In this part of the series: How Small & Mid Sized Firms Grow discusses how to innovate and encourage your team to seek out opportunities which is done by well managed companies.

In a fast changing world innovation has almost become critical to survival today for many companies. It was not that long ago that simply keeping things together and running an efficient business was enough to grow and remain profitable. This is no longer the case for more and more companies. The Internet, social media, computers, international competition, changing regulations and many other factors has led to the need to be relevant or become obsolete.

This is not just the case in high tech, but can be found everywhere as companies from Blockbuster and Ritz Camera Centers to Mervyns and Aloha Airlines, not to mention some 50,000 much smaller companies per year, who have gone bankrupt during the last 4 years. We will continue to go over modern management practices such as market analysis, metrics and pricing issues; but innovation is a different animal. It can not be quantified or so easily taught. It is an environment that when the right people are there, something just clicks and new ideas come out that that can turn a small company into something really special.

We have seen this with large companies such as Microsoft with Gates and Allen, Apple with Jobs and Wazniak and Google with Page and Brin. But there are thousands of people every day who have made just enough of an innovative difference to keep their employer ahead of the competition every day. It does not have come out of the R&D lab and be worthy of a patent to be called innovative. It might be a twist to a volume discount program just innovative enough to win you a large client, or listening closely enough to a client’s complaints to create an innovative solution that sets you apart from the competition.

So how does one create this environment? First of all this is more of an art then a science. But there are well managed companies like Google that set 20% of their peoples’ time aside to work outside the box to create their own next big idea. They select and then surround bright employees with other such people and things happened to make them the innovative leader they have become. Be sure however that free time does not become play time. This is where the chemistry has to have the right elements, mixed under the right conditions for the reaction to take place. Google takes great pains to select the right people, inculcates them with their philosophy, exposes them to the latest ideas, places them under a good group and watches for innovative concepts to percolate. You may not be high tech but the same formula can work anywhere.

Our next blog will discuss hiring, managing and motivating your sales reps. To see all articles in this series please go to  http://optimal-mgt.com/blog

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of budgeting, profit plans and post audits to determine if your business plans are really working. This process is routinely used by well managed companies.

Last time we discussed how to model your company and run various scenarios to determine how your company might perform under different conditions. This is however only part of the process. To determine if your assumptions and projections are correct you need to own up to the actual results that have resulted from your business plan. The concept of a business plan is to get the results right, not design a model that works in theory, but gets the right answer.

Many people think that budgeting an onerous accounting exercise where one goes through the motions of extrapolating what happened the last year or two and assuming that things will continue on the same path to arrive at next years sales and profit. Others believe that if they were successful in the past you will continue to be so in the future by doing the same old things. And others are under the impression that you can somehow reverse your fortunes by trying harder by making more sales calls and tinkering around the edges.

The budgeting process comes out of the creative profit or business plan which should be a thought provoking exercise. The accounting portion that generates the P&L is the result of that process and requires A) a well thought out program that recognizes the forces acting on the company that presents both opportunities and threats that must be proactively dealt with, B) specific tasks and responsibilities to find the best action plans to those opportunities and threats, C) deadline for specific actions to be taken, D) the sales and profit implications of these actions, E) your real world limitations in implementing your options  E) the selection of the best game plan after your options have been considered.

But the acid test is the post audit, which most small and mid sized companies do not perform. It is owning up to what you did right and wrong so that you will improve on your process as you move forward. It is not to find the culprit, but determine what you can learn to do better the next time. For example you may have said your growth is dependent on a new pricing schedule and that in fact was not as well received as hoped for. An early post audit will determine that and allow you to fix things. While waiting too long will lock in your poor decision and not allow you to change things until it’s too late.

In our next blog, we will discuss how to innovate and encourage your team to seek out opportunities. To see all articles in this series please go to  http://optimal-mgt.com/blog

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of how large well managed companies use modeling for their company and do what if analysis.

Any company can be broken down into the key components to describe how it operates. These are the variables which can be changed to determine how the company will do as conditions change, for better or worse. All well managed companies create a model of their operations and flex these variables to determine what happens to the company’s performance under different circumstances. There may be many such models for different aspects of the companies business and as many of these can be developed as necessary.

One does not need to be a math wiz to do this, but simply understand the fundamentals of their business “drivers” or influences and have someone with the math skills translate that understanding into a simple Excel Spreadsheet to determine the consequences of change. This brings us to the concept of change, for nothing in this world is either constant nor is everything under your control. There are things that you can pretty much control such as new product introduction, compensation plans, staff size and so called “fixed costs”. Then there are those things you can’t control but need to determine how you will react to, such as the economy, government policies and the competition. The integration of these two factors, internal and external variables can be used to create models of your company.

 This does not mean that you can be certain of the outcome as things change, but you can do a far better job in being aware of those things that will impact you. You can then figure out how you will either be impacted by events or better yet how you will proactively react (or anticipate) events in your best interest.

So let’s do a simple example. You determine your sales and the size of the market to first determine your market share. You see than there is a good possibility of a downturn and know that unless you provide better service, lower your price or reduce your cost, you will likely have lower profits. You might determine the sensitivity of your volume to prices. In a commodity market this will likely be rather high. In a specialty market, one where your have a valuable brand name, recognized higher quality or special customer relationships you will be more immune, but not likely to be bulletproof. This information can be translated into a pricing model.

Compensation plans and staff size are under your control, for example structuring you comp plans with a modest base and high commission to provide your staff with an incentive to hold or increase market share in a declining market or else pay less if sales fall. Likewise, staff size and “fixed costs” can be reduced if conditions warrant. Integrating these concepts as well as, as many more elements are necessary can be translated into a business model that you can use to run your company more efficiently.  Running several models under different conditions will allow you to determine how to best deal with changing events.

In our next blog we will discuss budgeting, profit plans and post audit to determine if your plans are really working. To see all articles in this series visit, Optimal Management.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of “going with your gut” and what this really means when we are talking about how large well managed companies make decisions.

The best example of someone associated with making decisions from their gut was Jack Welch who when he ran GE for over some 2 decades and was generally considered to be the best leader of his day. He famously stated in his best seller Straight from the Gut that he used a blend of instinctual approaches with solid analytical work in arriving at his decisions.

Welch was intolerant of bureaucracies; he cut waste and efficiency and insisted on getting the unvarnished facts to make decisions. As an engineer by training, he measured and compared every metric he though would be helpful to getting things right. He invested heavily in information systems, such as: their Six Sigma System, 4E programs, QMI marketing systems and an array of matrices and grids for cutting through the clutter to make quick decisions. He promoted winners and terminated the lowest performers in the company.  He was brutally opportunistic which others considered ruthless. He was known as Neutron Jack, wiping out tiers of management while leaving buildings standing for better use. His mantra was to have a “boundryless” market where assets were redeployed to wherever they could do the most long term good.

Yet, one should not be confused with what he called a “gut feeling” based on years of experience for him to come up with the knowledge of what needed to be done and a the common and misconstrued concept of a gut feeling. That is Jack did not wasting time doing more and more analysis then what was needed to be quite certain of what needed to be done. This is what is often called paralysis through analysis. When you have gathered enough evidence to know the answer, simply make a decision. Jack shorthand name for his decision making process as “straight from the gut”, but this was misinterpreted as using hunches instead of his informed decision making process and even perhaps because it name might have helped sell books.

This is very different from someone who might go to the track and bet on a horse named Brazil because he as going to Rio the following week and had a gut feeling that would be a good wager. More recently, Jack’s gut did get him into hot water recently when his political biases were used in his gut assessment, saying the reduction in the BLS unemployment rate just before the Presidential election couldn’t possibly be right. As future monthly data was released the rate remained steady it became apparent the data was not manipulated for the election.

In the last blog, we discussed minimizing risk, the use of cost benefit analysis and creating a vision for the future. In our next blog, will discuss how to model your company and to do “what if analysis”. To see all articles in this series please go to LinkedIn Mike Neidle or Optimal Management’s website.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

In this part of the multipart series: “How Small and Mid Sized Firms Grow” deals with taking calculated risks and doing a cost/benefit analysis.

Business is all about taking risk. If you are not willing to take risks you should not own a business. This brings us to the subject of probability. There are no guarantees that even the best analysis will lead to intended results, but it does increase the probability of the outcome being right, that is the odds are increased when you analyze things before you act. Then we have the cost/benefit analysis, or ratio of how much it costs to do something compared to the potential benefit derived. If the cost is very low you might be willing to make a higher wager even if the probability of succeeding is low. Likewise if the benefit is very high you may make a wager knowing the probability of winning is very low. These two events help explain why millions of people buy lottery tickets.

But there are different kinds of risks. A decision based on a hunch is not a wise bet unless the stakes are rather small and the payoffs high. There are hunches which are based either on prior experiences or just ones feelings or instincts. Those based on prior experiences are often a short cut of all the calculations that go into an analysis and may work out well when the conditions are the same as those seen before.

We will concentrate here on how most well run companies evaluate risks. This is by reviewing your options and only then deciding which among them are the best choices to make. Good business people start this process by narrowing down the choices before they start their analysis or analyzing the choices become overwhelming. But they need the facts, not all the facts mind you, just the critical ones or decisions will lead to procrastination and never making a choice. Facts may change however due to things like the economy, competitive conditions, the staff you have to implement things, wildcards, etc. So a periodic review of your “facts” is necessary. What might be a good decision today may not be good later. These things may change facts into variables and should then be treated as such by running various scenarios under different conditions. Also don’t prejudice your decision on which risks to take before you do an analysis or you will influence the outcome, consciously or unconsciously.

So let’s try an example. You are considering opening a new office vs. expansion of your existing facility. You can pin down the market demographics, fixed costs and investment, manning levels and comp plans, your competitive advantages, the number of competitors, available, line of credit and capital, etc. You have as variables, future economic conditions, prices and margins, demand and volume, competitive reactions, etc. So you then run out multiple scenarios using as constants the things you pretty much know and making changes to the variables to see which of those cases give you the best sales growth, increased profits, value of your company, low likelihood of wildcard events, have favorable cost/benefit ratios, can still succeed even with changes in staff, fit within your budget, etc… and select you best option. We will deal with tracking results and making changes in future discussions.

In the last blog, we discussed having a vision for the future. A vision must be converted into action if it is to be more then wishful and then weighing the risks of those actions.

 We welcome your questions as to personal and business challenges you face in order to grow

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.