Remembering to reward yourself and the value of hard work

Winning is good. Winning decisively, rapidly, with style, against the odds, or all of the above is great. A big win really deserves a reward above and beyond the victory itself. Is this reflected in how you run your business?

This year’s Six Nations is currently underway and has introduced bonus points into the scoring for the first time. An extra point is awarded to a team for scoring four or more tries or for losing by less than seven points. Wining the Grand Slam earns another three points. John Feehan, The Chief Executive of the Six Nations explained that ‘we must reward try scoring and an attacking style of play that will deliver more tries and greater rewards for fans and players alike’.

Teams and players will push themselves further for greater rewards. When you walk away from a large business or corporation in order to start up on your own, you often leave behind a reward, incentive or bonus scheme – whatever form that may have taken. You may have an abundance of drive and motivation to succeed in your endeavour, but what about the extra incentive to win big?

Of course, there is a great incentive to survive. Many new business owners will not even pay themselves a salary let alone award themselves a bonus. The continued existence of the business is a reward in itself. Except that it’s a hollow, psychologically draining reward. Working for yourself, there’s not even the chance of a symbolic ‘well done’ and a pat on the back from a boss. Yes, cash is very tight in the early days and there are good reasons behind people’s decisions not to reward themselves with a salary or a bonus. However, it is important to motivate yourself to thrive, not just to survive. Though paying yourself is eventually vital – as your business grows you will need to accurately assess its value and factor in your worth – specific rewards for specific wins are an easier place to begin.

You’re probably setting yourself targets already. SMART targets that are Specific, Measurable, Agreed-Upon, Realistic and Time-Based. When a target is measurable you know when you have just crept over the line with a last minute kick at goal and when you have thrashed the opposition and scored four or more tries in the process. You can decide beforehand what deserves a reward and, assuming you’re honest with yourself, reward yourself accordingly when you meet the criteria.

Unlike a salary, which has to reflect market value, rewards themselves can be flexible and scalable to the size of your business and the target you’ve set. If you’re not running a multinational bank, you don’t need to offer yourself a banker’s bonus. A meal out, a day at a spa or a new set of golf clubs are equally valid rewards. If that still sounds too decadent for a start-up, your reward for a contract won or yearly profit could easily be turned back to the business itself – meet your target and upgrade that laptop you’ve been longing to replace.

Very few people actually feel any joy upon viewing figures in a bank account increase. The joy comes from what that money could be used for – whether it’s growing your business or taking your family on holiday. When it comes to your earnings, you need to feel a sense of relativism – that more effort will bring more eventual joy. Hard work needs to be worth something to you and an incentive gives your work more value. Rugby players are willing to burn their lungs for a bonus point, what could drive you that extra mile?

A StartUp Story

There are seven great stories. Think of the people around you in the house, office, train carriage or wherever you may be. They will each have their own favourite books, films and plays. Each will have its own plot but it will likely be one of seven stories: Voyage and Return, Quest, Comedy, Rebirth, Tragedy, Overcoming the Monster, or Rags to Riches.

Your business will either involve doing something new, doing something in a new way or doing something for a new market. It will (hopefully) be unique but it will be part of a larger story and is likely to follow the conventions. This is a good thing! Commonality makes any problems or growing pains easier to overcome. Facing a common challenge does not mean you’re lacking originality or innovation.

Star Wars was an innovation. No one had seen anything quite like it before. However, look at the story and you will see the conventions of a quest. Obi Wan Kenobi, Luke Skywalker and a lightsaber equal Merlin, Arthur and Excalibur. In fact Kenobi, Merlin, Gandalf, Morpheus, Dumbledore, Mr Miyagi and many other famous characters all perform the traditional story role of mentor to the hero.

Because conventions are shared across stories, looking at your progress in your own story can help to arrange your priorities. So what is the StartUp Story?

An owner-manager starts by working hard to live a dream. They work hard, control everything, and try to have some fun. For some, this is as far as the story goes. A lifestyle business that allows them to do what they love is both the beginning and the desired end result. There’s nothing wrong with that: waiting for Godot has been hugely successful and – spoiler alert – not much changes in that story.

Some want to move their story on from lifestyle business to value business. Successful owner-managers will gradually assemble tools and methodologies to make them more efficient and effective. Each story is different, the tools and systems will vary. However, this transitional process is common to all who try and make the move towards value creation (and some others who just want to improve their lifestyle business).

Eventually, successful owner-managers will be driven by results which show that value is being created. The less reliance on the owner, the more value the company has and so this stage of the story involves the hero increasingly stepping back from roles and responsibilities. The story’s not done, in fact it’s likely the story is about to become more important than the hero.

Do you recognise where you are on in the story? Once you do, and you realise that everyone’s story shares common elements you can use this to your advantage. At your networking events, who is facing the same trials you are? Who has passed through this phase and might be willing to offer some advice? Perhaps your story is a quest story and you need to look for someone to fill the mentor role..?

Stories have their ups and downs. Good stories need an element of peril too. Don’t go seeking trouble but don’t be surprised when trouble occurs. You may have to slay a monster or two or escape to live to fight another day. Remember that whilst your trials may be unique, they fall within a recognised story and so there are people to speak to and there are always ways to overcome.

#27: A Financial Model

Welcome to my last expert article for Growing Business! Over the past three articles we have looked at finding business partners, associates, and outsourcing partners, all of which are things you will need to consider at some point during your business’s lifetime and are hard decisions to make

Today I am going to give you a present – a financial model. This is something you can use to measure how far you have come and where you need to go to continue your success, so it’s really quite important that you think about and answer each aspect as best you can.

I think there are four aspects to the financial model:

1. How is the firm doing?
2. How are the consultants (and associates) doing?
3. How are the clients doing?
4. What other financial drivers are there in the business?

Without getting in to “Analysis Paralysis”, let’s look at each of these in turn:

1. How is the firm doing?

Items to track/monitor could include:

• Sales growth
• Earnings before interest and tax
• Gross margin
• Net margin
• Debtor days
• Liquidity ratio

These would all be “actuals”.

2. How are the consultants (and associates) doing?

Meaningful numbers to track would include:

• Utilisation levels (i.e. number of billable hours)
• Value of business introduced
• Number of “live” clients under management per consultant/associate
• Number of opportunities per consultant/associate on the pipeline report
• Conversion ration per client/associate

3. How are the clients doing?

It would be helpful to know:

• Number of clients
• Average value of clients
• Number of clients on retainers
• Number of clients who have used the firm more than once.
• Average client life
• Client classification in terms of value to the firm (N.B revenue level may give a different picture to profitability level, depending on the underlying maintenance effort required. In other words, your biggest client may not necessarily be your best.

4. What other financial drivers are there in the business?

These could include:

• Level of finder’s fees paid (and to whom)
• Breakdown of sources of business
• Bad debt history

The final part of the model will probably relate to remuneration policy. If all consultants are “partners” in the practice, then you will need to have an agreed policy regarding what level of fees after costs remains in the practice, and what can be taken out.

If you have associates as well, then you will need an agreed formula regarding net payout to them; a 60% to 70% payout is not unreasonable, with the balance reflecting the marketing and sales effort required to find work for the associate, the use of proprietary tools and models, and the administrative effort to process the contract. If the associate is sourcing their own work, but under your banner, then a higher payout might be justified than if you are finding all their work.

Well that’s it for now! I do hope you will continue to use my expert articles in the future and don’t forget to sign up for my newsletter for more insights.

#26: How do you find the right Outsourcing Partners?

Over the past two articles we have looked at how to rind the right business partners, and how to find the right associates. The third in the set is Outsourcing Partners.

What I am thinking of are people who provide services which fall outside the real scope of your consultancy practice, but which your client is keen for you to source. Whether they work under your brand or their own, your reputation is on the line, so you have to be certain in your own mind that they are the right people for the job.

I have put together another scorecard, much like the business partners and associate one you already have, but this time you want to focus more on their technical experience and professionalism. How they work will reflect on you and your business after all!

The key differences from the business partner and associate criteria are:

• They need to be recognised for their technical excellence, as you will not necessarily see much evidence first hand, unless they are working alongside you.
• They should be prepared to feed back to you anything you are entitled to know regarding the client and what is going on in his/her business.
• They should have a reputation for quality delivery.
• They should be realistic about fee levels.
• They should evidence that they understand what your brand stands for, and the values and principles which are important to you and your business.
• They must remember at all times that the client relationship is yours not theirs.

As before, it is really down to you how you assess and score such folk. Again I would suggest 70% as an acceptable “qualifying score”, with no individual aspect scoring below 5. Equally, you are free to adapt the criteria to suit your personal preference – I would once encourage you to view this list as indicative.

You could also adopt a similar approach when identifying external service providers for you e.g. lawyer, accountant, insurance broker, HR consultant, IT experts, social media expert, web design/hosting, PR professional and so on – they all have an impact on your brand to varying degrees, so you need to choose wisely.

My next article will focus on the financial model, and will in fact be my last article in the Growing Business series. So make sure you don’t miss it! In the mean time, do contact me with any questions on finding business partners, associates and outsourcing partners, or anything else you feel you need advice with.

#25: How do you find the right Associates?

Finding the right associates for your business is not the easiest of tasks. Nor is it the hardest, so there is a bright side! We will take a similar approach to this as we did with finding business partners. There is a broadly similar set of criteria you may wish to apply for selecting people you would identify and deploy to do specific work, either independently or as part of a team.

Take a look at the scorecard below and use this as a way of identifying who would be best suited to your business and current team:

The key differences from the business partner criteria are:

• They do not need to demonstrate that they can operate independently. Most likely they will be working as part of a team, or alongside you.
• They do not need to be able to source work (would be great if they could!). It is probably more important that they can build a relationship with the client staff with whom they need to collaborate.
• They are unlikely to be seizing the initiative in terms of identifying and progressing sales opportunities (again a bonus if they can – hence the listening skills requirement), but they do need to be able to assess situations quickly and make recommendations based on what their analysis is telling them.
• They need to be good representatives of the firm, rather than “being” the firm.
• They need to be perceived as being responsive.
• It is not necessarily important that they see the “big picture”; more that they deal efficiently and effectively with what needs doing.

It is really down to you how you assess and score such candidates. Again I would suggest 70% as an acceptable “qualifying score”, with no individual aspect scoring below 5. Equally, you are free to adapt the criteria to suit your personal preference – I would encourage you to view this list as indicative.

It may also be the case that you would test people in an associate capacity before contemplating bringing them on to the payroll – a good way of reducing the risk of hiring the wrong person. It is easier to let an associate go than let an employee go!

Let me know how you get on with your score cards, and if you want to discuss your options further then please get in touch.

#24: How do you find business partners?

In my last article we looked at what a successful practice looks like, which followed on nicely from the “wish list” we covered in my previous article on value drivers in a consultancy. Now I want to move on from this and concentrate on your next stage of business: partnership.

This is so very difficult, and on so many levels. The only advice I can give you is “if you have an ounce of doubt, then don’t do it”. Based on my own bitter experience, and that of others around me, I have come up with a checklist which I have been using with some of my consulting clients, which we have found works quite well. Please feel free to make use of it, and adapt it to suit your circumstances.

The 10 criteria we look for when sounding out potential business partners are:

A quick comment on each of these:

• It’s really important that whoever you take on operates off the same or a very similar code of conduct to yourself. The acid test for me is “would I let this person go to see my best client unaccompanied by myself, safe in the knowledge that he or she would take the relationship forward, as opposed to sending it backwards?”.
• Is there evidence that they are capable of both selling and delivering consultancy work, making clients happy, and winning repeat business?
• The last thing you need is someone who is dependent on you to provide them with work. A genuine partner can source work for themselves, you, and anyone else in the business. They are looking out for the firm, not just themselves.
• Can they communicate with others in a way that establishes and develops relationships? Sometimes technical excellence comes at a price, often in the shape of interpersonal skills!
• Are they good at spotting opportunities and capitalising on them?
• It’s all about the client, and the client’s experience. Do they give any evidence that they believe this and genuinely try to live it out?
• Do they give off an area of confidence and self-assuredness, without being arrogant? In addition do they have the courage to walk away, in a professional manner, from assignments and clients if they believe they are being compromised or conflicted in some way?
• Do they display business acumen? In other words are they capable of taking a holistic view of the business and its context in the marketplace, and then reach and implement sound commercial decisions for the benefit of the firm?
• Authenticity is exceptionally important. Do they “walk the talk”? Do they live up to who they purport to be and what they stand for? Is their on-line image coherent with the carbon-based life-form in front of you? There is a direct correlation between their authenticity and the reputation of the firm.

Finally, their technical excellence is sometimes taken as a given, which could potentially be a mistake. Do they have material, either in the form of intellectual property of intellectual capital, that other people will be prepared to pay for? In other words, do they have technical know-how, expertise, experience, that can demonstrably add value?

I think you should be looking for a score of 70, with no scores below 5, if you are seriously thinking of engaging with someone. In addition, I would strongly recommend that you run some kind of trial period to see if you can collaborate efficiently and effectively, before you enter into any form of agreement.

And one final word, make sure that any agreement provides for an orderly dissolution if a parting of the ways becomes necessary at a later date…

If you want to discuss this more with me, please don’t hesitate to contact me.

#23: What will a successful practice look like?

Here we are at the start of another year, always a good time to reflect on lessons learnt and a time to decide how to move forward. This month, I want to follow on from where we left of last year, looking at your strengths and weaknesses and why these are important aspects to consider when developing a business.

This really builds on the “wish list” we looked at in my previous article. Another way you could reflect on this list is to cluster them. I am suggesting four main clusters, for reasons which will become clear when we consider how we can measure the progress we are making.

Cluster 1 – Financial
Would any financial due diligence exercise reveal that the company was in robust health with good trajectory and momentum? Things that would be reviewed here could include:

• revenue growth
• profit growth
• quality of fee income
• revenue mix/concentration

Cluster 2 – The Clients
Does the client base make sense and look to be sustainable? Aspects to be considered might include:

• client desirability and quality
• level of repeat business
• number of clients considered to be trusted partners
• identified market for which firm has a distinctive offering

Cluster 3 – The Team
What level of “people risk” is the firm assuming? You might wish to review and evaluate:

• manifest understanding of client requirements
• culture of personal development and continuous improvement
• loyalty of the core team
• technical excellence
• communication/listening skills
• evident business acumen
• responsiveness
• contribution level across the form (dependency on one or two “stars” re. sales and/or delivery)

Cluster 4 – The Process
Which aspects of the business have been subjected to a process approach, to assure the likelihood or achieving and maintaining desired standards of performance? Areas deserving attention would comprise:

• quality of marketing machine
• quality of sales machine
• quality of delivery process
• culture of action-oriented relationship reviews
• number of effective partnerships and alliances in place
• IP creation and protection

Approaching the questions in this manner might help you to envisage what success is going to look like. If you need any more help on this, do get in touch and make sure you refer back to my previous articles covering this process too.

#22: Value drivers in a consultancy

Well, here we are at the end of another year. For my final expert article of 2014, I want to move on from last month where we looked at exit strategies and concentrate on your strengths and weaknesses, important factors to consider when developing a business.

Building a “best practice” sole practitioner consultancy is challenging but ultimately rewarding. Building a multi-consultancy practice is even more challenging.

I’ve created the following “wish list” of questions to help you consider your areas of strength and weakness. All of these factors contribute to a thriving multi-consultant practice, but many of them are applicable to sole practitioners as well:

• Are revenues steadily increasing?
• Are profits steadily increasing?
• Are the clients desirable and high quality?
• Can the practice demonstrate understanding of client requirements?
• Is repeat business generated?
• Is there a quality marketing machine?
• Is there a quality sales machine?
• Is there a quality delivery process?
• Do relationship reviews take place and is action taken as a result?
• Is there a culture of personal development and continuous improvement?
• How loyal are consultants?
• How many clients are considered trusted partners?
• Are there effective partnerships and alliances in place?
• Can the firm display technical excellence?
• Are communication and listening skills strong?
• Do the consultants display business acumen?
• How responsive are the consultants?
• Is revenue spread across an acceptable range of clients or concentrated on one or two?
• Is there a high dependence on one consultant (re. both sourcing and delivering work)?
• Is the consultancy offering countercyclical?

I encourage you to consider this list in a moment of calm and identify three priority areas for improvement. Whether it is you, or you plus others, it might make the difference between you just surviving, and actively prospering.

It may also help you decide what type, or types, of people you need to complement your skills, talents and experience, and improve your responses to the above list of questions.

If you think you are struggling at all in any of these areas and aren’t sure how to improve, feel free to contact me.

So, that’s it for 2014 it seems! I look forward to sharing more of my expert articles with you over the New Year and hope you will continue to enjoy them as much as I enjoy writing them.

#21: Exit Strategy

This month I want to talk about exit strategies, which I covered very early on in a previous article but want to return to before the year is up.

I am indebted to my good friend and trusted associate Julian Sawyer, with whom I had a fascinating discussion around exit planning for a consultancy practice. He should know a thing or two, as he has successfully achieved it!

In chatting over a coffee, we started to talk about what you need to do to make a consulting business saleable – is there something more than just a good P&L story and a management team? These hygiene factors clearly need to be there. A buyer will also, if they are smart, de-construct your P&L and re-build it – so there is a false sense of success if they apply market rates for salaries, take out a one off blip from one high earning client and apply attrition factors to the business. So are there other factors? Julian believes so, and they come down to four areas which should be noted to enhance your purchase price:

1. What are you famous for?

Are you a trusted advisor to your clients or do you have a business based around a guru? Either can be a strong business strategy but they are very different in how you manage the business, reward the team and grow the business. The valuation and sale approach will be different (not to mention the lock in criteria!). Being quite good in both of these styles of business at the same time is fundamentally flawed. Purchasers will be looking to extend deeper into clients (selling more services or new services to your clients) or looking to position themselves behind the guru maybe as a technology provider in this space.

2. Who are your clients?

Are they strong stable businesses, are they wide across the industry sectors and diverse? You also need more than one client and certainly more than the mate who has hired you! Preferred Supplier Arrangements, Master Service Contracts and long term, multi-engagement roles show the depth is there and the assurity about stability of income. This depth enables leverage of more consultants or additional products or services, which increases the upside for the purchaser.

3. What are your methodologies and processes?

Having the black box, the repeatable process, is somewhat important (though sometimes over egged by consultancies!). Having a methodology and a set of processes helps a seller in two ways, it shows there is some residual IP in the business and the eternal hope that cheaper, younger resources can be trained and utilised to deliver high value consulting engagements.

4. How much loyalty do your consultants have?

A consultancy where everyone is treated as peers (a group of mates that have come together) is not attractive or at the very least reduces the types of companies interested. Having a single point of failure (i.e. a rainmaker) increases the risk and reduces the overall value (or at least the distribution of the proceeds). The acquirer, again if smart, will realise the owners will move on and they need to ensure the rest of the team doesn’t walk.

Go through these points and ask yourself, do you really know how much your business is worth to others when, in reality, there may be many more people doing exactly the thing as you who can offer them the same deal or services. Will you be able to tell when the time is right to walk away and hand over your responsibilities and obligations to someone else, or will you stay just for the sake of staying?

Something to think about.

#20: Pros and cons

Having looked at your motivators and rationale for trying to move from sole practitioner to practice head in my last article, it’s time to evaluate the pros and cons of such a transition.

So firstly, the pros:

• You can potentially create a value business which means you can extract a financial reward from the business greater than your own individual input.
• You can team up with like-minded people.
• Products/services and markets can be developed together.
• Specifically, you will have a sounding board for ideas.
• You can create an environment where you are less isolated and less lonely.
• The burden of ownership would be shared.
• You can hand over areas of responsibility with which you are less comfortable.
• You are no longer taking 100% of the risk.
• A potential ready-made team is available, which can win work you couldn’t win on your own.
• A brand can be built which is bigger than you and your name.

However, where there are pros, there are usually some cons lurking…

• Potential participants in the practice may not share your code of conduct, whatever they say.
• They may not share your vision for the business.
• They may be tempted to represent themselves as opposed to represent the practice, and keep lucrative deals for themselves.
• They may not communicate openly and honestly.
• They source business for themselves but not others.
• They don’t pull their weight in terms of practice matters.
• They try to “steal” the clients you introduce to the practice.
• They turn out not to be “authentic”.
• They do not contribute wholeheartedly to brand building.
• They do not have the technical skills and ability that you were led to believe.

The only real advice I can give you is a) be very careful before you team up with anyone, and b) try to trial a relationship with them before you structure something more formal.

We will look at this in more detail in later articles, as well as how you might go about assessing the suitability of potential partners.