In this commentary we will discuss: “How Small and Mid Sized Firms Grow” we will discuss evaluating growth in sales vs. profits

All we hear today is the importance of growth; but there is a big difference between profitable growth and growth just for the sake of growth. In its most basic terms growing sales is relatively easy, just sell your product or service at below cost. You will likely have all the sales you can handle as you are going bankrupt. Anyone can give away the store, but it takes a business person to make money at it.

Many firms manipulate their financial statements to make unprofitable sales look profitable, these are primarily public companies that need to keep their stock price up. But we will not be talking about creative accounting. Another way to grow is to get an order that at face value is not profitable, but through legitimate avenues such as cost reduction, becoming more efficient, restructuring and finding a way to add on charges. Sometimes one takes unprofitable business as a loss leader, to either secure profitable business later, or as an accommodation to an important client.

We will discuss here taking business “to be competitive” when that business was available for good reason, namely that no sensible competitor would take the order and there is no way the make it profitable, use it as a loss leader or to retain a good client. We are speaking not of understanding business economics and taking business for the sake of the top line and not figuring out its impact on the bottom line. It is surprising how many companies do this and not only take on business at a loss and further its impact on its line of credit and cash flow.

A good business person will often find a way to negotiate a better price by emphasizing quality, reliability, value added services, payment terms and the like. The key here is to get with the person who values these items as opposed to procurement and only cares about the lowest price they can get regardless of the financial impact it may have on their company as “that’s my job”. The good business person will try to bring into the meeting those who will be impacted by just getting the lowest price that procurement hung them with and objects that one gets what they pay for. This is particularly effective where someone’s bonus will suffer by this type of thinking and they will become your ally, pushing back on unreasonable pricing that they and the company as a whole will ultimately suffer for financially.  And when nothing works be able to walk away from a bad deal.

In our next blog we will discuss the value of building a brand name.

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 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.

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

In order to grow one can not rely simply on their current clients to feed them more business. They need to prospect for new business. They can do this by finding new opportunities with their current clients or prospecting for new business with accounts not presently serviced.

The first step is to find other department and people with decision making authority for your service in other parts of the company that you are currently serving. Nothing works better then an internal reference and it is surprising how many people deal with one person or department within an organization, not asking their contact to help then network within that company for more business. You may have to link through several people to find the right person, but keep on plugging. You may even find that other people in your own company are trying to solicit business from your company, while you already have an in that you are not cultivating.

The next step is to determine who are prospect that you should try to do business with. The sources you can use are many, including personal contact, networking through those same contacts, using the Internet to search for companies in your line of business, in your market area, buying a contact list that are available from dozens of marketing firms, reading the newspapers and blogs to find leads, going to industry association meetings and webinars, checking back with prior clients and reactivating them, etc.

Once you have your universe of prospects you need to find out which ones are worthwhile to spend your time in cultivating. You can glean this from going back to the sources noted above and queering them as to the market potential represented by the prospects in terms of size of the company, how large they are with respect to the services that you offer, upgrading your purchased contact list to indicate market potential with your marketing niche, etc. If you can find out whose business is completely locked up and their client is totally satisfied you can eliminate those who are theoretically a great prospect, but are practically not. This is not always very easy, but necessary.

You then want to determine who may not be fully satisfied with the services they are getting, who is growing and should have needs, who is in the news or the blogosphere which can provide valuable contact tips, etc. Once you have all this information you can rank people from the highest to the lowest on the potential scale. It is then time to determine how to contact them, referral, email, telephone call, etc. and how to set yourself apart with a value proposition, but that is part of another discussion.

In our next blog we will discuss how to maximize the market value of your business.

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.

Who Is After Your Clients?

In this part of the series: “How Small & Mid Sized Firms Grow” we will discuss finding out who is after your clients before it is too late.

Be assured that your clients are on some one else’s prospect list if they even have the possible worth of doing business with. The more visible they are, the larger they are, the greater a target they make. So how do you find out who may be after your clients and how to you defend your turf? In blog #14 we discussed retaining your clients. In this blog we will look at this from a different perspective, that of finding out specifically who is on the hunt and setting up a proactive defense specifically for that competitor.

The first step in finding out who is going after your clients is to stay in touch with them and ask them a variety of questions such as: if they are still very satisfied with your services, do they feel that they are missing out on anything, do they feel that they are receiving a fair value for what they are paying for, and most importantly has anyone offered them something that you are not, or at a lower apparent price? If you ask this of a those people in the organization you will likely find out if you are under threat. This should be done periodically, as things change. If you are safe, that is great as your client knows that you are continuously looking to make sure they are fully satisfied with your service. If not, you now need to prod them as to who it is that is seeking to replace you. Someone at the company will share this with you if have a good relationship with them and ask the question in the right way.

Everyone has strengths and weaknesses, it then becomes your job to determine the weaknesses of your adversary and counter them with your strengths to ward off any potential penetration before it starts. We can start with what might appear to be lower prices. You can hopefully demonstrate that given your in depth knowledge of your client, your prices are not only fair, but once someone else comes in there are all sorts of risks to the client by having someone unfamiliar with the account service them. And the cost of these mistakes far outweigh some fractional front end low ball price. There are dozens of other such counters you can make once you know who is going after your business and do a bit of research about them and how to best defend yourself.

Companies do not grow by ignoring the competition. It makes the best companies stronger as they must become more competitive to survive. Those who are complacent, stagnate.

In our next blog we will discuss how to prospect and increase your market share.

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’ll be discussing how to win over prospects.

As noted in the last blog, a person’s first priority is to retain existing clients as that is far easier then  to look for and win over someone else’s clients. You are seeking to replace someone else who is not servicing a customer as well as you can. Your job is to get them to understand what they are missing by not doing business with you.

• Get the facts by meeting with them to find out what they are getting from your competition

• Try to replace them at a lower price, or as a loss leader with gaining other business at good prices

• Find out what they are not getting from their current vendor and be able to fill that void

• Provide benefits for doing business with you, i.e. discounts and customer appreciation perks

• With this information you can justify the higher price of your services

• Create a relationship with the decision maker who you would like to do business with

• Document how you will be a profit center via increased productivity, higher quality, etc.

• Provide value added services beyond the basic services they are getting now

• Become the best vendor out there, using all of the elements noted above

• Finally, ask for the business or what you have to do for this to happen

In our next blog, we will discuss Finding out who is after your clients before it is too late.

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’ll discuss how to retain clients.

The key to growth is first to retain ones existing client base, even before they look for prospects to convert into clients. Unless you are a public utility or have some sort of monopoly you always have competitors looking to grow by wooing away your clients. And it is far easier to hold onto your clients if you do things right then penetrating a new account.

So how does one retain clients? Here is a top 10 list, though one can add many more.

1. They can simply do any thing the client asks for, including lowering prices. This however may lead to retaining unprofitable business, particularly when one dominant client knows how valuable they are to you and continues to demand lower and lower prices.

2. They can volunteer price reductions, before the client requests them; lock them up.

3. They can negotiate trade offs for price concessions, such as higher volume.

4.  They can provide value added services to cost justify their prices, similar to what the airlines do with their frequent flyer programs, with various perks.

5. They can concentrate on building a special relationship so that pricing is not nearly as important as the quality, service, reliability and other factors that they provide. Building a relationship requires having the quality staff to be there for your client, providing constant attention to their needs, making sure you are asking for honest feedback so you can fix any perceived problems before they become an issue, attending to their needs and making them feel special, being a fountain of knowledge for them, etc.

6. They can quantify and document the value of their service in absolute dollar terms, so that their client fully understands that they are profit center for the client and not a cost center.

7. They can become an extension of their client business and make themselves critical and invaluable, so the client could not even think about separating themselves from you.

8. They can provide things to their client that their competitors can not; this may include creating important proprietary intellectual property.

9.  They can identify and protect their client from all sorts of legal and financial risks and do so more effectively then their competitors.

10. They can simply be the best competitor out there and make their client aware of this fact so they are not seriously tempted to look else ware for the products and services you provide.

Our next blog will discuss how to win over prospects.

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 discusses determining when it is time to expand and how to do this effectively.

 It is hard enough to run one operation, so why add to your misery and expand? The answer is that this may be true but if you want to become a large company you will have to do this and the more times you expand the easier it is to do so. So how does one go about growing? The first thing is to secure your base operation so that it is running well and you will not have to drop everything during an expansion to fix your core business. Having said that, nothing is ever perfect, but if it is running well enough you can start to consider growing. If things are under control you can expand business in your home base as well as start a new location.

There are a variety of ways to expand. Typically a company either sees a good business opportunity in a growing and underserved market, they have an anchor client that takes them there and expanded from there, or has an employee or solid person who knows that market and is a natural fit to start it up. Sometimes it is just a place one want to be and says lets go. Any of these can work provided that one does their homework first. On the negative side for example, if their new client is the only game in town and that is not enough to sustain them that would be nice to know. If they run the numbers and they will need $150,000 in terms of cash flow and they have only $100,000 with no wiggle room that should tell them don’t even start unless you can make ends meet.

Alternatively if they need $100,000 and have $150, 000 to invest then we have satisfied the first criteria, survival. They then need a game plan with specific responsibilities, due dates and facts to be confirmed, etc.

Next they need to verify if it will be worth all the effort to expand. If their base sales are $10,000,000 and the market potential if they get everything right is $400,000 in a flat market with severe price competition, a potential for a 2% return on sales (or $8,000 a year in incremental profit) and a loyal client base, there has to be better fishing grounds and the search for an expansion opportunity should continue. It is usually not that difficult to get a handle on the numbers and do some what if analysis to see how you can tweak the numbers to see if there is a way to make something work or satisfy yourself that its not worth the effort and risk.

Our next blog will discuss how to retain clients.

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.