Posts Tagged ‘owner’

4 Unusual Economic Indicators For The Small Business Owner

July 27, 2010

by Doug Smith, President, The Woodhaven Group

Oh, if we could only predict the future!

Every business owner or CEO has certain indicators they use to get a “read” on how their company is performing.  Based upon what those indicators tell the owner, he will adjust strategy going forward.  Business cash flow, profit and net worth depend on the owner making the correct decisions.  I have found most owners do a good job of reacting and making the necessary adjustments.

Unfortunately, all businesses are impacted by changes in the economy over which there is no control.

Should an owner invest in a new product line, open a new branch or cut back overhead in anticipation of rocky economic headwinds?  Those are tough decisions to make.

There are plenty of economic indicators released by the government such as housing starts, consumer price index, unemployment rates, consumer confidence index, and on and on.

They are all important to consider but, sometimes, there is information overload.  Compounding the confusion is when the government “restates” an economic indicator after it is released.

I have tended to include a few indicators of my own that I layer into my decision-making.  I will be the first to say they are not perfect and I do not look at them only in making a final decision, but these indicators do represent dollars spent that are impacting the economy one way or the other.

Here they are:

  1. Freight volumes for truckload carriers.  About 2/3 of the freight in the US economy moves by trucks.  This can be an indicator of inventory levels, consumer spending, manufacturing activity, and overall condition of the economy.  Lots of trucks on the highways is a good thing!
  2. UPS and FedEx shipments.  If the economy is tanking then  overnight shipments of almost anything will drop.  A month to month upward trend from these 2 companies is an indicator things are improving.
  3. Airline travel.  If overall airline travel is increasing that means business people are travelling to sell and close deals.  Even in the era of video conferencing, there is still no substitute for face to face meetings.
  4. Hotel vacancies.  Similar to air travel, hotels operating near capacity can be an indicator of more business occurring, more families vacationing and a bump up in conventions and conferences being attended. 

In my opinion, these 4 indicators are a reflection of how the economy is doing.  A downward trend for a number of months in each would probably cause me to think twice before charging ahead with expansion plans.

I would be interested to hear if you have your own unusual economic indicators that you follow.

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6 Tough Love Cash Management Tips

July 10, 2010

by Doug Smith, President, The Woodhaven Group

Ok, so your business cash flow is in real trouble.

The expected sales increase you anticipated after changing the marketing strategy is not working. I mean it is really not working.

As a small business owner it seems like you are a quarterback operating the 2 minute offense just to get some cash in the door.

What can you do differently to bring in cash?

Well I have walked in your shoes.  It’s not a pretty situation to be in.  Here are tips you can start doing before the sun goes down tonight:

  1. Let everyone know there will be nothing purchased in the company without it first going on a purchase order.  Then you have to personally sign off on the purchase order before it is processed.  If that delays a purchase 24 hours so be it.  Then you as owner sign every check.  Do not delegate this.  By signing checks you will discover who has circumvented the new system.  You will find that unnecessary spending and over spending will stop when everyone knows there will be an audience with you.
  2. Have your management team identify such things as old equipment, old machinery, vehicles not being used, obsolete inventory, and even unused furniture.  Then sell it.  Have a board posted in your office with the items listed and post the money received as each item is sold.
  3. Eliminate all service and maintenance contracts and replace with an hourly fee for service performed.  If your company really needs to cut back temporarily on expenses to generate cash this will do it.  You can always reinstate the service contracts later.
  4. Generate an upfront down payment  on all sales (unless you are a retail store where you get the full amount at the point of sale).  The sales department will balk at this as they will be concerned that a down payment will kill the sale.  It won’t.  Change the commission structure to pay less if  no down payment is received.  The top sales people won’t miss a beat.  They will get the down payment and be an example for the others.
  5. Go to your landlord and negotiate a 10% or more reduction on rent.  In  return offer to extend the term of the lease.  Make sure there is a clause in your lease that allows you to sublet unused space.  
  6. If you own your property or own large equipment then do a sale and leaseback.  Even if you owe on loans, you will convert your equity position into cash.

As an owner of a small business, sleeping at night is a good thing.  Use these 6 tips and take some pressure off of your cash flow position and your nerves.

Consult This Advisory Board To Improve Business Cash Flow

July 6, 2010

by Doug Smith, President, The Woodhaven Group

It can be lonely as the owner of a growing small to medium sized business.  Often a problem or opportunity may come up and as an owner you wished there was someone to bounce ideas off of that really understands your business.

Owners never have enough trusted advisors to turn to that really know what they are talking about and will shoot straight with them.

Oh yes, there are bankers, attorneys, and accountants and most of them mean well but have not run a business and had to meet cash flow deadlines.  The extent of their knowledge of your business and industry is what you have shown them. 

Here is who I have used over the years as an informal advisory board when I needed a second opinion or felt like I needed a fresh idea:  the CEO or National Sales Manager of my top supplier.

If your #1 supplier has done business with you for years then they probably know your company as well as you do.  They may know your industry even better than you.  You need to tap into that knowledge.

Make no mistake, top management at your #1 supplier has a vested interest in you doing well and your company growing it’s marketshare.  They want to help.  They want your business to be successful.

Unlike an attorney or banker, your supplier is in a unique position to observe and understand the trends taking place in your industry.  After all, the CEO and National Sales Manager are meeting with owners like you everyday across the country.  They know the difference between the superstar managers and the B-team.  They see changes happening in real-time. The existence of their own company depends upon the everyday business decisions being made by their clients. They cannot afford for those decisions to be wrong.

I have often used input from these individuals in my decision-making.  A few of the benefits I have gotten from my best suppliers have been:

  • A unique successful promotion I implemented that had worked for another company in a non-competing market in the country.  I did not have to resort to trial and error advertising.
  • Identified which benefits of the supplier’s product got the best results when featured in advertising spots.
  • Personal introduction to owners in other parts of the country similar to my company.  I then successfully developed a mutually beneficial relationship that has lasted over the years.
  • Suggestions for reputable suppliers in other product lines that other owners had used that did not compete with his company.
  • Cost savings ideas he had seen work in other companies that ended up increasing my business cash flow.
  • Marketing channels that were working or not working and why. 

Developing a close relationship with the CEO and top management of your supplier can also work in reverse.  You may find your opinion carrying more  weight when your supplier gets ready to redesign or upgrade the product you purchase.

The next time you have a problem that seems unsolvable, pickup the phone and run it by your #1 supplier.

It can be a win-win situation for both companies.

I Quit. Oh No! That Was My Top Customer!

June 23, 2010

by Doug Smith, President, The Woodhaven Group

One of the great “moments of truth” in the history of a business comes when a long time loyal customer quits and decides to take their business to the competition.

It can be like a family member dying.

When this happens, the sales, profit, and business cash flow of the company can take a major hit.

It can and should be a shock to everyone in the company.  I hope it never happens to you.  However, if it does there are 2 basic questions that must be answered immediately:

  1. Why did the customer leave?
  2. How do we get the customer back?

Here are 5 thoughts and questions I have on addressing why a long time customer left:

  1. First, the owner or CEO should personally be the one to analyze what happened.  It is not acceptable to lose an important customer or client and the responsibility falls primarily on the shoulders of the person at the top of the organization.  As a leader, you cannot be in the business of losing your top customers.
  2. If this customer found a reason to leave then it should be assumed that your company might be on the verge of losing other customers due to something you are doing or not doing.  This customer is like the canary in the mine.
  3. The owner or CEO should visit the other owner or CEO and have a heart to heart talk.  Find out exactly what the problem was that caused this decision and ask where the breakdown was occurring.  Chances are it was not one reason only.  Often there was an ongoing issue that was communicated repeatedly to the company, and in the opinion of your client, the issue was ignored or not taken seriously.
  4. Initiate immediately a listening campaign with your other large customers. It should be assumed that if the competitor persuaded one important customer to change then they will leverage that decision to go after your other top accounts.  A senior manager needs to visit your customer’s top management and find out if there are any problems brewing.
  5. The management team should meet back at headquarters and compare notes from all the conversations.  Are there common threads that require an action plan be put in place?  Some issues that may be identified are:
  • Has the processes in place to do business with your company become too complicated?  Has it just become too difficult to do business with your company?  For example, think of a customer service problem where the customer has to speak to numerous people and no decision is made.  Is your company lacking one point of contact for a customer to go to that would simplify the process or has your company become loaded with territorial silos.
  • Are your employees just going through the motions?  Are they taking customers for granted?  Is there a morale problem that impacts the relationship with all customers?  If so, why is there a morale issue?
  • Is there a growing quality problem?  Do finished products have mistakes and have to be remade?  Are shipments not delivered completely?  Are deadlines not met?
  • Do you have competitors now offering the same product or service as your core product and selling it at a lower price?  Has the competitor re-engineered your product to deliver more benefits?  Even a #1 product in the marketplace has to keep evolving to stay ahead of the competition.  

There may be other problems but it is my guess that one or  more of the above will be the cause of your business divorce. 

So, how do you get the customer back?

The reality of the situation is that you may not be able to.  Chances are the other company struggled for a long  time to arrive at this decision and will probably stick with it.

Regardless, here is what I would do:

  • Chances are the problem stemmed from a series of people issues.  I would put in place one point of contact and that person would only be the owner or CEO.  No one else.  If this is the real problem, then this solution will communicate how seriously the owner considers the situation.  
  • Schedule weekly meetings chaired by the CEO to review the status of the account with your lost customer’s management team.
  • Revisit with the customer’s CEO or owner the reasons why they chose to do business with your company to begin with.  Psychologically this allows the customer to resell themselves on what they liked about your company.  It also shifts the conversation from a negative to a positive one.
  • Identify the #1 feature that the customer likes and consider offering it at no  charge or reduced cost for a period of time.  Possibly throw in extended terms.  If you think it is too costly to do this ask yourself the cost of acquiring the new customers needed to replace the volume of this one top revenue generator.
  • If the customer is still reluctant to change back, ask if your company could take a reduced position in serving them instead of losing 100% of the business.  There is a good chance this strategy will work.   

One benefit coming out of this is that the CEO of your company will get a clearer picture of what is working and not working in the company.  That is a positive thing.

The best way to prevent this loss from happening again is to be proactive by making sure your management team is taking the following 4 actions:

  1. Listening to your customers
  2. Managing with timely accurate metrics to find where the company is falling down
  3. Keeping your employees motivated and focused on the customer and not themselves
  4. Making sure your value proposition and core products are in tune with the wants and needs of your target customer as well as the marketplace. 

In my opinion, losing a top customer is a leadership issue.  Sales, cash flow, profit and net worth will suffer.

Don’t let it happen to you.