“Work on Your Business, Not In It”
This popular, and somewhat cliched refrain, has for many years been suggested as a managerial and entrepreneurial best practice, and as "the dream" of business owners everywhere.
Because if only...
...We could extract ourselves from all of “the stuff” that takes up our business day: customers, prospects, employees, contractors, regulators, meetings, emails, texts, social media, and more...
...and we were good enough at delegation, at process improvement, at separating the truly important from the chaff and the noise then...
...We would be left with the time and the clear and reflective energy to:
A business hero of mine that does all this and more is Richard Branson. Branson is rightfully admired for having built from scratch one of the most iconic and successful brands and family of companies in business history, and having a ton of fun while doing it.
When studying a business legend like him, I look for "lever points" - small areas of emulation that when mindsets and behaviors are modified (sometimes just slightly) to match, big productivity gains result.
Here are three great Richard Branson “work more on your business” lever points to emulate:
#3. Write. Wherever he goes, Branson famously carries with him a journal. He says there is “strategic magic” in writing, greatly because most of us learned to think in academic environments at impressionable ages with pen and paper in hand.
Because of this early-age imprinting and because writing is inherently a "quiet" activity, business work done this way is naturally more reflective and strategic.
#2. The Day’s First Hour: Sharpen the Saw. In Richard Branson’s “Why I Wake Early” post, he notes:
No matter where I am in the world, I try to routinely wake up at around 5am. By rising early, I’m able to do some exercise and spend time with my family, which puts me in a great mind frame before getting down to business.
Investing in ourselves, from the day's get go - with exercise, meditation, spiritual reading, etc. - counteracts the entropy that can downgrade our business day into just a frenetic "one task to the next" squabble.
#1. The Proactive Comes First. Good executives react well to business stimuli - they return calls, they answer emails, when a co-worker says hello, they smile and say hello back, etc.
Great executives proactively create their business reality. They define and prioritize the most important projects. They cultivate the right relationships. They invest in their physical, mental, and spiritual well-being and in their capacity for creative work. They are the masters of their domains, of their fates.
And from this confident, unhurried, centered place, easily completed are more of their mission critical “on the business” projects, tasks, and to dos.
What is more fun in business than that?
The fundamental challenge of modern business is finding that right balance between tactics and strategy, between execution and innovation, between management and entrepreneurship.
Typically, as companies grow and age, they naturally become more tactical, more execution - focused.
In contrast, the “tabula rasa” of startups has traditionally been the best milieu for out-of-the-box strategy and innovation to thrive.
Now in the old days, businesses could do ok by being very good at just one of these.
Big businesses could sustain profitable franchises for years by leveraging their resource advantages to keep smaller competitors out and margins high.
As for startups, it was easy to stay in the “idea bubble.”
Investors were more patient and it often just wasn’t that obvious if your team and technology had the right stuff. You had time on your side.
But no longer - businesses must now be either good at both or they perish.
This is extremely stressful for most entrepreneurs and business owners, and especially for investors working to determine which of them to back.
Luckily, there is an easy shorthand to separate the superstar company wheat from the chaff.
It is the simple idea that super business PEOPLE must be all of these things too.
And superstar companies are really just ones where lots and lots of superstar people work.
So, find the superstar people, and the money will follow.
In his excellent book “The Global Achievement Gap,” author Tony Wagner flags seven crucial “superstar” skills to look for:
1. Critical thinking and problem solving
2. Collaboration across networks and leading by influence
3. Agility and adaptability
4. Initiative and entrepreneurship
5. Effective oral and written communication
6. Accessing and analyzing information
7. Curiosity and imagination
To this, let me add one more: Ambition.
Now I am not talking about the garden variety get good grades, go to a nice college, start a small business, complain about taxes and regulation and how hard it all is type ambition.
In this multi-billion person, highly educated, hard-working world of ours, that just doesn’t cut it.
No, the ambition I am talking about is one that burns so deep and hot that it is deeply dysfunctional.
An ambition that usually translates for sure into an insane, other-worldly work ethic, but one that goes beyond that.
It is an ambition that is channeled daily into ongoing personal and professional improvement and learning.
An ambition that leads to goals beyond the realistically possible.
Like Steve Jobs leading Apple into the music business, or Richard Branson Virgin into airlines, or Tony Hsieh with Zappos putting his life and considerable fortune on the line, for of all things, to sell shoes online.
This kind of ambition is the unifying force. It demands that everything be done right – strategy, tactics, innovation, execution, entrepreneurship, management.
Find this kind of ambition – channeled to ethical, capitalistic ends – and back it.
And you and the world will be better for it.
Effective executives avoid false choices, decisions where only limited, and variously unattractive, alternatives are considered.
Instead, when confronted with a false choice, the best executives reframe decisions into empowering, real choices like in the examples below:
False Choice Example #1: Data - based versus “Gut” - based decision making.
New school “Moneyball” executives say opinions and experience just don’t matter - that there is always more truth and wisdom in the numbers than in executive “intuition.”
“Old School” executives pooh-pooh this stuff and instead channel Henry Ford who famously said, “If I had asked people what they wanted, they would have said faster horses.”
The Real Choice: Data informs, but does not determine, key business decisions.
Time and effort is taken to collect and analyze key business data and metrics, but executives also draw upon their educations, their life and professional experiences, and the counsel of trusted advisors for the full and nuanced view.
And then, from a place of leadership and authority, decide.
False Choice Example #2: A flexible and virtual work culture or a “cheeks in seats” high accountability one.
Most modern professionals, especially younger ones, value and crave mobility and schedule flexibility.
The best companies desire access to global talent, especially from lower cost geographies and on flexible, pay as you go terms.
Yet with too much of a workforce too often toiling in their pajamas from their home offices, can the energy and day-to-day nitty-gritty management necessary for high accountability and performance be sustained?
Yes and no. Yes, it is far easier to manage and motivate human beings the way it has been done since time immemorial, through ongoing, in-person interaction but....
...this high value must be weighed against the unique costs and sometimes competitive disadvantages of doing so - the costs of office space, of commuting time and energy, and of geographically limiting access to talent, etc.
The Real Choice: Instead of evaluating the choice through the typical in-person versus virtual divide, instead let’s do so through the prism of great management by crystal-clear objectives versus the fuzzier, “attaboy” approach. This means quantitatively and explicitly defining:
False Choice #3: The work we want to do, as an organization, versus the work to pay the bills, we feel we need to do.
When leading strategic planning sessions, time and again I hear executives bemoan and belittle the clients they have now and how wonderful everything would be “if only” they could attract bigger organizations with bigger budgets that would hire them on a recurring revenue basis.
So the false choice becomes whether or not to ditch one’s current clients and instead rebrand/reposition/refocus marketing and sales efforts to attract and secure those beloved “A Listers.”
The Real Choice: Just cherish and and serve our current clients, even when are not of the size or of the strategic nature that we truly desire, by recognizing:
False Choice #4: Between, as an organization, doing social “good” and doing well - i.e. making a lot of money (of the timely genre of how tiresome it is to listen to politicians of all stripes blame businesses for the problems of our world?).
The Real Choice. 99.9% of the time, successful businesses, via offering great products and services that people want and are willing to pay for, enable a virtuous circle of positivity that makes our modern world possible. Through these successful businesses:
Yes, as entrepreneurs and executives seeking to be great, beware these false choices.
With just a little lateral thinking and planning the far better, and real choice, is there for the making.
The lifecycle of most businesses from the owner's perspective is generally the same. First, you start or buy the business. Then, you grow the business. And finally, at some point, you exit the business.
During these second and third phases the differences between higher quality and lower quality entrepreneurs is really apparent. Specifically, the best entrepreneurs are able to maximize the value of their businesses and exit them at a price substantially greater than the price they paid to acquire or start the business.
So, what do these entrepreneurs do that increases the value of their businesses to themselves and potential acquirers. Here are the eight most common things they do.
1. They position their companies in a clearly-defined niche
Your business must be the best it can be at what it does, without trying to be everything to everyone. A business that knows its customer segments, their needs and language, and how to solicit a response from them is a lot more valuable than one that is a mixture of everything, or an unknown in its market.
2. They coach their teams to run the business without them
Could other people ever run your business without you? They'll have to, if you're selling! So why not make this your goal from Day One?
Make an organizational chart of how your business will look when it's time to sell it. List all the various workers in marketing, operations, and those they report to. It's okay if it's just you or a handful of people currently filling all those roles. Doing this will help you organize who is going to do what in your business before you hire a new person.
Then, over time, you can find other people to fill those positions one by one until you're out of the picture.
3. They build relationships with customers
Goodwill, such as your reputation and brand in the minds of your current and prospective customers, is considered an asset on your company's balance sheet. You build this over time by treating people right and maintaining good relationships.
If you intend to sell your business someday, or if you just want to have the option, this is something you have to make a priority throughout the business's life. You can't just start doing it well suddenly in the final year. Relationships and recognition take time.
4. They make sure their businesses are stable
Make sure you're not overly dependent on any one customer, vendor, employee, or anything else. Diversify your strengths. If you have any "whale" customers that make up a large portion of your business, try to get at least 80% of your business from other people.
The new owner does not want to take the reins and have revenues drop in half in the event your biggest customer leaves.
5. They maximize their revenues
This one's self-evident, but deserves to be repeated. Make sure you leverage the 4 proven ways to increase your revenues: getting more customers, increasing your average order size, get customers to buy more frequently, and finding new ways to monetize your customers and visitors.
A company with higher revenues and which shows growing revenues will be more valuable and attractive to buyers.
6. They hold expenses accountable
You boost your net profit (and therefore the value) by reducing your expenses. However, no one ever shrank themselves into wealth. You're not going to grow your business by keeping expenses lower-but the numbers will increase as it grows.
Your goal is to keep the percentages the same, such as keeping advertising at 20% of your revenues whether earnings are $100,000 or $1,000,000 per year.
Basically, you'll want to make sure that budgets are made and followed, to keep spending within projected limits and to avoid costs creeping up that don't generate more revenue in return.
7. They keep great records
Keep excellent records of everything for the new owner-your files, databases, customer communications, marketing materials, financial records, employee agreements-everything.
Committing to do this now will make your life so much easier between now and the time you sell. Keep good records for your own efficiency, protection, and to make your business look a lot more attractive to buyers than one where all the records are filed away in the old owner's head.
8. They develop a plan for when it's "done" and ready to sell
I don't want you to have plans on top of plans, but each of these will take certain actions to make them happen. So here's what to do: Add these end results into your existing business plan, and use your best judgment when choosing how to make each of them happen in your company.
When it's all said and done, the next few years are going to go by whether you maximize your business' value or not. At the end of, say, 5 years, would you rather have a stable, attractive, polished business ready to sell for top dollar, or be left taking what you can get for what you have?
If it seems like a lot, remember you have until the time you sell to take care of these things. You don't have to do it all now! Just add these elements I described to your vision of what you want your company to be, and keep your eye on it until the big day finally comes.
Why do the vast majority of businesses get “stuck” - doing well enough to "stay alive" but not even close to being either a) a source of significant cash flow for their owners or b) an attractive acquisition candidate for a strategic or financial buyer?
Stuck companies face a daunting array of vexing challenges, almost all of which fall into one of these four "M" buckets - Money, Management, Model, and Marketplace.
Money. Most smaller and mid-sized businesses fight an ongoing, Sisyphean battle with money - pushing the cash flow boulder up the hill month after month, only to see payrolls, rents, materials, insurance and marketing & sales expenses drag bank balances down again and again.
However, losing at the money game is almost always a symptom of deeper problems than a cause in itself.
So when money problems arise, usually the best thing is to not focus on them but rather to confront their root causes, which almost always can be found in one of the remaining 3 “M’s” below.
Management. As described in my The Living Company post, in the end, a business is simply a “Collection of Humans” temporarily united toward a common cause.
As such, the “productive vitality” of the relationships between these humans is the most important indicator of its ultimate success, and can be well measured by answers to the questions below:
1. Would / do the people in the company recommend it as a great place to work?
2. Would / do true leaders view it as a place where they can build their careers / make their mark?
3. Does a productive camaraderie exist in the organization such that that those within it do more and better work than without?
If the answer to any of these questions is no, then a hard and sober look at the company's management and leadership is required (And, in all likelihood, the problem starts and ends right at the top).
Model (Business). I had the great fortune a few years ago to lead a change management assignment for a large, urban hospital here in Los Angeles where Mr. Charlie Munger - Warren Buffet's famed partner at Berkshire Hathaway - was Executive Chairman.
Mr. Munger's philosophy and credos were well steeped in the organization, of them my favorite was that for Mr. Munger all businesses – no matter the size, industry, or focus – could be evaluated as to their answer to one question, namely:
"Does the business consistently deliver high quality at low cost no matter the field of endeavor?"
Honestly measuring how one’s company ranks on this cost / quality spectrum relative to competition is a great predictor as to its long term success.
Marketplace. Following on Mr. Munger's wisdoms, try on one of Warren Buffet's most famous quotes:
“When an industry with a reputation for difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation intact."
Now, when it comes to industry and market analysis, most small and medium-sized companies undertake it anecdotally, if at all.
An investment of time and resources which almost universally yields a high ROI is to have an outside research firm undertake for the business a formal industry, competitive, market, and customer analysis.
It is almost impossible to pay too much for such work, as helping managers gain stronger focus as to what their right market positioning is (and what it is not!) is worth its weight in something far more precious than gold, opportunity cost.
Money. Management. Model. Marketplace.
Successful businesses get the last three right and the first naturally follows.
And, as they do, companies get “unstuck” and recapture the promise and excitement of the business' earliest days, but now with the cash flows and equity value that makes all of the hard work worthwhile.
The biggest aspiration of most entrepreneurs and business owners today is to grow and then sell their businesses. And why shouldn't it be? Selling your business creates more multi-millionaires than any other endeavor.
The key issue however is this: are you growing your business the right way, and are you focusing on the right things? You see, when it comes time for buyers to appraise the value of your business, they might find different things to be important than you do. And the last thing you want to do is focus your time developing aspects of your business that buyers don't value. Particularly when doing so forces you to neglect the things they do.
Below are five key questions that will determine your business' value. Answer them honestly. And then work to improve your position on each.
1. How replicable is your business?
When corporations consider buying a business, they make a "build" or "buy" decision. That is, they ask whether the time and money it would take to build a similar business from scratch is greater than the cost to buy the business from you now.
As such, the more unique and less replicable your business is, the better. So think about how replicable your business is. For example, could another company easily replicate your products or services? Could they easily hire and train a team as good as yours? Would it be simple for them to build a customer base like yours?
Answer these questions honestly and focus on building a profitable AND harder-to-replicate business going forward.
2. How easy will it be to run your business after acquisition?
Why do we pay a premium for a new automobile versus a used one? Because we know the new one doesn't have any problems. It hasn't gotten into any accidents. It doesn't have an oil leak, etc.
Similarly, acquirers will pay a premium for a business that is in great "running condition." Sure, every business will have its challenges, but a business that is simple to run, like a new car, will be highly valued.
So, let me ask you this: if you sold your business today and retired, would the new owner be able to easily run your business thereafter?
Always think how your business will run after you're gone. And if currently it wouldn't run smoothly, take actions now so that it will.
3. How has your business performed financially?
Unless the majority of the value of your company is in unique and patented technologies, buyers will thoroughly review your financial performance.
Clearly, they want to see strong revenues and profits. And they want growing revenues and profits. If your revenues or profits are on the decline, many buyers will project that decline will continue, and thus significantly decrease the valuation of your business. Fortunately the opposite is true, so do whatever you can to have strong and growing revenues and profits.
4. How stable is your customer base?
Your customers are the lifeblood of your business. The revenues you generate from them pay the bills and ideally fund great profits.
As such, acquirers will scrutinize your customer base. And the most important question is how stable that base is. For example, do they expect 50% of your customers to leave after the acquisition? Or 25%? Or 10%? Or none?
Clearly, the more stable your customer base, the more attractive you are to an acquirer. In the ideal situation, you have signed contracts with customers so the acquirer has complete certainty they will be retained. If not, ideally your customers have gotten in the habit of buying your products or services, or have a solid preference for them, so their continued patronage is likely.
Likewise, having a diversified customer base, as opposed to just a few very large clients, helps. Because with fewer, larger customers, there's more risk that one will leave and take a large chunk of your revenues with them.
5. What are the odds of sustainable future growth?
When you combine the four questions above, much of what the acquirer is trying to answer is what your odds are for future growth.
For instance, if you have a stable customer base, your financials are strong and growing, your business is unique, and it will be easy to run your business post acquisition, then your odds for future growth are great and you will have tons of suitors.
And tons of suitors interested in buying your business means that they will bid the value up and up, so when you sell, you will get a great premium. Which is probably one of the reasons you started your business in the first place. So do this, and make it happen!
Suggested Resource: If you want to build a sellable business, watch this free presentation called "Million Dollar Exits: How to Build a Business You Can Sell For Millions of Dollars." It starts by explaining the 3 most dangerous trends facing entrepreneurs today. Click here for this must-know information.
Risk is good. Not properly managing your risk is a dangerous leap.
- Evel Knievel
"The Strategy Paradox," Michael Raynor's classic book, should be required reading for executives interested in understanding the connection between risk and return in strategic planning and decision-making.
Raynor’s basic premise is that almost everyone, because of how human beings are fundamentally wired, over-rate the consequences of “things going bad” and consequently too often default to seemingly safe strategies.
Raynor goes on to make the point that while this may be fine from a personal health and safety perspective, it is quite sub-optimal when it comes to strategic decision-making.
The reasons, he cites, are both subtle and obvious.
The obvious reasons revolve around classic “agency” challenges - namely that there are a different set of incentives in place for owners versus operators of businesses.
The owners - i.e. the shareholders - main goal is investment return. As such, they usually evaluate strategic decisions through the dispassionate prism of expected value.
The operators of businesses, in contrast, usually act as who they are - emotional, empathetic, and personal-safety focused human beings.
And while, as professionally trained managers, they are of course aware and focused on expected value and shareholder return, their analysis of those rational probabilities often get overshadowed by more "human" concerns.
Like friendship. Like the stable, comfortable routine of a job. Of co-workers. Of a daily, comfortable work rhythm.
And the result of this natural human bias toward "the comfortable" is executive decision-making that defaults too often to the seemingly (that word again) conservative option.
Now as for why this conservatism is a strategic problem, Raynor delves into the concept of survivor bias and how it pertains to traditional studies of what factors separate successful companies from the unsuccessful ones.
Survivor bias can be best illustrated by all of those statistics that too many of us unfortunately know by heart regarding the abysmally low percentage of companies that make it through their 1st year of business, those that make it to 5 years, to 10 years, etc.
Now most of us naturally interpret these statistics as to mean that the leaders of these failed businesses were too aggressive, that they took too many risks, made too many big bets that didn’t pan out.
But Raynor's research actually demonstrates the opposite.
As opposed to Jim Collins’ famous (and famously flawed) Good to Great analysis, Raynor found that when the full universe of companies were surveyed – not just those that survived – that there was a direct negative correlation between those that didn't make it and the relative conservatism of their leaders and their pursued business strategies.
Or from the other perspective, the successful businesses were led and managed far more so by leaders who could be described in those "seemingly"pejorative terms - "aggressive," "risk taker," "bet the house" types.
So what does this all mean for the executive / entrepreneur interested in making quality higher risk / higher return strategic decisions?
Well, to quote the title of a famous self-help book: "Feel the Fear…but Do It Anyway."
Accept that as human beings, we are wired to be afraid.
BUT to prosper in modern business we must push through this and trust that the riskier choice far more often than not is...
...the strategically correct one.
The last time you needed to drive to a place you had never been before, what did you do?
Did you the load the specific address of your destination into your GPS, determine the best route, and then follow the directions?
Or, did you print out and follow your directions?
Or, did you do the opposite, that is, did you aimlessly follow random roads hoping that eventually you would arrive at your destination?
Sounds crazy, right that someone would consider this? But, that is exactly what millions of business owners do every year and it is the reason that less than 20% of businesses succeed long-term.
Building a successful business is not a collection of random acts of guess work and blind decisions. To realize your dream of a successful business you have your make your destination a part of your current reality.
Know Your Destination
When Alice was in Wonderland she asked the Cheshire Cat which road she should take. He asked her where she was going. Alice replied that she didn't know. Then came the much quoted Cheshire Cat reply of, "Then it doesn't matter which way you go".
That may work very well in fiction or for a day of exploring a new hiking trail. But it doesn't work that well in business. Most business owners don't start a business thinking "Okay, I'm going to sink all my money, time, and effort into this venture, play it by ear, and if I lose all my money that is perfectly okay."
Businesses are typically born out of a goal or a dream, such as "to be the best Italian Restaurant in the Tri-County area and be booked 3 months in advance" or "to grow my consulting business to $2M in revenue by my fifth year in business."
These aspirations and reasons for even starting are also the destination -- and they cannot be forgotten or buried in the frenzy of daily operations.
Your destination must be known and visible every day. It must be at the core of every decision you make.
Large corporations don't have a vision and a mission just as a fad. They have these plastered all over the walls because knowing your destination helps assure you will get there.
The same way you would enter the precise address of your destination on your GPS, so it is in running your business. Know your goals and keep them front and center to make sure you are in route to achieve them.
Importantly, take time to review your business plan or your 5 year strategic plan. What were the main objectives of your business? How do you describe your end-game?
When planning a long road trip, you typically break it down into small pieces. You study the map and learn the paces you will drive through. For example, when going to New York to Las Vegas, you may map stops in Ohio, Missouri, and Colorado. Because you prepared, and know what to expect along the way, and you know that if you see a sign that says "Welcome to North Carolina," you have veered off course.
Marking key places in your road map to business success is equally important. If you determine that for your business to thrive, you need to have 100 new clients by December, then reasonable milestones would be 25 by March, 50 by June, and 75 by the end of September.
By planning milestones in advance, you know whether or not you are on track to meet your goals. If by July you only have 30 new clients, you know you are off track, and need to reconfigure. On the other hand, if you have 80 new clients by August, then you know you are ahead and can consider revising your goal upward.
So review your strategic plan, and then break down your goals into shorter term objectives. Identify specific, objective measurements that you can take at precise intervals and map them out. These milestones can take many forms such as sales, revenue, profit, clients, etc. The important part is that you use quantifiable data that will tell you clearly if you are on track.
Institute Scalable Systems
People, especially business owners, dream of success. They have very vivid visions of the day they will "make it big," but so many are not really prepared for success. Very often a business owner will successfully pitch their product only to have to turn down a lucrative deal because they don't have the production capabilities.
Take the "Wal-Mart Catch." Inventors of new products salivate to have their product on the shelves of every Wal-Mart in the country. However, when Wal-Mart puts in an order, it's not for 100 units. It's for tens of thousands of units. Inventor after inventor has lost their distribution contract because they did not have the systems in place to allow them to quickly scale up their business. They did not have the manufacturing support to produce so many units.
They knew the destination, but were unprepared to arrive.
What is your end state? Do you have the systems in place to support having your dream come true tomorrow? Be prepared. Know exactly what it will take to run your business such as it will be at the end of your 5 year plan, and have all the partnerships, alliances, agreements, channels, support staff, and raw materials identified and ready to access when needed.
If you want outrageous success, you have to be outrageously prepared for it.
Your Destination is Your Reality
Your everyday business operations need to be focused on your destination. When you are driving to the mall, you are driving to the mall. Every turn you take, every road you choose has one purpose, to get you to the mall. The same applies in your business. Every product you manufacture, every service you provide, every relationship you cultivate must align to your target end-state.
Avoid falling into auto-pilot. Actively work toward your "end" every single day. Be conscious of how every sale gets you close to hitting your next milestone.
Carefully measure your progress. If you are off track, don't wallow. Make adjustments and keep moving forward. If you are ahead, pin-point the actions that are giving you an advantage, and do more of that!
Keeping your destination alive and visible in your daily functions will keep it as your current reality and help you prepare for the success that comes with arriving!
And make sure you have a written strategic plan that maps out your end-vision and your periodic goals and milestones. If it's not written down, you can't achieve it. My strategic plan template allows you to quickly and easily get your plan down on paper.
Over the past few weeks, I have talked about the demonstrable, high ROI of strategic planning for companies of all types and sizes, along with suggested processes and tactics to complete that plan on time and under budget.
As important as the creation of the plan is its ongoing review and updating. Both in comparison to actual results and then the corresponding “Gap Analysis” to evaluate what went right and should be done more, and what went wrong and needs adjustment, discontinuation, etc.
One of the best ways to recalibrate like this is through the establishment and regular meeting of a Board of Strategic Advisors.
For smaller, entrepreneurial companies, a strategic advisory board can perform many of the functions that a fiduciary board does, but for far less cost, headache, and without the emotionally and financially complex decision around loss of owner control.
For companies like this, here are a few ideas on how to set up and earn ROI right away on a strategic advisory board:
Accept the Truism that Often It is Better to Receive than to Give: While advisory board members, unlike with formal boards, do not have liability nor fiduciary responsibility, their time and energy requirements to participate are significant.
And for most smaller companies, the financial incentives it can offer advisory board members are relatively little compared to the value of board members’ time.
A good if imperfect analogy is that for many senior executives their involvement with a smaller company advisory board is almost a philanthropic endeavor, where they give of themselves without expectation of direct reward, financial or otherwise.
Correspondingly, the owners and managers of the small company must approach the sage advice and good energy offered by their advisory board fully in “receiving” mode.
For businesspeople of the mindset of always trading value for value and reciprocal obligation, this is hard. But only by clearing this space can an advisory board’s counsel be best received.
And somewhat counter-intuitively, often only by management fully accepting the “gifts” of its advisors will the board member’s experience be richest.
Begin with the End in Mind: For companies beyond the startup phase, its operating executives are naturally pulled to the shorter-term challenges and realities: this quarter’s revenue and profits, this month’s sales, the challenges and angst of a difficult employee decision, etc.
An advisory board discussion, however, by both its nature and by the kinds of folks attracted to serve on them, naturally pulls to the longer view - to the big "why" and "which" questions that all businesses should be regularly asking themselves always but rarely do.
The why questions are hopefully embodied in the Company’s mission and its values, and need the regular attention of strategic planning sessions like advisory board meetings to keep them from existing only in “hot air.”
The “which” questions are in many ways the harder ones that an advisory board dynamic can specifically help address.
This is because ambitious entrepreneurs and executives, especially after they have a little success, are naturally drawn to expanding their sense of their market opportunity, and correspondingly their list of product and service offerings.
This naturally leads to a diffusion of focus, of trying to be all things to all people. A thoughtful advisory board will challenge management to clearly define where they are aiming to be 1 year, 3 years hence and beyond, and from this vision where resources and attention should be focused today.
Speak Little, Listen Much: Managers and owners of emerging companies are often also the lead salespeople, the lead “evangelists” for their companies.
As a result, their default mode is to always be selling, always be pied-pipering their incredibly bright futures.
This is natural and good, but when strategic planning in board settings it is of equal importance that the challenges, the obstacles, the concerning risk factors be discussed and grappled with long and hard.
Even if, especially if, so doing is buzz-killing and / or depressing.
Why? Because it is often only in the “low negative” energy state that a certain kind of reflective creativity can flourish, and completely new approaches to solving vexing problems can be discovered.
Brevity is Next to Godliness: Strategic planning sessions in a modern business context should be tightly scheduled to last not more than 3 hours. After this length of time, diminishing returns starts setting in fast.
A tight frame also requires all participants to come to the meeting prepared. And, in turn, that the meeting organizers select the right meeting homework and then plan and moderate the agenda with the proper balance of structure and free-flowing dialogue.
Doing all of the above requires work – a good guide is that for every hour of strategic meeting time there should be 5 hours of planning time by the meeting organizer and at least 2 hours of preparation time by each participant.
Given that the only way to increase the value of a business is to either a) increase its bottom line financials and/or b) to improve its strategic positioning and growth probability, a structured approach involving first the development of a formal plan and then...
...staying committed to its ongoing “review and resetting” as is done in a well-moderated advisory board setting should be a FIRST priority of any responsible manager of a company with ambition.
These are classic “non-urgent, extremely important” business building activities to be ignored at one's peril, and benefited from in ways well beyond reasonable expectation.
The research is conclusive:
...McKinsey found that only 23% of companies regularly draft and update their strategic plan that 86% of executive teams spend less than an hour a month discussing strategy.
So what gives? Why does the research show how good strategic planning is for virtually any business, yet so few businesses regularly do it and even fewer do it well?
My 17+ years of experience of leading and moderating strategic planning processes for companies of all types is similar: no one argues that strategic planning is a high ROI use of time and energy, but in most companies far more often than not planning processes are undertaken either informally, infrequently, under duress, or not at all.
And perhaps even more frustratingly, when strategic plans are started as often as not they are never finished, with a combination of planning “fatigue” and “de-prioritization” to other more “pressing” business matters being the usual culprits of abandonment.
This is sad, but with just a little “re-framing” of our planning mindset and approach we can gain the rich business benefits of strategic planning as described above, be confident that our planning process will be done right, and...
...done in such a way that when completed the process naturally and elegantly transitions to the agreed-to projects, tasks, and to-dos.
How we can do all this? It is really quite simple: Outsource It!
Just as most businesses don’t do their own taxes, or defend themselves when sued, or host their own websites, or write their own accounting software, or run their own payrolls, or self-insure, we are long past the point where executives should be expected to be experts on a process as complex and nuanced as strategic planning, especially as it is the kind of skill that is best learned by doing.
And doing a lot of it.
Now, for some very large companies like General Electric and Proctor and Gamble (both famed for the quality of their strategic planning), this is not a problem.
Firms like these have large and well-trained teams that do nothing but strategically plan all day.
This is obviously not the reality for most small and mid-sized firms, where executives are tasked with it all - strategy, tactics, execution, HR, sales, marketing, operations, and more.
These executives just don't have the time to learn how to strategically plan the right way and then maintain the stamina in the midst of all their competing responsibilities to finish a planning process in a reasonable amount of time without burning themselves and everyone else out while so doing.
Now let me be clear: Outsourcing a company’s strategic planning process does not mean outsourcing the responsibility for the completion of the projects, tasks, and to-dos that will properly and inevitably arise from it.
Such responsibilities of course remain those of the operating executives.
But this is far different from attempting to undertake a planning process completely on one’s own.
Just like the best Olympic athletes have coaches to help them attain peak performance, so do the best-performing executives and companies have high quality, outsourced providers to help them beat the competition and win at at all aspects of their their businesses.
And strategic planning, when you cut through all of the noise, is just another business process.
When we see it like this, and not as something magical or obtuse, then almost always the right decision is to reach out and get some outside help to do it right.