Simple Business Case Disciplines Can Save You From Yourself.

The “she’ll be right” era is gone; it is no longer good enough to make business decisions based on gut and napkin calculations.

Does your business use formal business cases to make major decisions?

“Just Do It” – Doesn’t cut it any more

In an economic environment of tight margins, rapid change and competition, there has never been a better time to put in place some improved business discipline and robust decision making. Many businesses are actively growing in this climate.

One of the easiest ways to de-risk your business and make better decisions is to business case out all major decisions. This does not have to mean bureaucracy overload. Give yourself the benefit of an independent review panel to critique and provide feedback before progressing on major investments. The process of writing a business case will in itself create a better investment choice.

Future stock market player

A project business case should stand up to robust debate, albeit from your board, bank manager or life partner before expending your time, passion and money.  Some major decisions that warrant a business case are: starting or purchasing a new business venture or product line and rationalising your product offering to improve focus or buying a major asset. Create a business case when failure of the project is going to hurt!

Too many business owners continue to fund projects without calculating true payback and considering long-term implications of their business.  Many of these become “the living dead”, “throwing good money after bad”.

 Ignore the value of money over time at your peril.

 Let’s take an example: your IT manager just approached you with a $100,000 project offering $20,000 savings each year over the next 7 years. Basic maths says YES, spend $100K to save $140K, so “let’s just go for it”. BUT what about the cost of that money over time?  If your opportunity cost of capital is over 13% you are actually going to make a loss on this project.

If you invested $100K for 7 years with compound interest you would expect more than $100K back including interest, so you should with your IT project, or business itself. Check the Internal Rate of Return (IRR) or net Present VALUE (NPV) functions in Excel Help. With a little bit of help, you can use these calculations to automatically calculate for you the “true cost”.

As a business owner, or custodian for the business (Managers), it is your responsibility to create shareholder wealth and protect the long-term sustainability of your business, identifying and eliminating risk to your best ability.

Pre-mortem Reviews

 Many businesses perform post-mortem reviews on projects, analysing what did and didn’t work in projects.  How about having one of these meetings before the project begins? By publishing your project budgets, plans, risks and assumptions in many cases you can actually improve the project by simply asking “what could go wrong?” Given the chance, people will help you avoid disaster before it happens.

Our very enthusiasm for an idea will drive us to success, but equally so unchallenged we can quickly be over consumed with that euphoria to our peril.  Do a basic investment test now.

4 Point investment test?

  1. What evidence (trends & market validation) do you have of the long-term need for your product /service? (Strategic Market Opportunity)
  2. Have you calculated what the “true” return for your investment will be, including the cost of capital (Financial Business Case) i.e. will you make money from it?
  3. Have you clearly communicated to your team what you do and do not do? (business /project plan) i.e.  will your team be able to stay focused on the task ahead?
  4. Do you have a clear and succinct message to engage customers and stakeholders (Your pitch) i.e. can you sell it?

Common mistakes made in businesses cases

 Check that you are not falling into common traps for business owners prior to making business decisions:

  • Not creating a business case or having a 3rd party review it
  • Overly optimistic projections: delivery times, customer acquisition times etc
  • Inadequate budget for sales and marketing – budget at  least 10% revenue
  • Not accounting for the value of money over time – use NPV and IRR calculations
  • No market research / validation to de-risk savings, or projected revenue.
  • Underestimating the impact of competitive response
  • Lack of stakeholder commitment or talent
  • Not dreaming big enough – what could you do with twice the investment?

Don’t think of business cases as just approval mechanism, but more so as a mechanism to reduce investment risk. Business Cases provide an opportunity to clarify thinking, get input and focus for the project delivery team around clear outcome.

New training workshops for 2013:  I am now also delivering workshops under the Auckland Chamber’s Vital Training programme.

If you would like to know more about tool’s and techniques to simplify business decision-making and gain greater clarity in your business, then you should attend my  Auckland Chamber Vital workshops: Business Planning, Business Cases and Pitching More information is on the Vital Training Website   The next Business case workshop is 4th April at the Auckland Chamber – register here

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Strategies for Growth

To get market traction – we need to choose ONE strategy and do it well…

Growth in a business comes from either selling more to our existing customers or getting more customers. Either way we need to gain a position of strength and differentiation to grow our business.

In the jungle economy, if we are not growing and taking some one else’s customers, they will take ours. Equally so we have finite resources, so must choose a small list of things to do and do them well.

How do you get to “own your customers” i.e be the supplier of choice?

Too many businesses attempt plans that are incompatible with their balance sheet, their personal circumstance or even reality or worst still a potpourri of every possible strategy. My recommendation is choose one.

 Strategy Primer Questions

Strategic planning is about exploring and debating options in an iterative loop.  Before working out how to win customer mindshare you need to define what is your target market. A key step in this iterative cycle is to decide where long-term opportunities exist.

  • What is your long-term market opportunity?  Have you explored what’s going on in your industry ecosystem? What facts do you have that support your market will exist in 2 or 5 years time?
  • What is you competitive advantage or point of difference?  Is it a truly sustainable competitive advantage?  Do you have the skills to deliver this?
  • What is your strategy to maximise your competitive advantage?

Next you need to work out how you will get to “own your customers mind”, i.e begin your growth – to create a change in the market place.

 Unfortunately in the real world, we do not have unlimited resources – so despite ambitious intentions, we do need to make some choices of what do we do first and what takes priority. Most SME’s can only afford to invest (people & money) in one strategy at a time.

Strategic Priorities & Restraints:

  • What is your key strength?   Product, operational excellence (process) or customer intimacy
  • What is your no.1 priority? –  Market Share or Profit or Revenue (Prioritise these options)
  • What market segments are you going to take on and in what order? (geography, demographic, etc)
  • Have you got the make / buy split correct? Where do you add most value to your clients & yourself (who will you partner with).  Are some of your business activities a major distraction and not make you any money?

WIN THE RACE to OWN YOUR CUSTOMER’S MIND: – Choose one  

Strategy guru Michael Porter was of the belief that you only have two options to gain strength in a market Cost leadership or Differentiation.   

Winning market reach & share quick

  • Freemium (give your product or a cut down product away for free)– do a land grab then start charging or kick in alternative revenue streams later eg trademe
  • Partner with large organization – preferably corporate challengers rather than the giant that already has the customer, as they can up sell something “additional” to them (your product or service). Note Giants are typically too arrogant and do not need you
  • Merge – with other small players to increase efficiency and customer reach

Win the technology/product innovation race

  • Create products that others do not have and your customers will lust after – that have amazing customer pull eg killer apps
  • You may need to use a strong IP strategy that can not be worked around (trade secret) and patents or simply just obsolete your own products with new ones so people can not copy  (eg Apple, Microsoft)
  • In the services space this race is often influenced  with “thought leadership”

Create / Find a new market

  • Legislation change
  • Disruptive technology – new product paradigm eg MP3 players – ipod
  • Use existing technologies in a new way

Win the cost race

  • Make your product cheaper than all others. Organisational and cost efficiencies.
  • Warning – making products cheaper does not mean start a price war. Price wars in most cases become a race on who can hold their breath the longest.

Win the heart – BRAND

  • Build a brand experience people fall in love with – this may include service paradigm

What is your strategy to capture the mind of your customers?  – Is it one of the ones listed above or do you have another? Please share.

If you want a hand generating your strategy, how about coming along to a Business Dominoes workshop? We have just started running 3 day workshops that take in a weekend day, so you can have some tools to take on summer holiday.

A Strategy or a Goal? (Good Strategy / Bad Strategy)

A strategy is not a financial goal or a motivational slogan, it is a plan that has been developed to surmount a challenge, based on a considered choice, created from a thorough understanding of the environment you exist in.

What is the “rationale that says your business will be successful in the long term”  and “how will you exploit your competitive advantage”? 

 Your understanding of the environment that you exist in, to the point where you can attempt to predict the future, so you can see long term positions of strength will enable you to create effective strategy. Without undertaking this exercise you are operating without a key piece of “intel” you will stumble from one short term opportunity to another, missing out on long term profitable markets.

Wikipedia defines Strategy as:

A strategy is a plan of action designed to achieve a specific goal. Strategy is all about gaining (or being prepared to gain) a position of advantage over adversaries or best exploiting emerging possibilities. As there is always an element of uncertainty about the future, strategy is more about a set of options (“strategic choices”) than a fixed plan.

The problem with most entrepreneurs is their unwillingness to stop and analyse the market or the eco-system they exist in long enough to create multiple options to create an informed strategy.   A crucial step in creating good strategy is that you present multiple options and that you are forced to debate and create stronger arguments to support them.  To often we either go with the first option or just operate in committee mode and merge the options together. Powerful strategy often involves hurt – some one not getting their way and stopping pet projects.

Our impatience and desire to “just do it” – makes us jump directly to creating a plan, missing out on the great power of “true strategy”

There are two orders of power when looking at strategic planning.

  1.  Business Planning:- Operational Excellence: Gaining clarity in what you do and are good , deciding what to do and not.  BHAG (Big hairy audacious  goals), purpose, defining immediate goals and tactics to achieve those goals., basic competitor analysis.This business planning by itself does produce improved performance, but will not de risk the business in the long term.
  2. Strategic Market Analysis:  This higher order activity involves deeper understanding of what is going on in the market, where long term opportunities lie, maximising gains over industry trends and predicting trends.   Although this activity requires in depth market research and evaluation of multiple paths it will result in a simple statement.

In Richard Rumflet’s book  “Good Strategy Bad Strategy – the difference and why it matters” he makes a strong case for taking the time to do what I refer to as Strategic Market Analysis before business planning. He make brutal comments about what he calls bad strategy. He has brought a new clarity to me around business strategy or more importantly non strategy that will help me in my work. Below are few excerpts – learning’s from his book (available on kindle) …

  • Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain. It does not pop out of some “strategic management” tool, matrix, chart, triangle, or fill-in-the-blanks scheme.
  • Unlike a stand-alone decision or a goal, a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.
  • The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors
  • If you fail to identify and analyze the obstacles and opportunities, you don’t have a strategy. Instead, you have a stretched goal, a budget, or a list of things you wish would happen.
  • The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action that respond to a high-stake challenge.
  1. Diagnosing the specific structure of the challenge or change rather than simply naming performance goals.
  2. Choosing an overall guiding policy for dealing with the situation that builds on or creates some type of leverage or advantage.
  3. The design of a configuration of actions and resource allocations that implement the chosen guiding policy.
  • Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. Combining all three elements mentioned above.

Even after working out what needs to be done “Good Strategy” is explicit in how you will do it.  Steve Jobs’s guiding policy  is legendary: (1) imagine a product that is “insanely great,” (2) assemble a small team of the very best engineers and designers in the world, (3) make the product visually stunning and easy to use, pouring innovation into the user interface, (4) tell the world how cool and trendy the product is with innovative advertising.

My observation is that we are all jumping over step one in Richard’s process or simply restricting it to a basic SWOT and competitor analysis.  Explore more on this topic in another post called  finding new strategic opportunities or come along to one of our business dominoes strategy workshops

Take the time and watch Richard’s three minute video.

At very least challenge your strategy : is it a slogan or a goal or does it have some decent market intelligence behind it?
And more importantly have you had it challenged?

GMC Business Model Canvas V2

Clarity and definition of your business model is one way to give your business an instant steroid shot.  From a planning perspective it is also worthwhile exploring a range of “what if” scenario’s around applying different business models to your business. Prepare your Business as usual (BAU) canvas, then challenge yourself to look at new canvas mixes: different business models and make/buy combinations.

The business model canvas is a great way to brief new stakeholders who work with you including new staff, bankers, advisors and potential investors. Once developed it can be used with the GMC Guide to Saying No.

The original book “Business Model Generation” by Alexander Osterwalder & Yvess Pigneur provides great examples of how to document business models, along with methods to brainstorm innovative changes in business models for existing businesses.

I have been using my own variant of the business model canvas for some time. I  have recently remodeled my GMC  variant and thought it was time a shared this.

Its great to see the Business Model Canvas is gaining wider use, many of the universities are picking up on it, using it as tool in their entrepreneurial programmes. 

(Click image to download pdf template)

The GMC Canvas Components:

Value Proposition (VP):
The value proposition (VP) must be at the absolute core of any business. When defining your VP it is worth while to also clarify your “Customers Problem” that they will pay to solve and make sure that your VP definition include your Unique Selling Proposition (USP).

  • Is your value proposition unique to you, or would it work for any one else in your space?
  • Do you need to separate out the value proposition for the customer (the person paying the bill) from the end user of your product/ service?

 Market Segment (MS):
Define your market segment as tightly as you can. Often it pays to focus on your beachhead market  – i.e the market where you can make the most money the quickest.

If you have a planned phase approach to your go to market strategy list the markets separately.  Do not forget to include a psychographic (decision making priorities – traits) and behavioural definition if relevant.

  • Challenge yourself to narrow your definition so you can easily qualify out C grade customers (the ones you do not make much or any profit off)
  • Do these customers have budget to spend on solving your the problem you have identified?

Core Competencies:
What key skills and knowledge do you have? These will come from the strengths you have listed in your SWOT.

Have you listed the ones that enable you:

  • Create value for your customers
  • Acquire customers
  • Differentiate you
  • Generate profit
  • Sustain your competitive advantage

Assets:
Remember to include intellectual property, customer relationships, key contracts and brand if they are assets for you.

  • Don’t include items that can easily be replaced or that are low value

Key Partners:
List only KEY partners that help you build your product or service or reduce risk in your business.

  • If a partner competency is too crucial to your business highlight it perhaps and an arrow to internal competency list  (You may need to plan to bring in house or get a good contractual arrangement)
  • The make or buy decision will be represented by whether you list something in the key partners or competency box

Channel to Market:
 In this section include key pathways to acquiring customers and leads.

Cost Structure:
Split overheads and variables.  Explicitly list any major costs or contractual arrangements. List items from your P&L that equate for more than 20% of your overhead cost.  Show a reference metric eg % of cost.  Show raw cost (or margin) of and manufactured items that account for majority of your revenue.  Don’t forget to list any major debt.

Revenue:
Split revenue into major revenue streams – product lines/channels.

BHAG  (Big hairy audacious goal)
What is the BHAG that motivates people to join the cause. Refer BHAG post

  • Your BHAG needs to be more than a revenue target.

 Brand Essence / Values
What are the top 5 – descriptors of your brand essence and culture values.

  • Most HR issues stem from failure to adhere to core values. Makes sure they are explicit and all staff, understand how they apply to them.

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What’s Missing: 

If something is missing in your current canvas that should be there – eg your brand should be an asset but it isn’t add it to the canvas and highlight it in some way.

Create Multiple Canvases

Take the time to explore multiple canvases and then do a cost/benefit scenario analysis using a simple comparative matrix

Rapid Analysis of ‘What If’ Strategic Options

Too often we are stuck trying to evaluate a multitude of ‘what if’ options when it comes to strategic planning; trying to tabulate a massive matrix of all the variables.

Scenario Evaluation

A tool we use at Business Dominoes is to map out the different scenarios on a simple cost vs benefit matrix (click image below).   Simply referencing the centre point being business as usual (BAU) i.e what we are doing now. Then referencing the alternatives based on the relative cost and benefit.

Our brain has an amazing “gut calculator” that enables it to subjectively accumulate of all of the data to evaluate what does total cost and benefit accumulating a multitude of variables.

(click image for larger version)

This analysis will quickly highlight both quick wins and potential long term strategies, bearing in mind often you will need to adopt a couple of interim strategies to achieve your end goal.

Competitor Profiling

You can also use the same tool to compare your competitors. Remember it’s from your customers perception, not yours. The diagram below is an easy way to illustrate your market positioning.

(click image for larger version)

Business Dominoes – Strategic Development Programme

If you are after some fresh thinking around how to handle some major strategic decisions for your business and avoid being blind-sided by some giant guerrillas in the market I would suggest attending the Business Dominoes Programme. It’s a 4 day intensive boot camp, where you will be armed with and use a variety of tools to aid you strategic thought processes, make decisions and chart a lower risk path to success.

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Free Entry to MyBizExpo:

The My Biz Expo is running from 14-16 October, ASB show grounds, Auckland.  Business Dominoes will be on stand 2023Register online now at www.mybizexpo.co.nz and save yourself the $20 entry fee.

 Free 1 hr Seminars at Biz Expo
Monday 15th Oct 2pm

Creating Powerful Elevator Pitches

Tuesday 16th  Oct – 1pm
Funding Business Growth  – Tools and strategies to build a scalable business
Presenter  Mark Robotham

Finding New Strategic Opportunities

 Take yourself out of your business and explore the industry view

 We all suffer tunnel vision when it comes to running our businesses. Even worse, when it comes to finding time to do some true “blue oceans” strategic thinking.

Too often our thinking is constrained by looking at our world from our own perspective rather than that of the customers and the industry eco-system we exist in.

We all got a great reminder of this when Kodak got into major financial trouble in Jan 2012. How could such a giant with 1000+ patents in digital photography screw it up so bad.  My take, they failed to adapt the culture (attitude) of the business to the new value chain and eco-system that emerged into the new digital age.

Real Strategy

Strategy is most probably the most miss used word in business. Strategy is about understanding the lie of the land, understanding the geography you are about to do battle in, assessing the enemies strengths and weaknesses looking for gaps and opportunities to capture a market.  Its not about what to do every day operating your business – alah business planning and execution.

Mine your external value chain for opportunities

If you are looking for investment, market or channel partners the best place to start is looking at your customers and end users. Then map all of their suppliers, customers and their influencers out on a huge mind mapped value chain. Documenting suppliers, to suppliers, to customers and so on. By reviewing all the players on this map e.g. who holds the power of influence, who owns critical scarce resources and who is making the profit etc you will uncover a raft of possibilities.

Include in your thinking competitors as well, most NZ business shy away from conversations with their competitors let alone doing deals with them to collaborate in the global marketplace.

Look for market trends that will uncover future change in your industry

Take the time to look for current trends across your complete value chain so you can spot hot spots or market opportunities to take advantage of.

 Business Dominoes – Strategic Development Programme

If you are after some fresh thinking around how to handle some major strategic decisions for your business and avoid being blind-sided by some giant guerrillas in the market I would suggest attending the Business Dominoes Programme. It’s a 4 day intensive boot camp, where you will be armed with and use a variety of tools to aid you strategic thought processes, make decisions and chart a lower risk path to success.

_________________________________________________

Free Entry to MyBizExpo:

The My Biz Expo is running from 14-16 October, ASB show grounds, Auckland.  Business Dominoes will be on stand 2023Register online now at www.mybizexpo.co.nz and save yourself the $20 entry fee.

 Free 1 hr Seminar at Biz Expo – Tuesday 16th  Oct – 1pm
Funding Business Growth  – Tools and strategies to build a scalable business
Presenter Business Dominoes – Mark Robotham

Personas & Zero-Based Strategic Thinking

Incremental change is dangerous, particularly come planning time for your business. Left unchallenged you can suffer a slow death, or be taken out by a gorilla in your market. Here are two ways to break your normal incremental thinking.

Personas at the Boardroom Table:

What would Steve Jobs, Richard Branson, or John Key be saying in your strategy day if they were on the board of your company? This is the power of personas.

Edward de Bono first popularised this method with his “Six Thinking Hats”. User experience design people adopt a similar approach to ensuring real users can utilise modern software applications. There is a great article on “The Power of Personas” for user design in the MSDN Magazine.

Create some imaginary board members to your company, they come cheap, and give them a seat at your boardroom table. Then listen to what they would be saying if they were in the room.  To balance the big thinking of a Jobs or Branson, you may want someone else at your board table to balance out their big budget thinking.

If you are known to dream big, perhaps you need the conservative ‘black hat’ thinker at your table to question the reality of your plans.  This is a great way to break with conservative limited thinking, beliefs that exist in many boardrooms, whether your problem is not dreaming big enough or you need a hand break. Do not invite too many imaginary friends too frequently or your friends and family may think you are going nuts!


Zero-Based Thinking:

Accountants often refer to zero-based budgeting. This is the method of creating your budget from a clean sheet of paper, rather than simply modifying last year’s budget by X%.

The same goes for business planning: take the stance if you were starting your business over again, but with the resources and capabilities that you have now – what would you do? Invite your new board members (personas) to the table as well to help you with this exercise.