5 posts from July 2009

Government Created Markets: New SME Business Opportunity

With the ongoing economic dislocation in 2009, many small - midsized enterprises (SME) lost significant revenue and profit. Business owners I talk to from car dealers to commodity traders have seen revenue and profits drop significantly and apparently see a slow return to pre-2009.

However, offsetting the decline in traditional markets, such as retail, consumer products manufacturing, or clothing as well as discretionary services from cosmetic surgery to luxury vacations.

Earlier I blogged about the pressing need for owners to offset revenue losses by assessing their company's strengths, weaknesses, opportunities and threats (SWOT) and then matching the strength and opportunity with government-legislated markets.

Yesterday I attended a NJBIA workshop "How to Get Government Contracts and Federal Stimulus Funding" focused on New Jersey simply to help client focus on new opportunities and how to get financial resources. Kick off understanding of NJ programs by exploring first the NJ state business site about available financing and then the NJ Recovery Site . Funding is available in NJ specifically opened up by the 2009 Recovery Act . (A broad starting point would be at Federal Grant Opportunity Resources.).

  • infrastructure primarily roads, pavement, bridges and light rail tunnel to Manhattan
    1. see Port Authority of NY & NJ Procurement Guide. Port Authority has separate and distinct protocols from balance of government agencies.
    2. see NJ Department of Transportation. There is a 10 year statewide capital investment strategy (SCIS) which will open markets from engineering through machinery cleaning
  • green or renewable energy of a special kind (solar, wind or geothermal)
    1. see Workforce for green job training support and funding
  • hiring and training new workers primarily in areas of high unemployment
    1. see Grant Opportunities for customized and literacy
    2. to apply see Training Grants
  • environmental infrastructure
    1. see 2009 Stimulus Loans - NJ Infrastructure
    2. see NJ Projects by area
  • new funding available through government agencies
    1. NJ Regional SBA (William Boone Assistant District Director)
    2. Economic Development Authority Fast Start for new business funding

I urge owners to critically think through strategic ways to fit current core business competencies into these new, well funded markets. Whether it is technology to create web sites as a vendor to government - private partnerships, sub contractors for major infrastructure vendors or a printer to support all the new forms government requires, there is opportunity in this new vertical called "recovery" and a new venue for wealth creation.

Character Matters

Always, but especially, in tough times, character matters. Life's journey is not so much about what is accomplished but how. My view is that all company presidents, owners, heck everyone, looking in a mirror in the morning has to love the reflection he or she sees.

I am astounded by the Madoffs, Helmsleys or Stanfords of the world. They have had financial wealth but no character. Just because we can is no excuse to do. A close friend (Jack) and I talked today about our top sales  executives in totally different companies shipping container loads of products at fiscal year end so they could make bonus for themselves and their teams. Unfortunately, they shipped against  non-existent purchase orders. Bonuses paid, shipments returned, companies in a hole.

Congress, by the way, is not different. Congress passes unfunded mandates, and push costs downstream. Downstream are companies, states or municipalities. Congress is clean, all the others pay. If they can't pay, well, welcome to hell.

Entrepreneurs and leaders have to stand clear of this behavior and not tolerate duplicity. This is tough when your money, your family, your life is on the line. My view is that if you, owner, leader and visionary, do not set the example, true North, no one else can or will.

One of our clients, Peter Ladka of Parse3 exemplifies this idea of standing true. He is the last to win and the first to lose. He never forgets it is his family and the people in his company that create his wealth. It is not how many 0000000000 are in front of the decimal point in his checking account that measures his wealth. It is his character.

Lead. Lead from strength of principle that you believe in.

My wife and I had tough times in our family company, but never forgot the idea that we get there together or not at all. My mission. My men. (PC is people but readers will get the idea.) At the end of the day, character matters.

 

Quicksand: Can Private Wealth Exist in Government Led Economies?

We are working with colleagues to construct new wealth creating business strategies in the wake of unprecedented growth in federal government control over free markets.

The first strategy is to actively pursue markets congress and the administration legislate into existence.The second is to pursue innovation and nimbleness to accelerate go to market efforts. The third is to investment spend on people and brand so as to minimize taxes while creating a strongly branded company with an up-beat, can-do team of employees. We believe those ideas, executed soundly, create a company the is ultimately more salable in any environment and is the platform for wealth creation and freedom.

The rhetorical question is this:"Is wealth, by definition, the new social quicksand?". In a period when local governments claim eminent domain to confiscate one taxpayer's property and deliver it to another for "common good", in a period when Government deems one company's bonus policy (AIG) unconscionable and another's  (Fannie Mae) acceptable,  one company too important to fail (GM) and another not (Lehman Brothers), we lose the connection between market performance and customers and enter one where bureaucrats decide winners and losers. 

Coincidentally, I have been re-reading "Civil Disobedience" written by Henry Thoreau, published in 1849. The US at that time was struggling with the political and moral "correctness" of slavery and the war with Mexico. His reflections are as relevant today when we face different problems, 160 years after he published them.

Thoreau speculated on individual responsibility in democracy and cynically observed:

All voting is a sort of gaming, like checkers or  backgammon, with a slight moral tinge to it, a playing  with right and wrong, with moral questions; and  betting naturally accompanies it. The character of the  voters is not staked.  I cast my vote, perchance, as I think right; but I am not  vitally concerned that that right should prevail. I am  willing to leave it to the majority. Its obligation,  therefore, never exceeds that of expediency. Even voting for the right is doing nothing for it.

Simply, voting is an essential part of a democracy, but generally is only a feel good exercise in personal responsibility. Elected officials do what they want, not necessarily what they were voted into office to do.

As a capitalist, I am shocked by the government's egregious seizure of power and consequential loss of our economic and personal freedom that directly and proportionately evolves. By simple ukase, industries are born like the one for ethanol, and others killed like domestic oil and gas exploration.

I stand in wonder over the seismic change we face. Thoreau made a statement that goes to explain the paradox private citizens encounter with government citizens:

There will never be a really free and enlightened State until the State [sic. politicians, my translation]comes to recognize the individual as a higher and independent power, from which all its own power and authority are derived, and treats him accordingly.

While Thoreau was talking about slavery and citizens' behavior / association with it he said:

...All men recognize the right of revolution; that is,  the right to refuse allegiance to, and to resist, the  government, when its tyranny or its inefficiency are  great and unendurable.

His solution was to stop paying taxes. A tax revolt to him was a non violent revolution. To me that is a naive but elegant solution that is not workable today but becomes a strategic element of a business practice. Together we may force government citizens to think hard about real solutions to our common problems.

In an prescient statement, Thoreau's conclusion about politicians is more apt today than probably it was 160 years ago:

There are  orators, politicians, and eloquent men, by the  thousand; but the speaker has not yet opened his  mouth to speak who is capable of settling the  much-vexed questions of the day.  We love eloquence for its own sake, and not for any  truth which it may utter, or any heroism it may  inspire. Our legislators have not yet learned the  comparative value of free trade and of freedom, of  union, and of rectitude, to a nation. They have no  genius or talent for comparatively humble questions of  taxation and finance, commerce and manufactures  and agriculture. If we were left solely to the wordy wit  of legislators in Congress for our guidance,  uncorrected by the seasonable experience and the  effectual complaints of the people, America would not  long retain her rank among the nations.

Quicksand is the footing we are in now. There is no action certain, but know that "when in doubt, do something". Something to me is reinvesting in our businesses, our employees and our customers in terms of service and experience to build solid greatness in real terms and not simply with words.

Soft Strengthens Hard: Leadership Skills Optimize Strategic Decisions

Businesses continuously seek operational improvements, often pursuing the latest strategic options. Larger organizations emphasize quantitative analysis, smaller ones drive by gut, but in the end a company's strategy, big or small, is defined by what it does versus what it says.

The big take away from this discussion is for business owners to think in another dimension about how to inspire teams to attain high performance within the context of rapidly changing environments. While specific reference to another company and people is made, they are used as concrete examples of advisers that can help SME businesses.

Over the past couple of decades, lean manufacturing and Sigma Six performance programs have defined solution paths for both manufacturing and service companies. Even in our family business and now in clients', we try to inject the philosophy of those disciplines if not the formal processes. From manufacturing to branding, from customer relations to administration, we have attempted to implement "lean".

In my experience, technical or mid-level management had been charged with designing and implementing process and profit improvement programs. This pattern underestimated the level of top management involvement and dedication to create change. All the players were skilled in their respective fields but lacked the formal or informal authority, capabilities or clarity of mission to accomplish the goal of making productive change permanent. Let's say that the changes envisioned rarely looked like the change that happened.

During the last several years I have been working with a talented group at SoundBoard Consulting. There I became more cognizant how the "soft" side of management, such as leadership skills, peer group collaboration and conflict resolution actually strengthens the "hard" operational skills. Those skills that I and my colleagues learned as MBAs and in other academic programs, ongoing promotions in large companies and their related training events and even in political roles appear more in background thinking than in day in and day out application.

The essence of this discussion is for small business owners to focus as much on the soft side as the hard. Making operational change is difficult but even more critical in 2009 and ongoing economy. We most frequently emphasize the technical or strategic aspects of management over the organizational ones. Richard Magid, founder of Soundboard, redirected my thinking to underscore that it is the softer side that matters most in delivering potential performance improvements.

Clarifying values, purpose, achieving alignment, receiving perpetual feedback are key in making sure the team is on the same page with the same high levels of commitment. Resolving the inevitable conflict created by high stress tasks begins with candid trust by all team members and facilitated ability to work out ways to gain key alignment.

My experience also teaches that there is initiative fatigue, which occurs due to the uneven progress virtually all programs encounter over the long pull. While technical teams may believe there is constant gain, company top management often looses energy and focus in making programs work. Net, there is a failure in leadership. Jay Wolf, also from SoundBoard, has created a leadership program that helps inculcate leadership skills and techniques to more accurately read employee behaviors and influence them in ways that realize intended outcomes.

I encourage presidents and owners to investigate resources like those found at SoundBoard if they aspire to create durable wealth.

Profit Management in Small Companies

Small companies generally have a significant advantage over global ones in terms of flexibility, innovation and speed to market but suffer a big disadvantage in available capital. The capital I'm talking about is not so much financial variety but intellectual. Crowdsourcing can help in a variety of disciplines to offset lack of human capital, from product innovation to leadership skills to sales. When the subject turns to comprehensive approaches to optimizing profitability, the specific uniqueness of an individual company's internal structure makes the crowdsourcing option less viable.

Virtually every accountant and CPA I've met see profitability through standard cost accounting approaches. For small businesses especially those standards fall short.

In larger corporations there is a budgeting concept sometimes called "fully burdened". Simply, costs carry not only physical costs (direct product, labor and freight).but also fiscal ones (direct and indirect overhead, loads to offset underperforming brands or divisions, etc.). Margin (M) calculations are based on selling price (sp) minus cost (c) divided by selling price or M = sp-c/sp. Thus getting accurate cost information is key to margins and profitability management.

A former client developed a sophisticated yet simple program available online called "Your Cost Center" at www.yourcostcenter.com. I preferred 'your profit center" but that didn't fly.

It forces business owners, especially those driven by hourly productivity, as in service businesses such as health care, construction, accounting, legal and consulting, to build into costs paid vacations, sick days, owner income goals (for wealth creation), taxes, insurance and related intangibles not often included in costs. The program helps owners determine how many more jobs (units) the company needs to sell to meet profit goals, analyze pricing alternatives and helps guide other strategic decisions.

This is not a promotion for the service but a recommendation that business owners rethink how they envision product / service cost and pricing.