I recently copied this extract from an edition of Business Day:

"November 2009 marked the centenary of Peter Drucker’s birth – he died in 2005 just short of his 96th birthday – and the anniversary was celebrated in a series of events held round the world. He is widely regarded as the father of modern management thought, and debate centered on his views and legacy. What would he be advising us to do now? And what would be his response to the great financial and economic crisis the world is facing?
In fact, Drucker’s greatest virtues were his plain-spoken insights and practicality. If one word was mentioned more than any other at the conference, it was "purpose".
Drucker’s "five most important questions you will ever ask" should help any manager ensure that he or she leads a purpose-driven enterprise. Those questions are: What is our business (or mission)? Who is our customer? What does the customer value? What are our results? What is our plan? "

In reading through the article again, I was struck by those words: "The five most important questions you will ever ask", and by what they are:

• What is our business (or mission)?
• Who is our customer?
• What does the customer value?
• What are our results?
• What is our plan? "

As we launch into 2010 – and most of January is already over – I believe most small business owners need to take some quiet time aside, and answer these questions, about their own businesses.

Many of us will have grown stale. It may be business as usual, but it may also be that we shouldn’t have business as usual – because it wasn’t that great anyway! If we think that we’re going to make money in the same way we’ve always done, selling the same old products or services, with the same old technology – and sometimes the same old people, we really need to think again. Don’t just fade back into your business with a sigh! Grab it by the scruff of the neck and give it a good shake.

In an article entitled "Rethink Your Strategy: An Urgent Memo to the CEO" by Branstad, Jackson, and Banerji, they say this:

"As of October 2008, your job has changed. (The article was written a few months after the 2008 meltdown.) You need to readjust your mind-set for a future that looks very different than it did just a few months ago. These are extraordinary times to be in business. It is human nature to wait and hope that your company will emerge relatively unscathed from the downturn. But waiting is not an option. Nor is hoping! Instead, you must look objectively at your business and decide: Can you survive? Then swiftly and decisively pursue the course of action determined by the answer.
The weaker players should be scared. If your company is positioned poorly right now, it is time to face the facts. You are probably going to the wall – or, at best, your business will be much reduced. The most precious thing you have is time – and you may not have much. Figure out how to best position your assets and your people to give every piece of your company its best chance to succeed, even if under different ownership."

I have recently seen a few clients of ours "go to the wall"! And it has really saddened me. Most of my business focus is on helping businesses to grow from strength to strength, not in seeing them go down the proverbial slippery slope. What is worse is that I do not believe it was necessary for that to happen. Steps could have been taken to prevent it. So, why did it happen? Well, Captain Hindsight never lost a battle, but if we’re prepared to confront reality, the issue was one of poor management – in a variety of forms. Not making decisions when they needed to be made; not making decisions at all; making wrong decisions and then blaming someone else for them when they failed – all of these and more. In many ways, though, they did not go back to basics when they needed to.

Whenever I’ve been faced with making some tough business decisions, I always go "back to basics" first. And for me, those basics have been enshrined, if you like, in Drucker’s five questions. So, let’s unpack these a bit more:

• WHAT IS OUR BUSINESS?

Face up to it! Who are we? What do we sell? Do we need to change any of it? Is our product or service good? Is there a need in the market for it? Are we better than our competition? Is there another way we can do it? Does the market know us? This question is really at the heart of purpose, and right now, we need to be very clear on what the purpose or mission of our business is.

And now is not the time to come up with some boring, trite mission statement about your business – it needs to be bold, compelling – even passionate. If you’re an athletic shoes company like NIKE, there is very little purpose in a statement like: "To make and sell athletics shoes on a worldwide basis." That’s boring – and about as passionate as a piece of steak! Come up with something like they actually did – "Crush Reebok!" It may not sound very ‘nice’ but man, it certainly does have purpose!

This kind of corporate reflection is good for the business soul. It will help you to see what your business should be and could be. Then, once you’ve got that picture in mind, line it up with what you’ve got. The difference between the two pictures is what you’re going to have to pay attention to in the weeks ahead.

For my money – our businesses need to be relevant to the time and the place. There’s no point in trying to sell grandfather clocks and other collectables in an informal settlement – you need to be selling basic food and clothing.
And, be sure the focus is right! One client of mine has just made the discovery that it isn’t the product he sells, but the solutions he provides that’s important. His customers would buy any product from him, because they trust him. This changes his entire marketing strategy, even though the product he sells is unlikely to change too much.

• WHO IS OUR CUSTOMER?

Are they the ones who place small variable orders and expect you to jump for them? And do you? Are they the ones who make you wait for payment, – even if it’s only ten days over term – and then still expect their settlement discount? And is he your customer, or your salesman’s customer? Do you know him personally? If not, if your salesman leaves, your customer could leave with him. Where is this customer? Is he nearby or is the cost of transporting goods to him ravaging your profits? And there are a host of other questions which spring to mind under this heading.

Do some statistical research from your business data base. Analyze your sales per customer over the past two years? Analyze your profit per customer over the same period. What are the trends? If sales have been dropping off, it’s possible that two scenarios could be developing – the customer is buying elsewhere, or he’s going out of business. Either option needs your attention.

• WHAT DOES THE CUSTOMER VALUE?

In answering this question, I think sometimes we need to ask ourselves this: "How would I feel about buying from my business?" Would it be a pleasing experience? Would the products be of a suitably high quality and reasonably priced enough to keep me coming back? Would I be willing to refer the business to my best friends?

• WHAT ARE OUR RESULTS?

This is probably the most important question to answer in these days. You will be surprised how few small business owners actually know how well they are doing? Inevitably, a business is only as good as its cash flow, never mind the profit. If your cash flow is positive – and growing – you’re making a profit. If its negative, you’re not only making a loss but its likely you’re in debt and that’s growing.
It never ceases to amaze me how many small business owners think they can continue indefinitely trading at a loss, and still take the same personal drawings every month. Losses have to be funded. They’re either funded by the owner or by his creditors .

It’s also good to know your results so that you can find ways to improve on them. Just because you’re making a profit, doesn’t mean you’re doing well – you could be doing a hell of a lot better!

• WHAT IS OUR PLAN?

Once you’ve answered the other four questions, it will become obvious that you need a new plan – your business plan! Without getting into a whole lot of detail about who you are and what you’ve accomplished, make sure the plan simply states what your intent is, and how you expect to achieve it. I like to follow the pattern used by Jim Collins in his book "Beyond Entrepreneurship" because it keeps things simple. It should cover the following:

• An overview of where you’ll be heading.
• Comments on the products/services you will be providing.
• The kind of customer you will be supplying.
• The cash you’re going to need to fund this ‘new’ business.
• The people and organisation you’re going to need.

When this is all done, you’ll likely find that you’re feeling more motivated and energized about your business, and it will really take off.

I read in Business Day a few weeks back that we’re supposed to be coming out of the recession. The manufacturing sector, we’re told, is back on track. Well, I’ll reserve judgement for now, because I’m not seeing any fireworks out there at present. Still, if you’re not ‘back on track’ perhaps you need to consider this: In my last newsletter, I attempted to highlight the fact (as I believe it is a fact), that far from seeing an end to the recent recession, we may well be brewing up even more difficult times for business in the next few years.

My reasons for saying this are two-fold: firstly, we mustn’t overlook the impact on our economy of all the infrastructural development necessary to cater for the 2010 world cup, and all the ancillary business which sprang up as a result. Its been a bit of a feeding frenzy in some circles and like all good feasts, they do come to an end!
Secondly, it appears that our fairly restrictive labour laws tend to impair the effects of globalisation on our employment situation; employment lags behind the economy, so that the effects of a recession on employment are felt long after the effects on the economy. I think that has caused many to make bold statements like: South Africa has not been affected by the global recession to the extent the rest of the world has, – which are proving to be anything but true. (more…)

You may recall one of my earlier newsletters (Seeing the wood for the trees.) which introduced Richard Koch’s (The 80/20 Principle) ten golden rules for success. This newsletter is about the first of those rules.

The following extract is taken from the Gallup Organisation’s newsletter about Strengths management. While it clearly addresses how we as business owners should be managing the strengths of our employees, (and not just picking on their weaknesses) I felt it was important to consider from our own perspective – as business owners. The fact is this: whatever applies to employees, applies to us. If we are busy, busy, busy – operating in areas of weakness, or potential weakness, our motivation is going to go down, and so will our success rate. Let’s just consider these statements: (more…)

The business world is a large, lonely place for many small entrepreneurs. Competition is fierce, access to sufficient capital is difficult and making every Rand count becomes harder and harder. Add to that a culture of non-payment by many small businesses today and the seemingly mercenary attitude of most of the large banks, and it becomes easy to ask the question, “Why did I ever decide to get into my own business?”

Most of us who are entrepreneurs have asked that question from time to time. Even though it’s a struggle, we probably wouldn’t ever trade the hassles for the freedom and the sense of being in charge of our own destiny.

Yet, – it can be very lonely, not having anyone on tap to discuss things with. Owning and managing a small business can be very lonely. Sure, you’re surrounded by people – employees, customers, suppliers – yet its in those quiet moments before a storm; those times when big decisions need to be made; when all seems against you – its then you can feel at your loneliest. (more…)

Extending credit to customers can be very risky, especially these days when job security is a thing of the past. Nowadays, we have a highly mobile working population in South Africa who can be difficult to trace. We also have a New Credit Act which can work against you if you don’t take proper care, AND PLEASE TAKE THIS SERIOUSLY.

If customer expectations or the nature of your business compels you to sell on credit, you need to manage the risk with a great deal of diligence.

• Customers who pay late (or not at all) cost you money by
• reducing your cash flow and
• directing your time towards collections rather than making more sales.

Bad debts, however, are inevitable for most businesses. The level will depend on your industry.

As a guideline for an acceptable maximum you can compare the cost of bad debts with the cost of insuring your book debts.

One of the best ways to manage your credit risk is to ensure that you have the basics right, and that all your employees involved in the sales and collections process know and understand a sound and simple credit policy. Used consistently, a well conceived credit policy helps you avoid the cost and frustration of handling late paying customers.

Here are nine points to consider which will help you create a simple but effective credit policy for your business:

• Decide who you’re going to offer credit to – all customers, for large orders or amounts of Rx or more, those who purchase at least x times per week/month, longstanding customers of x months or more.
• Decide on how you’re going to verify the credit-worthiness of customers. Will it be by ordering a credit report, checking references, or both?
• Fix the maximum amount of credit you will offer, AND STICK TO IT.
• Lay down guidelines for reducing credit limits. It may be reduced if the customer has a poor credit rating, an unreliable payment history, or one or more overdue bills.
• Decide on the credit terms you will offer. It may be deposit with balance due upon delivery, deposit with periodic progress payments, net 30 days or even COD.
• Be clear on the incentives you will offer for early payment. These can take the form of 2,5% discount for payment within 30 days of invoice, higher credit terms for customers who pay bills early, or just sending thank-you notes to customers who pay on time.
• Decide on action to take as a result of late payment by customers. It could include charging a Late Fees of Rx, and/or finance charges of x% (though there are now implications caused by the New Credit Act in this one), reducing credit limits or even a revocation of credit privileges.
• Formulate a clear-cut collection procedure. For example, if bills are over due by:

• 1 day  – we call the customer
• 7 days  – we call the customer
• 14 days  – we call the customer and mail a firm letter requesting payment
• 21 days  – we call the customer
• 28 days  – we mail a collections notice
• 45 days  – we send the account to a collections agency.

• Decide how you’re going to handle cancellations and refunds. It may be that they will be billed in full, billed proportional to work completed, refunds may be granted within x days of purchase, or even a ‘satisfaction guaranteed or money back’ commitment.

It has been my experience that businesses that are struggling to keep afloat tend to chase turnover, almost at any cost, to keep their cash flow ticking over. This is extremely dangerous and can be terminal. Bad paying customers are simply not worth selling on credit to. In fact, no business is better than bad business!

Collecting the debt invariably involves everyone in the business to a greater or lesser degree, and the cost of this can very easily exceed the profit generated by the sale, never mind the loss of opportunity to do good business! If the bad payer really wants your product he will find some way to pay you cash for it, so hold out for that. If he decides to go somewhere else – well, someone else’s loss won’t put your business into liquidation!

If you have to use a Collection Agency, check out its credentials first. A couple of years ago I decided to use an agency that advertised its rates at 15% of amounts collected. I discovered some time later that they had collected the money and had not paid it across to me. I eventually had to hand them over to Attorneys for collection, which really added insult to injury.

No one likes chasing people for money – it seems to be the job no one wants to do.  If you don’t – well, the results are obvious!  If you want peace, prepare for war!

THIS INSIGHT IS ACTUALLY A REPEAT OF ONE I DID SOME SIX YEARS AGO.  I’VE UPDATED IT A BIT, AND I THINK IT’S RELEVANT TO THESE DAYS, AND OUR PROBLEMS WITH CLUTTER!

You will all have heard the question which goes like: “How do you eat an elephant?”, and followed by the answer, “One bite at a time!”?

Everyone usually laughs knowingly, nods sagely and with a huge sigh, carries on doing exactly what they were doing before – struggling through the clutter in their lives! This topic has been coming up quite regularly in conversations I’ve had with a variety of clients. What I’ve started to realise is that it actually defines the paralysis many of us suffer when faced with seemingly insurmountable obstacles, – be they business or personal in nature. It’s probably never been as difficult in business as it is right now.

Just yesterday, one of my clients was expressing his frustration in not being able to do all the things he needed to do to sort his business out, and the thought of it was keeping him awake at night, bringing on panic attacks and generally de-motivating him. He knows what needs to be done, but the thought of all of it was proving too much. (more…)

I am sure you will find the following comments from John Maxwell to be very helpful in these trying times:

“One of the common denominators of successful people is a single-minded focus that allows them to concentrate on first things first. Ralph Waldo Emerson wrote in “The Conduct of Life”, “Concentration is the secret of strength in politics, in war, in trade, in short, in all of human affairs.” While many people squander their physical and mental abilities, successful people learn how to focus, concentrate, and persist.

Yet even those with a clear sense of purpose sometimes lose their focus and their ability to concentrate on priorities.

Why?

I’ve found it is usually the result of too much internal clutter. I’ve identified four types of clutter that I strive to keep out of my life. The benefit is that I’m much better able to concentrate on that which I do best.

Emotional clutter.
This is the relational baggage that can accumulate when we don’t forgive those who have wronged us, when we hold a grudge, or when we carry a chip on our shoulder because of a grievance long past. The price of holding on to emotional clutter is too high. Not only will it steal energy from your focus, but it has serious emotional and spiritual consequences, as well.

Administrative clutter.
Early on I discovered the need for a system to help me deal with multiple projects and multiple deadlines. I have at least 20 things to accomplish in the next three days, and I will be able to get them all done because I have learned to organize so I don’t waste time looking around for things or wondering what comes next. There’s nothing magical about my system. Find one that works for you and do it.

Calendar clutter.
This is simply mastering the basic principle of time management; you must prioritise your work and spend your best effort on that which will yield the most return. Take a few moments to start listing all the things you’ve done in the last 24 hours that gave you no return whatsoever. Why did you do them? Do they need to be done at all, or can someone else better do them for you? I haven’t mowed my lawn in over 30 years. Some people like working in the yard. I don’t. Why would I give a couple of hours a week to something that has no payoff for me when I could give those same hours to concentrate on my priorities?

Trivia clutter.
I always lose at Trivial Pursuit (TM) because I don’t commit to memory anything that I can find quickly in a book or from someone else. It’s not that I have a bad memory – I just don’t see the value in allowing insignificant things to detract me from my focus. Most people try to live in the path of a flood of trivial phone calls, emails, and meetings. I say get rid of the trivia.

With clutter-free living, you’ll find your focus clear and your anxieties diminished. More importantly, you’ll see a level of productivity that you’ve never experienced before. You are set free to concentrate on that which you were created to accomplish.

How many of you out there own small jobbing or contracting businesses? By that, I mean you’re entirely reliant on irregular contract work, and you have to work hard to get it. In other words, you have no guarantees of work in the ensuing weeks or months, unless you quote your brains out; – and even then you may not be successful! Not that any of us are guaranteed work to come, but somehow jobbers – small contractors – are much worse off.

As far as I can see, there is one fundamental problem to running a jobbing business these days – the high fixed costs of employment are becoming almost impossible to control. Let’s take one small contractor as an example:

(more…)

In the past two decades or so, we have seen big business downsizing, rightsizing, unbundling and every other kind of ‘ing’ – and with an increase in the use of new technology, in many instances, became net job-shedders. Small business inevitably employs more people, and generally speaking, more people are self-employed around the world than are employed by the ‘big guys’. In spite of this, big business still gets more of the attention and ear of government.

Over the course of the past year, we have seen large companies around the world, being rescued by their respective governments, even though everyone knows that the reason for their problems has been mismanagement on an unparalleled scale. It seems so unfair!

What about the little guys? Who’s going to help them out – especially now? (more…)