Growthink Blog

Why Hire a Business Plan Consultant?


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During the process of growing a business, entrepreneurs, business owners and managers are often faced with the question of whether to bring in an outside business business planning consultant.  This can be an especially challenging decision for entrepreneurs, who are by definition independent and self-reliant.  However, it’s important to recognize that even the most talented businesspeople can benefit from the support and guidance of an experienced consultant (or consulting firm).

From our perspective, here are some of the key benefits to bringing on an outside business consultant.  

Functional Expertise

Perhaps the most common benefit a consultant brings is his or her experience.  More specifically, the consultant’s experience should directly fill gaps in the entrepreneur’s or management team’s own skillsets.  

For example, a businessperson may be gifted at recruiting employees and partners, and motivating them to achieve the company’s strategic goals.  But that same person may struggle to assemble a detailed financial model, conduct strategic market research, or convey the company’s growth plans in a succinct, marketable written document.  

A skilled consultant or consulting firm often fills these functional gaps, in order to help the company complete a particular task or achieve a milestone.  


Prior Domain Experience

Especially when venturing into new markets or devising a new product or service offering, a client may seek a consultant’s experience in a particular domain.  Experienced consultants and consulting firms can apply past consulting experience to new client engagements.  Aside from simply getting the project done, this familiarity with various markets and business models is a value-add that an entrepreneur or manager would not likely otherwise receive, without conducting months or years of competitive and industry research.


Objectivity

Engaging with a consulting firm provides more than smart, timely advice on crucial business decisions.  Specifically because they are not engaged in the day-to-day operations of their clients' businesses, consultants are able to analyze a business decision from a position of greater objectivity.  By working with an experienced, credible consultant, you receive 3rd party, objective analysis of your situation.  This perspective is critical for gaining organizational consensus around one course of action out of a sea of competing choices, and it helps assure you that you’re following the best business opportunity.


Time (Opportunity Cost)

Aside from the expertise and objectivity that a consultant brings, perhaps the greatest value is the simple fact that another person (or firm) is handling a part of the burden.  Engaging with an outside firm to assist with tactical or strategic responsibilities allows the internal management team to remain focused on the critical day-to-day actions and responsibilities that drive ongoing revenue and sustain the operations of a company.  Each person and company may set a different value on their own time.  However, often times it is economically beneficial to hire a qualified firm to efficiently manage a project, rather than allocating resources internally or hiring additional full-time staff to fulfill the need.


Other Benefits

Aside from the direct value of a consultant’s domain and functional expertise, engaging with a consultant or consulting firm can provide other benefits.  Because of their existing relationships, established consulting firms can introduce and connect clients with a wide array of potential customers, strategic partners, supplies, investors, and board members, etc.




What Do You Think?

What are other reasons why you have hired an outside consultant? What advice would you give regarding the pitfalls and benefits of hiring a consultant?

 

 


Beat the Downturn by Raising, Not Lowering, Your Prices


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Earlier this month, Walt Disney Co. made an interesting decision regarding their theme park pricing strategy. Faced with slowing sales growth at home in the US, the company decided to raise the price of one-day admission at its largest resort by more than five percent.

While the five percent hike for children and 5.6 percent hike for adults at Walt Disney World only resulted in increases of approximately four dollars, the decision was a controversial one that lead to business pundits both supporting and chastizing the company.

When your company is faced with the effects of a recession, like slowing growth or decreasing sales, what is the real best course of action?

Like with most things in business: It depends.

A good rule of thumb however, is that unless your company is renowned for its low pricing, you're safe to raise your prices. That doesn't mean you can start charging $16 dollars more for your cheeseburgers, but it does mean you have some flexibility. Making an honest assessment of how pricing impacts your clientele will position you to make necessary adjustments.

For Disney, the assessment could have looked as simple as this:

The number of people who will take vacations this seasons will undoubtedly drop a bit when there is so much widespread emphasis on pinching pennies. That said, for those families that do take the initiative to hop a flight, rent a car, and/or put every one up in a hotel for a few nights, the difference between $71 and $75 dollars for admission will not be the straw that breaks the camel's back.

While price is an important factor in purchasing decisions, the vast majority of people don't buy based on price alone. They buy based on value. However, a larger percentage of consumers will buy based on price alone, in the absence of any other value indicators. The key is to effectively communicate your value.

When you start to feel the squeeze of a slowing quarter, don't be afraid to go against the initial instinct that many have to drop prices right away. Sometimes, boosting your price can be just the tool you need to get you over the hump and get back to making money.


How to Manage Your Cash Flow


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By now, most entrepreneurs have heard the old saying, "Businesses don't fail -- they just run out of money." While that saying often holds the most salience for fledgling ventures, it can and does apply to most small businesses and growing companies as well. The steps you take to deftly allocate your company's capital today can help ensure that you'll still have that company six months, six years, or six decades down the line.

The New York Times and AllBusiness recently provided a list of tips for the best ways to manage cash flow. Most of the solutions that suggest frugality and thriftiness are somewhat intuitive -- limiting spending, avoiding wastefulness, keeping your inventory at practical levels and, for the austerity-minded, foregoing a salary. The most compelling suggestions on the list, however, are those rooted in strategic planning.

A strategic assessment of your business and some clever maneuvering can put your company in line to truly maximize each dollar. Crafting financial projections that anticipate your expenses and revenues for the next 12 months can help you determine if and when you'll need more capital. The formation of contingency plans that account for the worst case scenarios can prepare you for the unexpected.

One mistake many business owners make is purchasing equipment when it can be leased instead. While a cursory look at leasing vs. buying will reveal that leasing is usually more expensive over time, the leasing process prevents you from needing to shell out large sums of upfront capital, which then frees that capital to be allocated towards other important areas.

Lastly, effective cash flow management entails knowing what areas require patience, and which need to be expedited. When it comes to bringing on new employees, try to wait as long as you can. As permanent hires are a serious commitment of resources, it's recommended that you first strive to increase current employee productivity, investigate independent contractors, or even outsource some of the less essential aspects of your enterprise. On the other hand, when it comes to receiving customer payments, it behooves you to make these exchanges happen as soon as possible. Incentivize or reward early/timely payments, and don't shy away from penalizing late payments.


How to Grow Your Business When the Sky Is Falling


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As individuals and businesses alike struggle to deal with a wayward economy, one of the first things we can do is look outward for tools and techniques to help weather the worst of the storm. Fast Company founder Bill Taylor recently examined three companies that seem impervious to market fluctuations and the economic turmoil faced by their respective competitors, and the lessons we can draw from their successes.

Honda, Netflix, and Southwest Airlines are the companies that make up last quarter's victorious triumvirate. While Detroit automakers have been suffering from staggering losses here at home, Honda has reported $1.7 billion in profits. Netflix has reached a subscriber base of 8.4 million households. And as airlines continue to flounder, Southwest Airlines showed a 15% increase over last year, hitting just over 17 years of consecutively profitable quarters.

What are the common threads between these companies that keep them flying high while others scrape by or shutter their doors?


1. Connect with Your Customers

Forging a relationship that goes deeper than the nuts and bolts of the product or service your company provides is a crucial component of success, especially when financial outlooks across the board are bleak. Relationships rooted in identity and emotion help a company tip from useful to essential.


2. Go Big or Go Home:

It used to be really easy for companies to aim for the middle. By being decent at a variety of things, they could hit the widest part of a market's bell curve. While that was a sound technique in the past, it is no longer the case. It is now integral to corporate success to be the best at something. A company must, with no exceptions, determine what they are the best at and execute on it. As Taylor states, "Southwest has always managed to combine low fares with great service--anything else is a distraction." By being the most affordable, having the greatest customer service, or providing the most exclusive product, a company can distinguish itself in the mind of the customer.


3. Be Yourself, Even When Things are Changing:

This rule might be "easier said than done" for many companies, but it holds true. To succeed, a company must stand by what they believe in. While it is important to test and tweak strategies, the overarching approach must be a steadfast attachment to your plan, and the value proposition you've developed in the aforementioned stage of defining your businesses' strengths. While many large companies like Ford appear to be in constant "react" mode, rushing to adapt in light of market conditions, companies like Honda reap the rewards of embracing their long term strategies. Finding consistency in your business will give success an opportunity to find you.


The Real Tendencies that Lead to Growth and Success


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Imagine you are at a job interview. Right before the interviewer offers you a position he states, "Unfortunately, I cannot tell you the details of our project. You will have the opportunity to make mistakes and struggle, but eventually we may do something that we'll remember the rest of our lives." Would you eagerly jump at this project or would you stand up and walk out?

This was the real life scenario created by Scott Forstall, the senior vice president of Apple, who assembled the iPhone development team. He called in a handful of stand-out Apple employees from various departments in the company to speak with him, and only those who quickly leaped at the opportunity were offered positions. Forstall's approach to recruitment was based on the belief that the new project’s success would be dependent on individuals who were more attached to challenging themselves and pushing boundaries than the ego gratification that came from shining where they already were. In a recent New York Times article, such individuals were described as possessing a “growth mind-set.”

This classification was derived from the research of Carol Dweck, a Stanford psychologist and author of “Mindset: The New Psychology of Success.” She has carefully studied the ways in which people approach life, and research suggests two main groups: those like the aforementioned Apple employees who believe their own abilities can grow and change, and those who believe that talents and intelligence are intrinsic and unchanging (referred to as a “fixed mind-set”.)

These simple classifications can have a remarkable impact on all aspects of one’s life and likelihood to succeed. In her work, Dweck has found that a growth mind-set almost always trumps a fixed mind-set, due in part to the fact that many with a fixed mind-set are overly invested in the reputation of their talents, resulting in a fear of making mistakes and an attachment to looking smart. Dweck has said that those with a growth mind-set, “are the ones who really push, stretch, confront their own mistakes and learn from them.”

Case studies on many top executives from the ranks of General Electric, IBM, Xerox, and others show that a growth mind-set can not only lead to personal successes, but can revolutionize a work-force as well.

Which mind-set do you lead with?

 


Is It Possible To Grow Too Fast?


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Before the ink has dried on newspapers reporting the impending close of 600 Starbucks locations nationwide, news has surfaced that clothing retailer Steve & Barry's is preparing to file for bankruptcy. For many years, both the coffee giant and the clothing chain have been two of the most-discussed, high-growth companies. So what has gone wrong?

In the case of Starbucks, the general consensus among the business blogosphere is that the company, eager to appease investors, embarked on a path of overly-ambitious expansion. Shifting their focus away from the customer and toward the bottom line, Starbucks abandoned their thorough location-finding talents to map out several hundred new stores.

A new Starbucks cafe can have a tremendous impact on a local real estate market. The arrival of the white-green-and-brick facade in a neighborhood represents a "stamp-of-approval" for the neighborhood, and has nearly become synonymous with modern gentrification. This being the case, landlords began to make attractive deals with new storefronts, sometimes offering several months in free rent to a Starbucks willing to open its doors on their property.

Rushing quickly to fill these locations with baristas and customers alike, Starbucks began to take advantage of such real-estate perks. It appears such perks started to motivate location selections more than the high-quality demographic research the company is known for, as over 70% of the proposed store closings will be locations opened within the last two years.

As the markets suffer uneasy fluctuations, it also becomes difficult for landlords to continue such “sweetening” efforts for the coffee juggernaut, as well as for other large retailers.

Another such company is Steve & Barry’s. Though the retailer has experienced annual sales over $1 billion and solid performance in their newest stores, it still suffers from small margins due to their discounted pricing strategies. Their rapid expansion became dependent upon such real estate perks, which have all but frozen in the current market.

There are numerous ways out of the frying pan for Steve & Barry’s, including possible acquisitions. And Starbucks is only predicted to take a short-term media and investor relations hit from the news of the store closings. But still, the question remains: Is it possible to grow too fast? And when is aggressive expansion a bad idea?

Expansion is a bad idea when it is more opportunistic than strategic. That’s not to say that companies shouldn’t take advantage of opportunities they spot, as that would be counter to the nature of entrepreneurial business growth. What it does mean, however, is that they should approach any expansion with a careful and well-mapped out plan. Once the business has documented their vision, it should ask if it is pursuing growth in the best interest of the company, or whether it is growth only for the sake of growing.

Both Starbucks and Steve & Barry’s took advantage of market conditions to fuel expansions that were ultimately unsustainable.

From the entrepreneur’s perspective, growing “too fast” would seem like a great problem to have. But if the growth is more opportunitistic than strategic, it can be unsustainable and carry unforeseen risk.

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Has your business experience rapid growth?

What were the pitfalls, if any, that you encountered in the process?


How to Succeed by Doing Less


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Imagine reaching all of the goals you’ve set out to achieve within the confines of a four-day work week. Sounds pretty nice, doesn’t it? Now imagine hiring significantly fewer employees than your competitors and developing products that are dramatically scaled back in comparison to what those same competitors are building down the street….and then watching your venture reach milestone after promising milestone! That’s a reality for Jason Fried and David Heinemeier Hansson, the entrepreneurs behind the company 37Signals.

With an iconoclastic view of what is needed to succeed in the fast-paced, whiz-bang world of web-based product development, 37Signals takes the old mantra “less is more” to a new level. In a recent interview with Bill Taylor, the founders shared their view that “less is less- because more is not better!” Their approach, which focuses on solving only the problem at hand by avoiding superfluous add-ons and unnecessary tweaks has not only resonated with their customers, but has created a large number of 37Signals evangelists.

Jason and David, while they are best known for their project-management software Basecamp and contact-management software Highrise, have also authored a book on the subject of success through simplicity, titled Getting Real. Inside, they tell entrepreneurs to add only the ingredients of the utmost importance when it comes to staffing, operations, and product development. They also passionately implore business owners to resist the urge to scale up, just because the opportunity to do so presents itself.

Though 37Signals is known for its frugality and prowess in the world of programming, there are strategic lessons for businesses of all types here; whether it’s scaling back the development of unessential functionality for your Web 2.0 company or modifying the operations at your coffee shop so that you don’t need to hire that extra barista. What can you do to simplify your business?

Business Exit Strategy: Preparing to Sell A Business


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As every entrepreneur knows, a great business plan is essential for effectively launching a business.  As the business grows, an effective strategic plan is required to successfully reach the business’s full potential.

But what about planning your exit strategy? 

Far too many business owners do not realize that careful strategic planning to sell your business is just as important as planning to launch and grow your business.

In addition to an independent lifestyle and personal fulfillment, a successful exit is the primary motivator for business ownership and entrepreneurship. 

(Not to mention that a successful exit tends to improve one’s lifestyle and personal fulfillment...)

Because acquisition is the most common exit for an entrepreneur / business owner, here are some tips to better prepare you to sell your business.


Don’t Wait Too Long To Sell

Many business owners wait until the last minute to try and sell their business. They wait until the business is stagnating, or they are exhausted with running the business. In fact, the best time to sell is when business is booming.


But Take Your Time – Don’t Be in Too Much of a Hurry

If you are in too much of a hurry to sell, you will probably leave a lot of money on the table. Buyers – especially sophisticated larger corporations – will likely sense your urgency and will take advantage of it in the negotiation period.


Start the Process Early

It’s a good idea to begin preparing 2-4 years BEFORE the sale. It’s much more expensive and time-consuming to rush and prepare all of the necessary financial and other information in a few months than it is to consistently record and compile records over a period of years. This record-keeping is also important for your business’s growth, since it provides more perspective on your company’s performance.


Get Your House in Order

Make sure that you have been keeping accurate financial records and that your assets are ready for sale.  This includes both tangible assets such as equipment and inventory, as well as intangible assets such as contracts, leases, patents, trademarks, etc.  Make sure that everything is assignable to the buyer and be prepared for extensive due diligence.


Try to See It From the Buyer’s Point of View

A buyer’s motivations are often different than the typical business owner’s. While the entrepreneurial business owner may get excited about innovation and creative strategies, the buyer cares much more about the potential for stable revenue streams and growth potential.  Take time to understand your potential buyer’s point of view, interests, and motivations.


Make Yourself Less Central to the Business’s Success

The buyer wants to buy a business – not you or your job.  From the buyer’s perspective, it’s better if the current owner is not important to the success of the business.  Therefore, in planning for the sale of your business, you should begin training your management team to take over critical business functions.  If all of the key decisions revolve around you (the owner), then the value of the company will be limited without the owner – and therefore, the business is less attractive to a buyer.


Meanwhile, Keep Focused on Running (and Growing) Your Business

When starting the sales process, you must keep a laser-sharp focus on your business’s operations.  It’s important that you do not get too wrapped up in either the sales process or in the romance of any particular sale offer.  As difficult as this is, it’s best to act as if any deal can fall through, even if you are in the final negotiation period, because any deal can come unraveled at the last moment.  Keep your focus on growing your business until the check has cleared and is in the bank. 

In addition, you should do your best to keep the sales process confidential so that you do not endanger relationships with any key clients, employees, or partners whose departure could threaten a transaction or the operations of your business.


Get Professional Assistance

If you are a business owner seeking to sell your business, you can benefit from outside advice and assistance.  As the old saying goes, “The attorney who represents himself has a fool for a client.”  The same applies for a business owner selling without an advisor.  Your advisor will provide you with guidance regarding valuation, due diligence, and the marketing of your business opportunity.  Without a competent advisor, you decrease your chances of selling your business at its maximum price.


Even if a Deal Comes, Be Prepared to Say No

If you have invested a lot of time and energy into the search, negotiation, and due diligence phases, you may be reluctant to reject any deal that comes across the table. However, just because you have a deal in front of you, you do not have to take it.  If the price is not attractive or if the deal is not right for another reason – and it cannot be mended – you may be wise to walk away and consider the next opportunity.

Sometimes, during the process of preparing their business for sale, business owners will find themselves at the helm of a much more profitable, attractive business.  If you have a profitable business, keep in mind that you have other options at your disposable.  In addition to selling your business, you can continue to grow organically, raise growth capital, and/or explore strategic partnerships. 

It’s important to continually evaluate your options throughout all phases of business growth to ensure that you are making the best decisions for the long term.

 

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About Growthink

Founded in 1999, Growthink is a leading middle market investment bank.  Our professional investment bankers have assisted clients in raising more than $1 billion in growth financing, as well as advising on mergers and acquisitions transactions.

 

Need assistance with your business exit strategy? 

 

Looking to sell your business?

  • We have considerable experience advising middle market business owners on the sale of their businesses. Contact Growthink's investment bankers today.

 


Are You CEO Material?


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Jack Welch

There is an age-old dilemma out there, which all entrepreneurs will come across at some point in their career: To be, or not to be... the CEO, that is the question!


When envisioning the ideal CEO, undoubtedly many images come to mind: A charismatic persuader, a visionary, a multi-tasker, a passionate leader. The real world expectations of a CEO can be so varied and so all-encompassing, that it can be a daunting hat to consider.


Some entrepreneurs tackle this issue with the notion that they are obligated to lead their company from the CEO chair, while others will avoid the title at any cost. These stances are seldom the result of any actual measure of their own abilities, but rather from pre-conceived notions of what is expected of a Chief Executive Officer, and what skills they assume are needed to effectively assume the role.


To add a dose of empirical data to the conversation, venture capitalist Seth Levine has released a rubric that he and his colleagues use when evaluating a CEO. Now that we know what the VCs use when sizing up leaders, it might not be such a bad idea to go through this rubric yourself and see how you'd stack up.

 

CEO Scorecard

(rate performance on a 1-5 scale, 1 being least favorable and 5 being most favorable; provide support for your rating in the space provided):


Vision: Creates vision and strategy. Communicates vision and strategy both internally and externally.

Leadership: Ensures the support and execution of the vision and strategy by:

1. Establishment and communication of priorities;
2. Driving change for improvement throughout the organization;
3. Team-building; and
4. Creation of high performance environment.

Operating Management: Develops and executes sound long-term and annual business plans in support of approved strategy. Manages operations and resources efficiently and effectively.

Values and Integrity: Maintains consistent values and exemplary conduct. Promotes positive corporate culture to reflect corporate mission statement.

Shareholder/Investor/Financial Community: Serves as chief spokesperson, communicating effectively with shareholders and stakeholders. Is well regarded and respected by investment and financial community.

Strategic Partners: Maintains personal rapport with strategic partners through open, ongoing communications

Human Resources
: Ensures the development of effective employee recruitment, training, and plans and programs to provide and motivate the human resources necessary to achieve objectives.

Public Relations: Ensures that the company and its operating units contribute appropriately to the well being of their communities and industries. Represents the company in community and industry affairs.

Board Relations: Works effectively with the Board of Directors to keep them fully informed on all important aspects of the status and development of the Company. Facilitates the Board's governance, compositions, and committee structure. Implements Board policies and recommends policies for Board consideration. Supports a relationship characterized by trust, mutual respect, open communication and responsiveness to feedback. Uses Board meetings effectively.

Financial Results: Financial Results – Establishes appropriate annual and long-term financial objectives and manages to consistently achieve these goals; ensures that appropriate systems are maintained to protect assets and maintain effective control of operations.

 

As you can see, the criteria for a great CEO (at least in the eyes of these Venture Capitalists) aren't as elusive as many people think. If you've got these skills, you're in good shape. If not, it might be time to start the CEO hiring process.

What do you think about these criteria? Which of these factors are truly the most important? Are there other factors you think are missing?


Baseball and the Science of Effective Business Building


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Over the last thirty years, baseball statistician Bill James has revolutionized the way that players, managers and fans think about statistics in baseball. By carefully analyzing statistics, James has dispelled numerous myths and has shifted the Boston Red Sox management’s decision-making process from one based on intuition and “gut” to a rigorously fact-based approach.

What has been the result? After decades of loss and heartbreak, the Red Sox have won two World Series Championships in the past 5 years.

Bill James’ analyses have dispelled many myths and have helped both the Red Sox and much of the industry focus on proven measures of performance. For example, James was a leading force in emphasizing the significance of on-base percentage over a player’s batting average. On-base percentage, James argues, is a more significant statistic, since batting average fails to account for bases gained from walks.

Regarding batting strategy, James says that the order of the line-up is inconsequential to overall performance, and that the concept of a “clutch” hitter is nonsense.

On the subject of a player’s lifetime performance, James concluded that the “prime” years of a baseball player’s career are his mid-late 20s. The Red Sox took James’ recommendations into account when deciding against re-signing star player Johnny Damon.

Regarding pitching strategy, James argues that “closers” – pitchers traditionally brought in during the final inning(s) of a game – should instead enter at critical moments when a team’s lead is at stake (e.g. perhaps in the 6th inning), rather than waiting longer.

What does all of this have to do with business building and entrepreneurship?

James makes a compelling case that all businesses – not just professional baseball teams – can benefit from careful statistical analysis. Such analysis can dispel unfounded theories, identify significant measures of performance, and illuminate creative, counter-intuitive strategies to bolster a business’ competitive advantage.

James’ fact-based analytical approach is especially valuable for emerging companies who are competing against larger, more established businesses.

If Bill James were to analyze your industry or your business operations, what myths would he dispel? What performance benchmarks would he stress? What strategies would he recommend?

  • Bill James was profiled on CBS’ 60 Minutes last Sunday. You can read more about the episode and watch a clip here.

  • An excellent book on this topic of statistical analysis is Competing on Analytics: The New Science of Winning by Thomas H. Davenport and Jeanne G. Harris. It's available for sale on Amazon here.

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