In this next part of the series: “How Small and Mid Sized Firms Grow” we will discuss setting personal and company standards of ethics and values

We have read about the troubles that BP, Arthur Anderson, Enron, Lehman Brothers, and many other noted companies have gotten themselves into. We also know that this is but the tip of the iceberg and wonder how intelligent people can make such stupid decisions that either destroy their company and cost people their jobs and life savings, or at least cost their company billions of dollars and severely damage their reputations.

For small to mid sized companies that one never hears about, these mistakes prevent them from ever becoming the large companies referred to. They usually die quietly with only those working for them and those who do business directly with them knowing about their fate.

The simple and common connection between mega and small disasters is greed or incompetence. Companies that grow, prosper and survive are those who have some degree of ethics and values. They weight risk and reward and determine the right course of action. Let’s just look at the first two situations. In BP we had a culture of taking unwise risks to push production past safe limits and minimizing safeguards, which in the Gulf Oil cost them thousands of times more then they saved. In the Arthur Anderson case we had one of the most respected accounting firms succumbing to the huge profits of representing the Enron account that chose to ignore their own ethics and become a co-conspirator in the fraud that was perpetrated and sunk both companies.

So what should you as a much smaller company take away from this? First of all having a business is by definition taking a risk. Every day you quote prices, make commitments, rely on others to get the job done, etc. Then there are decisions that require taking on more risk, such as promising a delivery dale with liquidated damages if you don’t perform on time and per specifications, but offer a high profit in return. Then there are unacceptably high risk/reward situations where you “should” recognize you are actually betting the company on the outcome. This is what Arthur Anderson, once the paragon of ethics and virtue, did by acquiescing to demands that meant the end of their company, if they were ever discovered. In BP’s case they frequently took calculated risks (shortcuts), which became part of their culture which was well known in the industry. This is where ethics and values come in, as you start to stretch the limits of propriety further and further you should consider the consequences of your actions. It is a game of statistics and if you play the game long enough you will lose.

In our next blog we will discuss how to separate and evaluate the growth in sales vs. profits.

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.

In this next part of the series: “How Small and Mid Sized Firms Grow” we will discuss the pitfalls of working exclusively on using home grown solutions, instead of also learning from others to avoid their mistakes. This is the so called “not invented here syndrome”.

Every company has its own culture and way of doing things, some of those things lead to good results and others result in poor performance. Either way there is no company that can not benefit from some introspection and cross pollination of ideas to see what other companies and respected leaders have tried and see if any of those ideas can be utilized in their company. Many companies however think that they either know everything or are too insecure to try to learn new ways of doing things. Even the best performing companies are always looking to improve. To believe that the people in your organization have nothing to gain from the thousands of experts not already working for you leads complacency and loss of ones competitive edge. This does not mean that you adopt every new idea, but rather expose yourself to new ideas and see if there are not some colonels of truth in them that can be adopted by your company.

Many people think that if they are successful they have discovered the secrets of success and become insular. In today’s rapidly changing world nothing stays the same very long and it is constant innovation that is really the key to success over the long term.

CEO’s Jack Welsh and Jeffrey Immelt of GE famously launched their Work-Out program to break the old and outdated ways of thinking. They demanded their executives to be candid, flexible and fast to institute change in the company’s culture, habits and behavior. Their “Work-Out” program was perhaps the single most important element in making them the leader in their industry, using external consultants who helped design and deliver innovative solutions, from Noel Tichy and David Ulrich to Todd Jick Ron, Ashkenas and Steven Kerr. This process was documented in the book “The GE Work-Out: How to Implement GE’s Revolutionary Method for Busting Bureaucracy and Attacking Organizational Problems”. These concepts resulted in the reengineering of GE and supercharged their productivity. The principles of their Work-Out program was credited in permeating their entire management culture. I could name numerous other companies who have adopted the same concept, just as I could list many others who fell by the wayside by staying their current course.

So you may ask how does this relate to my small or mid sized company? The answer is that management principles are universal, the terminology and scalability may be different but the same rules and principles apply.

In our next blog we will discuss”: Setting both personal and company standards of ethics and values”.

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.

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

In this part of the series: “How Small and Mid Sized Firms Grow” we will discuss how best to grow:  geographically; new lines of business, acquisition and market penetration.

One is not forced to grow, they can stay exactly the way they are and have been. Some companies have the luxury to do this for a relatively long period of time and that may be just time for them but they will typically be in a small niche business that no one will care much about and will not grow. Alternatively, if they are large someone will come along and find a way to capture their market and for that is the immutable law of progress.

One has many alternatives to grow their business. One of the easiest ways to do this is to become a favored supplier to their customers, some of which are growing and will want you to serve them in new locations. Once you have an anchor client in a new geographic location you will likely be able to find new customers to serve. This strategy is one of the least risky ones to pursue as you have likely covered a good portion of your start up costs already. If you don’t have an anchor client you will have to determine the market size, growth potential, level of competition you will be facing, barriers to entry and a host of other factors to see which geographic market will be best to expand into.

Another way to grow is to add a new line of business. The closer allied it is to your core business the easier it will be for you to enter it as you know it and your clients are more ready to accept you as a new supplier. Being closely allied to your existing business does not however mean that is the best line of business to expand into. The growth rate may be low, as might be the margins, profit potential, ease in attracting new workers, etc. It may be better to start with a clean slate and figure out what the best line of business to be in and then determine what you have to do to get into that segment. We have had many clients re-engineer themselves as the opportunities in those segments were far better then what they had become accustomed to, This doesn’t mean this will be easy, without risk, or the best choice, but if you are considering a new line of business do you homework before settling on the “obvious” choice of something you are comfortable with.

The next thing is to expand via being acquired by someone to grow. It often represents the fastest path but if you don’t do your due diligence it can be a costly mistake. If you are a novice at this try to start small and be able to survive if you are wrong.

The fourth strategy (and there are far more options that one can consider) is simply to make a strong penetration of your existing market. This may take some combination of innovation, aggressive pricing, providing incentives and perks to gin up sales, hiring away your competitor’s best employees, etc.

In our next blog we will discuss learning from others to avoid the mistake of the “not invented here syndrome”.

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.

In this part of the series: “How Small and Mid Sized Firms Grow” we will discuss how to maximize the market value of your business.

 It obviously takes a willing buyer and seller to sell a business and as the saying goes, beauty is in the eye of the beholder. Having said that, how does one maximize the value of their business, whether or not they plan to sell their business? Having a highly marketable business is always a good thing. It is like a house, if it is in good repair and in a highly desirable neighborhood and marketplace one can feel comfortable knowing that for any reason they wanted to sell they could do so and have a ready source of income if they needed. Think of yourself as a potential buyer and all the things you would want in a company.

So what things maximize the market value of a company? Here a brief checklist:

1. A solid history of growing sales and profits, (EBITDA), without any gimmicks

2. A great reputation and a trade name that makes you a leader in your field

3. High gross margins that demonstrate you are not competing on price alone

4. Having sufficient profits, retained earrings and line of credit for most all eventualities

5. A loyal, stable and highly productive staff that is fairly compensated with retention tools

6. A diversified client base, where no client represents more the 15% of sales and profits

7. An owner who is not one of the key producers so relationships do not die when thye depart

8. Value added services, IP and products that differentiate you from your competitors

9. A business plan that provides a vision for growth and alternatives as conditions change

10. A tactical plan that anticipates events and so one can quickly deal with day to day problems

11. A team that  regularly evaluates everything around them for the winds of change

12. A management team that thinks for themselves, are trusted and have dealt with crisises

13. A set of metrics to evaluate their team and work with them to optimize their performance

14. A self critical, introspective team, not afraid to recognize mistakes and make changes

15. Understanding risk vs. reward to make moves when the relative payoff makes sense

16. The understanding of the cash flow and how far one can extend themselves

17. A company that does not settle for hiring 2^nd best staff, with a vigorous vetting process

18. A nurturing environment that encourages your employees to explore their ideas

19. No skeletons in the closet that when exposed will turn gold into dross

20. Future earningd that looks every bit as bright as the past, with a rational that backs that up

In our next blog we will consider growth options: geographically; new lines of business, acquisition, market penetration, etc.

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.