What are you doing to enhance your value drivers?

In a recent article entitled “Economic Downturn Gives Owners Time to Work on Value Drivers,” my good friend Eric Donner, Managing Member of Regal Wealth Advisors reviews how important value drivers are to maximize a business’ selling price.

He goes on to point out that it is the work of the owner – not employees – to create and to nurture them. Value drivers include:

• A stable and motivated management team.
• Operating systems that improve sustainability of cash flows.
• A solid, diversified customer base.
• A realistic growth strategy.
• Effective financial controls.
• Stable and improving cash flow.

Due to the freeze in credit markets and a slowdown of M&A, today’s economic environment – for the foreseeable future – gives owners time to install and/ or improve value drivers in their companies. It also gives them time to demonstrate the sustainability of the value drivers they create. Buyers want to know that success or growth charted in one year can be maintained over several years. They bank on (and pay for) a company’s potential to grow, so they look very carefully at how long a company’s value drivers have yielded positive results.

Experienced owners know that change takes time. Really experienced owners know that positive results from those changes take even longer — likely longer than even they expect.

Regardless of when you might sell, it makes good sense for owners to concentrate on those elements of their businesses that create more cash flow, more sustainability, and more future value. After all, isn’t this why you’re in business?

A great place to start is to evaluate how you’re doing currently with respect to each value driver and then put a plan in place to improve each one – steadily and continually – over time. Then, when it finally is time to sell, you’ll be assured a handsome return for having built something of lasting value.

Overcoming Resistance to Organizational Change

To understand why we resist change, it is useful to acknowledge that humans are creatures of habit, and that habits are learned behaviors with predictable outcomes. By creating change, we force those involved – including ourselves – to confront the unknown and “unlearn” things that we previously accepted as producing desirable results. Even if the current results are sub par, they are predictable and at some level comfortable for us – so we resist changing.

There are 3 types of resistance that most frequently rear their unproductive heads in an organizational setting: emotional, political, and rational (EPR). Although each has the potential to derail organizational change and all 3 operate simultaneously within us, they are unique in how and when they are most likely to impact your business.

When people first learn about impending change, most – at an emotional level – actually become intrigued and even excited about it. We are naturally curious and relatively optimistic beings, so our emotional reaction to upcoming change is initially positive as you can see on the Emotional graph line in Chart A. It isn’t until the going gets tough that emotions swing to the negative and have the potential to create a crisis point. If you had the power to listen to what other people think, at the crisis point you might hear things like “I’m not so sure this is really going to work” and “This is much harder than I thought it would be.” As a leader, it is critical for you to anticipate this moment for yourself and for your people so that you can provide the boost necessary to help your team power through to firmer emotional ground.

Click Here to View Chart A

Political resistance to change is all about self-image and the perception of power. Unlike emotional resistance, political resistance kicks in at the exact moment people learn about change. The Political graph line in Chart A begins with a swing to the negative and then slowly trends back up into positive territory, tracing initial questions about the personal impact of change. People think things like “This could cost me my job” and “Why wasn’t I asked about this before the decision was made?” Over time, and as the change process unfolds, even the most seasoned political players learn to adapt, compensate, and otherwise protect their sense of importance, moving them back to positive ground. Warning: there is risk that political resistance will derail your project if it is left unchecked at the crisis point on the graph. To minimize the impact of political resistance, be sure to involve the right people up-front as you plan change and anticipate individual reactions – both of which will help you accelerate the path to acceptance.

Rational resistance to change is the easiest to both understand and overcome. As people try to understand change, they look for facts, relevant comparisons, and logic to help justify why it is necessary and what they should expect both during and after the process. Along the way, they look for measurable evidence of success and progress to correlate how their organization is doing compared to what they expected. The result of this is a straight-line Rational graph line on Chart A that begins at neutral and slowly trends toward positive acceptance. Thorough planning and open communications before and during change initiatives minimize the impact of rational resistance. As many of my clients learned the hard way, it is much better to deliver “bad” news or information about the imperative for change in an open and up-front manner than to shield it from employees to “protect” them for as long as possible. The same rings true for communicating successes, failures, and progress during the change process. Any news – even bad news – helps to minimize rational resistance to change.

How does EPR resistance to change impact your company? What did this cost you last year, and what would the benefits be if you could reduce their effects in the future?

Plans, People, Process

When I ask business owners to tell me where they want to drive their business, in most cases I get either a blank stare or a highly tactical response like the one I recently heard – “We are going to hire 3 new salespeople in 2009 and really push our [newest and most profitable service] business.” A statement like this is usually more of a reaction to events from the prior year than a forward-looking statement of what they really want to accomplish. It also oversimplifies the tasks at hand.

Running a business in this manner is akin to trying to drive a car to an unknown destination while looking in the rearview mirror; you don’t know where you are going and you could very well get yourself and others killed along the way!

The most significant root cause of EPR resistance to change – by far – is an underinvestment in strategic planning. To be clear, strategic planning is a thought process that helps business leaders clarify and then merge their concept of what they want their business to become with the external realities of the marketplace and the internal realities of their organization. The result is vastly improved precision regarding direction and focus, and a realistic assessment of the organization’s strengths, limitations, opportunities, and risks. Tactical planning and planning for change becomes much easier when a big picture has been defined – not just in terms of what must be accomplished, but also why it matters.

If you are reading this and thinking to yourself, “but my company is too small to need a strategic plan,” you might want to reconsider if indeed you are, or if you might be thinking too small not to have one!

Business planning – the combination of strategic planning (first) and tactical planning (second) – helps set the stage for change and will provide you with multiple opportunities to anticipate and overcome EPR resistance to change, in yourself and in your staff. It also facilitates the integration of your plan, your people issues (how to further develop yourself and your people), and your processes (which ones require examination for potential improvement) into a single set of tasks specifically designed to get you where you want it to go.

Change in your company starts with you, and it is never too late to plan for your future.

Ray Noorda, technology pioneer and former president and CEO of Novell Corporation, said: “Cause change and lead; accept change and survive; resist change and die.”

As a leader, it is important to acknowledge that you are also resistant to change. How do your own emotions, ego, and sense of strategic clarity impact your ability to drive change? Are you surrounding yourself with the right people to facilitate change or do those around you take too much comfort in the status quo?

Although there may never be a truly “good” time for change, it is always far better to plan for it proactively than to find yourself reacting to events that may not be fully in your control.

Who is Minding the Back Door for Your Business?

 

Most companies I know spend a large portion of their budgets on driving new business through the front door.  Far fewer spend even a fraction as much in a directed effort to avoid having those precious customers walk out the back door.  The prevailing assumption is that by providing pretty good service and having largely satisfied customers, the back door is covered as well as it can be, and everything else is controlled by external market forces.

 

In fact, retaining and developing profitable customers is the result of having a solid and aligned organizational culture focused on building relationships that generate loyalty.  According to Fred Reichheld, researcher, consultant, and author of The Ultimate Question, a loyal customer always returns, brags about your organization and provides (free!) word of mouth advertising.  They are willing to pay more to work with you and, when there is a mistake, they are more forgiving.  The ability to cultivate loyal customers is a profitable and powerful competitive advantage.

 

Satisfaction vs. Loyalty

 

There are 2 measurements that can help you understand and manage your customer relationships: customer satisfaction and customer loyalty. Many organizations assume that high levels of satisfaction translate into customer loyalty when, in fact, customer satisfaction ratings are more closely linked to your customers’ perception of product and service attributes rather than to the value they gain by doing business with you.

 

Satisfaction is a measurement of, “I expected it and I got it; therefore, I’m satisfied.”  If this were translated into a grading system, satisfaction translates into a grade of “C” on a traditional report card. This is precisely why your “satisfied” customers routinely shop around when it comes time to buy again. The desired score is obviously an “A,” an “A” always equates to loyal customers. An “A” implies that customers got more than they expected and their expectations were exceeded in some way.

 

High perceived value, as defined by your customers, creates loyal customer relationships, and research has demonstrated that customer loyalty is the best predictor of your future strength and growth potential. Perceived value occurs at the intersection of what customers want and what they get from you versus what they could get from your competition.

 

In order to create and sustain loyal customers, it is necessary to consider every contact with each customer as an opportunity for you to provide value—every time. Every service point is critical and every service point has a level of expectation from the customer that must be understood and managed. We call these contact points, Points of Connection (POC).

 

Points of Connection

 

Employee impact starts from the way they treat and relate to each customer at a given POC and their treatment of customers stems from the employees’ attitude. Attitude drives behavior, and behavior determines outcomes.  If the employees’ attitudes are positive, their behavior will be positive and supportive of the customer, which will generate results consistent with the expectations of the customer.

 

To effectively manage POCs they must first be identified. Once identified, you must clearly understand what value your customers’ desire from each POC. If there is a disconnect between what your customers expect and what currently exists then it imperative to ensure that proper employee development and process improvements are put into place to correct it.

 

Case Study

 

My friend, Jennifer Cassels, owner of Park Avenue Title Agency in Green Brook, NJ, exemplifies the cultivation of customer loyalty.  In the mortgage industry, the ability to overcome obstacles and close loans within tight timeframes can literally mean the difference between success and failure.  Jennifer works very closely with her clients – many of whom are real estate attorneys and mortgage lenders – to help them however she can to facilitate timely closings.  I’ve heard stories from her clients regarding her willingness to go “above and beyond” the call of duty to get transactions done – all the while providing accurate title services with a smile.  Additionally, she manages the POCs very well.  For example, you’ll always get a live person on the phone during business hours and she has a widely acclaimed closing cost estimate calculator on her website.  By managing POCs effectively and by going out of her way to solve her clients’ most pressing challenges (i.e. “how am I ever going to get this loan closed by Friday?”), Jennifer has created a loyal and growing client base.

 

Conclusion

 

Making the strategic decision to create a loyal customer base is one of the most important commitments you can make to the success of your business.  As Janelle Barlow and Paul Stewart say in their book, Branded Customer Service: The New Competitive Edge, “The customer service experience must be aligned with organizational promises.”  When your customer’s experience is not reflective of what has been advertised, promised, or expected, their trust in your business is undermined, which results in more traffic out the back door and lost revenue opportunities.

 

To build loyalty, your team must learn how to create strong relationships through frequent points of connection and deliver unique service experiences as expected and promised by your marketing and sales activities.  The immediate impact of delivering an exceptional experience based on what you’ve promised is a winning combination and a powerful weapon against the competition.  It will also help to ensure that the customers you work so hard to bring in the front door never even consider looking for the rear exit.

 

What if It Could Be Summer All Year Long?

(How to Get Your Organization to Run Smoothly Without You)

Ahh, Summer. Summer means barbecues, swimming, baseball games, camping, road trips, and lazy days in the sun. That’s what summer is all about, isn’t it?

Well, for some, that’s just wishful thinking. Many business owners are so tied to their companies that they can’t step away, and a truly relaxing summer vacation is nothing more than wishful thinking. Who are these people? They are the micro-managers, the “do-it-all-ers,” the “wearers-of-many-hats.” They can’t let go. They think that if they take a step back, their business will falter and all their hard work will be for nothing.

In the words of Walt Kelly’s well-known comic strip character Pogo “We have met the enemy and he is us.”

Does this describe you? Are you a business owner who can (and does) comfortably take time off, or do you function as an employee — a slave to the daily grind?

Chances are, you’re the latter, and you’re certainly not alone. As a business owner, it’s difficult to relinquish control and place your trust (and your livelihood) in someone else’s hands. Although it isn’t easy, it’s crucial – crucial to your well being, and crucial to the future of your company. And it’s not going to happen unless you make it happen. You need to change how you think and then structure your organization so it can run without you.

How? The answer is to take these 5 concrete steps toward your freedom:

• Plan – As Confucius said, “A man who does not think and plan long ahead will find trouble right at his door.” Centuries later, his wisdom still holds true. Whether you employ 3 or 300, a right-sized, well thought plan will dramatically improve your competitive positioning and performance regardless of market conditions. A solid plan drives day-to-day thinking and behaviors, which in turn lead to desired results.

• Delegate – Yes, this is hard, but if you’re still involved in every little thing that goes on over the course of a day, you’re too involved. You hired your staff to do a job. You carefully selected people based on their skills, experience, and drive. Let them do what your plan calls for them to do. They can do it!

• Take a long, hard, look at your staff – First, select one person who can be in charge in your absence. Provide the training, mentoring, and authority that they need to succeed. Then let them do their job. Second, remove marginal players from your team. If you don’t do this, you’re cheating yourself, and them. Give the remaining staff your blessing and your confidence.

• Trust – You won’t be able to let go unless you put your complete trust in your people, your plan, and your systems. If a system or process is broken, identify the problem and fix it. It may not always be easy, but it can – and must – be done.

• Test the system – When you’re ready, take two days off. Don’t call, don’t check in – disconnect completely and see what happens. Be sure that your staff knows they can reach you in case of an emergency – but chances are that they won’t need to. Sure, you’ll be tempted to call, check email, etc., but don’t do it. Step forward, don’t slide back!

You started with two days. Next time make it four, then a week, then two weeks. It will get easier. Before you know it, you’ll feel even more in control of your business and will be able to take a stress-free extended vacation, knowing that you have built a successful and competent team to execute your plan.

Just think about next summer when you’ll be able to relax and enjoy your life to the fullest!