Do It Right

FOUR FREQUENTLY OVERLOOKED BUSINESS OPPORTUNITIES

Common sense business opportunities are still being missed; ones that enable a company to achieve greater value and long term success, even in the face of challenges.  Here are four frequently overlooked improvement opportunities that I’ve run across from dealings with many companies of all sizes:

  • Alignment
  • Financial Planning
  • Documentation
  • Communication

The “database” from which the four value-add opportunities are derived comes from an eclectic global mix of airlines, rail and bus operators, oil and gas exploration and production (E&P) companies; IT, telecommunications and consulting firms.

A FAMILIAR SCENE

The recent struggles of the oil-and-gas sector, and especially the exploration and production companies in the small to mid-size range, presents a case study that illustrates the pitfalls of complacency.  The E&P business model involves raising investment capital to drill for oil and gas, selling the product, and rewarding investors and themselves with the proceeds.  The key staff in the E&Ps strongly grasp the technical fundamentals – identifying opportunities, raising capital, drilling and production, and product sales.

However, important internal functions are often neglected; functions that can either facilitate growth or cause a firm to unravel.  The list of neglected business functions among the E&Ps include strategic planning, proper external and internal communications, annual planning and budgeting, precise and timely accounting, and lack of internal alignment even between people who sat in offices 30 feet from each other.  All was good when oil was selling for $90+ per barrel.  Who cared if the internal “niceties” of running a business weren’t quite all there.  Investors and staff were being paid, usually fairly well.

Then the most recent crisis struck.  $30 and $40 per barrel oil exposed the faults.  Royalty and working interest payments declined as oil prices fell precipitously. In turn, investors and creditors began asking a lot of questions about the financial and operating condition of the E&Ps.  Stakeholders of course knew that lower commodity prices translated to lower revenue but now attention turned to questions of survival strategies, protection of investments, and efficient operations.  The tendency to communicate sporadically and incompletely with investors during the good times wasn’t acceptable in lean times.  More than ever, the E&Ps needed to come up with aligned strategies for surviving the downturn and providing even minimal returns to investors.  Financial planning, accounting and reporting needed to be razor sharp in order to spot inefficiencies and squeeze out every possible benefit. It often wasn’t due to neglected financial processes.  Sadly, this turn of events put many E&Ps into bankruptcy and many others into major out-of-court reorganizations; perhaps in greater numbers than need be had basic principles been followed in the first place.

Is this industry unique?  By no means.  Every industry goes through up and down cycles.  Airlines suffer terribly when oil prices spike.  Fuel costs jump from 15%-20% of total expenses to nearly 40%.  The ever-dynamic IT world goes through major technology shifts that cause corporate stress during innovation transition periods.

Your business will face up and down times.  Are you ready? Here are four ideas to help take greater advantage of the good cycles and make the down times survivable and less painful.

OPPORTUNITY #1:  ALIGNMENT AMONG STAKEHOLDERS

From Fortune 100 companies to small family owned businesses it’s amazing to see the lack of alignment around a business plan.  Try this and see what happens…  have a neutral party meet one-on-one with executives and board members and ask them to name the top three strategic priorities for your business along with the top operating  and competitive challenges.  All too frequently, the lists will not align.  Misaligned priorities means that key staff are heading in different directions.  Probably more than half of the companies I’ve seen have executives pulling in different directions.  The result – wasted resources, confused staff, subpar customer service, financials under-performing targets, conflicts between leaders, and a business in stress.

The opportunity – take time, preferably with a neutral facilitator, to get your business aligned.  Alignment starts with a senior team.  Take two or three days away from the office several times a year to agree on your strategic objectives, key steps in implementing the vision, measurable performance targets and timelines.  Allow everyone to share their viewpoints in a safe environment. All present get an equal say from the CEO to the most junior person in the room.  Set egos aside. It’s not a complicated process.  Then, communicate the plan throughout the organization, get feedback at many levels, adjust the plan as needed based on what employees tell you, and then agree on a final version and implementation steps.  The process, if done correctly, will motivate your team and get them focused on a series of key implementation initiatives that can add even greater value to your company.

OPPORTUNITY #2:  FINANCIAL PLANNING IMPROVEMENTS

Really? Budgeting is standard practice in business.  Yes, but about half the companies I’ve interacted with over decades don’t budget, or don’t do it properly.  There are three distinct sub-categories of missed opportunities:

  • Smaller businesses that don’t do annual operating plans and budgets. It’s shocking how many small businesses go from year-to-year without planning and budgeting.  The discipline of operational planning and budgeting based on a strategic vision, and then measuring actual results versus the plan, forces you to think through how the company will operate in detail, what you can do to control expenses, or take advantage of revenue upsides.  Budgeting adds credibility and focus to your business.  No matter the size or type of firm, PLAN for each year as best you can.  You will be surprised at the insights that emerge about your company.

 

  •  Failure to use operational and budget planning processes that are industry-accepted. This is a common mistake among start-up companies.  I’ve seen dozens of airline start-up plans.  The majority of these plans do not use planning techniques, tools, or metrics that are generally accepted as best practices within this industry.  These companies then struggle when presenting their plans to potential investors who are industry-savvy.  If you intend to start a business seek wise counsel from someone who knows how business plans are developed in your industry so that you go into investor meetings looking like you know what you are doing.

 

  • “Stress test” operating plans and budgets. Stress testing involves measuring the impact of “ups and downs” on key drivers in your business as part of the business planning cycle. In other words, how much of “the extreme” can your business tolerate? Stress testing is performed sporadically, at best. For example: if fuel costs are a major component of the budget, look at what happens to your bottom-line and cash flow if fuel prices spike. Do you have the ability to withstand this situation?  Testing key drivers enables development of contingency plans in advance of the event and keeps your company from reacting inappropriately at the last minute to challenges. Be proactive and don’t be afraid to test and plan for the lean times.

OPPORTUNITY #3:  DOCUMENT, DOCUMENT, DOCUMENT   

Many firms don’t properly document key decisions or agreements. If the subject is important, write it down and save the document, especially if there are potential legal ramifications.  Lack of documentation often leads to legal hassles – and only the attorneys get rich.  Sadly, we live in a litigious society.  Documenting transactions is vital to protect interests.  Let me illustrate with two of the bigger offences I’ve seen:

 

  • Incomplete transaction documentation. Business is document-intensive whether it’s digital or hard copy. Too many legal issues arise from non-existent or incomplete documentation.  I recently heard that two non-profits were caught in a tense situation likely involving incomplete, or no, documentation involving rights to a piece of property.  Organization A allowed Organization B to use a piece of property for a temporary period.  When Organization A requested B to vacate the property, B refused because it had established itself there and didn’t want to move. The situation probably could have been avoided with a simple written agreement between the parties.  Ensure documentation is complete and covers all important aspects of your business.

 

  • Personnel issues too many smaller and mid-size firms are lax on Human Resource (HR) matters. If you have employees, there needs to be a written set of policies that govern employer and employee responsibilities, procedures and rights, with copies provided to all involved.  Employees – if your boss promises something that is important to you and the company, document the understanding.  Thus, if something causes one of the parties to fail to live up to the agreement, you at least have documentation on which to fall back.  I’ve heard too many stories of an employer promising an employee something, then reneging for whatever reason, leaving a valued employee in a difficult situation.  Neither side documented the original understanding. A lot of hurt feelings resulted.  Proper documentation should not be a threat to employer and employee, especially if you recognize the synergistic value that exists between the parties.

OPPORTUNITY #4:   COMMUNICATE – REGULARLY & EFFECTIVELY  

Consider these two communication examples. They actually happened.

Company A’s new product development ran behind schedule, sales were sluggish, revenue lagged targets.  The CEO and CFO closeted themselves in an office for hours every week trying to sort out the problem. They emerged periodically to dictate action developed with modest input from other team members.  Staff were taken by surprise by the pronouncements but tried to help; enthusiastically at first then very begrudgingly as the cycle repeated itself and as they saw little positive impact from their hard work.

Company B also faced a major challenge involving an all-out competitive assault that could have radically changed the business and adversely affected the lives of many staff.  The CEO and senior team met, and developed action and communication plans involving a widening circle of key staff from all departments and at many levels within the organization.  The key messages and action items were pushed out to the entire company ensuring that as many employees as possible were kept in the loop and engaged in executing the initiatives.  This process also repeated itself as the competitive battle played-out. Employees reported back on what worked and what didn’t.  Plans were adapted as needed. As the struggle continued, the passion of most employees to stay engaged in the battle grew.

Every business will face challenges.  Do you want to be Company A or B as you fight the battle?  Regular and frequent communication with stakeholders is vital.  Staff that are engaged in developing solutions, and that kept informed on a timely basis, will stay in the fight longer and with more passion.  The chances of a Company B surviving a challenge in good shape is much greater than Company A, which is indeed what happened.  The team first needs to be aligned around a strategy that is communicated regularly, effectively and appropriately.  The imperative for effective, impactful communication heightens during a crisis.  As a leader in a crisis, don’t shrink away from the broader team and hide, emerging only to make periodic pronouncements.  Regularly engage with staff at all levels and in many ways to seek their insights.  The collective wisdom of those who operate the business and meet the customer daily will be invaluable to developing and evolving plans that enable you to emerge successfully from the challenge.

These are four learnings on missed business opportunities from my experience.  What have you seen?  Send your thoughts to scott@srdanalytics.com.