a platform has thrust the company into the next stage of successful growth.

Zuckerberg says, “The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better, and that nothing is ever complete…There’s a hacker mantra that you’ll hear a lot around Facebook offices: ‘Code wins arguments.’”

Lesson: Establish a culture that welcomes innovation. And have the courage to stick to your vision and be dedicated to proliferating the culture that helps execute on that vision in the most effective way.

  1. Partnerships

In a http://www.inc.com interview, Mark was very passionate on the need to define each partner’s role explicitly. He went on to say: “You do not want to overlap in your efforts. Before you get started, carve out who is responsible for what. These roles may change over time. But they must be established up front to avoid conflict. Partnerships are a never-ending work in progress. Don’t let issues that arise be swept under the rug. They always bubble to the surface anyway.”

No business leader can run a company all by himself. Success is a team sport. Great leaders recognize their own weaknesses as much as their strengths and bring in the right people to form partnerships that drive success. Whether it is investors, a management team, suppliers, distributors or retail partnerships, partnering with the right people is vital.

At Facebook, Zuckerberg provides the imagination, while Sheryl Sandberg, Facebook’s chief operating officer, provides the execution around his vision. Zuckerberg and Sandberg share the same values, complementary strengths, commitment, mutual trust and the mutual respect needed to continue to drive the company forwards.

“Sheryl has been my partner in running Facebook and has been central to our growth and success over the years.”

Lesson: The right partnership of imagination and execution is at the heart of a successful company.

Lessons from the world’s youngest self-made billionaire

YES, that’s right! I’m finally writing about Mark Zuckerberg. I had the privilege of lecturing at Harvard last February and was fascinated enough when a colleague brought me to Mark’s dorm inside the campus.

How a bunch of college students became game changers in an industry where practically every product is a commodity can be awe-inspiring.

The Facebook co-founder and CEO is the world’s richest Jew and the youngest self-made billionaire in history at age 23, thanks to Facebook’s IPO.

He is the biggest gainer in Forbes’ 2016 Billionaire’s List, moving up 10 spots last year to claim the ranking as the world’s sixth richest person. This tech executive and social media leader achieved the feat with a total net worth that Forbes estimated at $44.6 billion, up from $33.4 billion in the 2015 ranking. Since 2010, Time magazine has named Zuckerberg among the 100 wealthiest and most influential people in the world as a part of its “Person of the Year” distinction.

According to Wikipedia, Zuckerberg was born in 1984 in White Plains, New York, the son of dentist Edward Zuckerberg and psychiatrist Karen Kempner. He and his three sisters, Randi, Donna, and Arielle, were brought up in Dobbs Ferry, New York, a small Westchester County village about 21 miles (34 km) north of Midtown Manhattan.

Together with his college roommates and fellow Harvard University students Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes, Mark launched Facebook from Harvard’s dormitory rooms. The group then introduced Facebook to other campuses. Facebook expanded rapidly, with one billion users by 2012. Zuckerberg was involved in various legal disputes that were initiated by others in the group, who claimed a share of the company based upon their involvement during the development phase of Facebook.

In the process of building the world’s largest social network, Zuckerberg has had a lot of supporters, as well as critics. Whether you love him or hate him, the fact remains that this college dropout has built something that only a few on the planet had the privilege to build.

But what’s most fascinating is how he did it. In a http://www.inc. article, there are profound and fundamental lessons (5 Ps) that Zuckerberg can teach us about building and growing a strong and vibrant business. Those contemplating and starting the path towards entrepreneurship and even Family businesses can learn reflect on the following values:

  1. Passion

The most successful entrepreneurs are passionate about what they do. Zuckerberg has always been fascinated by building systems that connect people. His passion was always to make the world more open, sometimes radically so.

If you look at Facebook’s mission statement, its core hasn’t changed since inception. It states: “Facebook’s mission is to give people the power to share and make the world more open and connected.”

But first, let’s define what passion is. According to Oprah Winfrey, talk show host, actress, producer, philanthropist and entrepreneur, “Passion is energy. Feel the power that comes from focusing on what excites you.” I couldn’t agree with Oprah more.

Yes, Zuckerberg has always been passionate about using technology to connect people, but he has also put in the hard work to achieve it. Having passion for something means that you don’t give up. It gives you energy to work through difficulties. Where some people see failure, a passionate entrepreneur sees only a learning experience, a stepping stone to keep moving forward.

Mark says, “Passion is what turns a successful entrepreneur into a successful business leader: If you are driven by passion you won’t give up, no matter how long the journey, and you keep learning constantly.”

“Find that thing you are super passionate about. A lot of the founding principle of Facebook are that if people have access to more information and are more connected, it will make the world better; people will have more understanding, more empathy. That’s the guiding principle for me. On hard days, I really just step back, and that’s the thing that keeps me going,” says Zuckerberg.

Lesson: Passion fuels perseverance, one of the key ingredients of success.

  1. Purpose

The really great companies have a sense of purpose at the root of all that they do, from hiring employees, to attracting the right investors, to their marketing and their customer service. That sense of purpose breeds the sense of belonging, it sparks intense employee and customer loyalty. Great leaders (and great companies) create movements, not just products. Facebook isn’t just a social networking site, it is a way of staying in touch with people around the world, a place to bring people together and build communities, and a tool for sharing information.

By always keeping his purpose in mind, Zuckerberg has been able to focus on creating the best product for achieving this.

“At Facebook, we’re inspired by technologies that have revolutionized how people spread and consume information. We often talk about inventions like the printing press and the television; by simply making communication more efficient, they led to a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. They changed the way society was organized. They brought us closer together,” Zuckerberg says.

Lesson: Great companies don’t just create great products, they create movements.

To be continued.