#19: The reality check – why do this?

Before you go too far down the “consultancy practice” road, it’s worth pausing and taking stock. You may find it useful to review how far you have come on your journey, what you have learned, how you would describe where you are (including the extent to which you have achieved your original goals, both personal and business), and what your personal goals for the next few years look like.

As part of this review, it will be worthwhile gauging the “mood in the camp” – how are you feeling – fulfilled, happy, tired, bored, frustrated, receptive to change and so on. This might throw some light on why you are considering a transition from working for yourself to building a practice. In the same way that you took stock when you set up your consultancy in the first place, it’s important you consider in depth your motivators and rationale for changing the model. Part of the driver could be your desire to move from a lifestyle model to a value model (assuming you have not managed to create any IP to date). We will revisit this when we look at value creators in a practice environment.

An “eyes wide open” transition is very important, so is there anyone you can talk to who has made a similar transition and made it work – their input would be invaluable. Other issues to think about would include:

• Are you looking for more people who do exactly what you do, so you can cover your existing market with existing products/services in a more comprehensive manner?
• Are you looking for people with skills/experience complementary to yours, so you can cross-sell more to existing clients?
• Are you looking for people who can take you to new markets, possibly with new products, to diversity your risk?
• Are you looking for people with distinctive products/services who can help you have a disruptive impact on the market?
• Do you want to run the practice and leave the delivery to others, or do you want to play a full role in delivery?

Being absolutely clear about what you want, and why, is an absolute precursor to making a successful transition. Hopefully the next few sessions on this will help this process become clearer.

#18: Creating a consultancy practice

Now that we have covered the best and worst tips for success, the latter of which I hope none of you have had the misfortune to relate to, it is time to move on to if you are actually ready to make these changes and why you are doing them.

Of the many lessons I have learned over the past 12 years, one of the most salient has been how difficult it is to establish a consultancy practice, as opposed to operating as a sole-practitioner consultant. Why should this be some much harder than building any other type of business?

In the next few articles I will attempt to uncover what the challenges are, and how they can potentially be dealt with.  I have tried to group the challenges under the following 10 headings:

1. The reality check – why are you contemplating making this transition?
2. What are the pros and cons of remaining a sole practitioner and building a practice?
3. Do you have an exit strategy?
4. Do you have a clear idea of the value creators (and destroyers) in your planned practice?
5. What will a successful practice look like?
6. Can you find the right “partners”?
7. Can you find the right “associates”?
8. Can you create the right external network of service providers, intermediaries and specialists?
9. What does a workable financial model look like?
10. How will you measure the extent to which you are moving in the right direction?

By the time we have worked our way through these 10 areas, you should have a much better idea of whether to make this transition or not. You will also have a clearer perception of how to go about it, and what the key “do’s and don’ts” are. Over the next few articles, I will be building in what I have experienced myself, and what I have seen others experience, to reinforce some of the points.

#17: 10 Disastrous Strategies

After sharing my top tips with you last week, I wanted to draw on this some more in a bit more depth. Upon writing this article, I sought input which left me profoundly depressed – I ended up with over 100 things not to do or avoid! So to draw myself back from the edge of the precipice, I reduced this down to the 10 which were cited most often. I hesitate to say “read ‘em and weep”, but here we go:

1. In terms of staff engagement it is really important, as part of persuading them to take responsibility and accountability to tasks, that they are focussed on outcomes and not activities. Easier said than done, but very important. “Busyness” doesn’t mean success.
2. Making decisions on sub-optimal management information is not going to help. Make sure you MI is timely, meaningful and relevant. Furthermore, make sure you understand the financial drivers in your business, in particular your gross and net margins and your breakeven point.
3. Have you shared your vision in a way that your staff feel part of it? If you haven’t, they aren’t on the same bus as you are.  Telling them stories often helps – become a storyteller.
4. Businesses without a “Plan B “often fail.  Make sure you have a risk register, with countermeasures to eliminate the main risk in your business.
5. Cash was, is, and will remain king. Make sure your expansion can be supported by either long-term capital, working capital, or both. Without cash, your days are numbered. An expansive order book is no use if you cannot pay your bills.
6. Bringing in senior people to share the load is understandable, but ensure that a) they operate from the same code of conduct as you do, b) they genuinely hare your vision, c) they can do what the claim they can do and d) you have reporting mechanisms to verify this.
7. You are expanding the business in a controlled manner and not spreading yourself too thin (think Ansoff matrix!)
8. Avoid concentration risk – it’s great if you have a significant predictable revenue stream each month from one client, but what if your key sponsor leaves (back to Plan B!)?
9. Don’t let costs expand to keep pace with revenue growth – in the euphoria that accompanies expansion it’s easy to overlook this.
10. Don’t lose sight of your core values – they should be enduring and if you lose them you are building your house on sand, in biblical terms.

So, plenty to think about, but important you don’t become complacent…

For more information on strategies and advice, make sure you keep up to date with my expect articles or contact me through my website. I am always happy to help.

#16: Top Tips

This week, I wanted to share some of my top tips on how to run your business successfully, which I have learnt throughout my career and continue to follow.

One of the key attributes of people who succeed in growing their business is that they refuse to admit defeat. Making wrong decisions and mistakes happens to us all – it’s how you deal with them, learn from them, and move on that counts!

I’ve been reflecting about some of the lessons learned (often relearned!) by my clients, and myself, and so I thought I would share a few of them with you. By the way, these are all genuinely prompted by experiences of people I have worked with, so they are very real indeed!

1. Do try to ensure you have a diversified book of business – too many eggs in one basket is dangerous, however secure you think it may be as a source of ongoing work.
2. Do review your personal branding (or even better get someone else to review it!). It’s amazing how little “disconnects” can sneak in between different places where you interact with your marketplace.
3. Surround yourself with quality – business partners, staff, associates, and service providers. You may find it a false economy not to do so.
4. Be careful whom you trust and take in to your confidence. Failure to do so can cause financial and personal hurt.
5. Develop your own criteria for business assignments, and have the courage to walk away if they are not all met. Mine are a) only take on interesting work, b) only work with/for people I like, c) make money but not be greedy and d) have fun. Works for me!
6. Get better at spotting timewasters – I have heard them called “energy vampires”! i.e. people who take up your valuable time but have no intention of ever retaining your services or buying your product.
7. Be more selfish with your time, and be on the alert for people who will try to access your product, or more likely service, without paying for it. Make sure you have a policy in terms of when the meter starts running.
8. Be careful when hiring staff, or associates, that they will fit in to the business. Once you have satisfied yourself with their technical competence and skills, make sure that they will fit in terms of team culture. If not, think about how you, your existing team, and the new hire will need to adapt your respective behaviours to make it work.
9. In today’s market everybody is increasingly cost-conscious, but that does not mean you necessarily have to drop your prices. Rather than concede, think if there is a way that your product lends itself to trading time and not money.
10. Finally, take time to review the network you currently have. Is it the right people, and are there enough (or too many!) of them? If necessary create a framework for the trusted network you need to flourish in your business, and then set about making it happen. It may be that organised networking events is not right or not enough for you.

So, there you have it. I hope there is something here that resonates with you and your business. If you want to explore any of these (and the stories behind them!) please feel free to contact me.

#15: Future for the Founder

This links up quite nicely with the previous issue of Choices. As we have discovered, a business achieving sustainable profitable growth offers choices to its owner or owners, as it is operating from a position of comparative strength. Let us consider the implications of some of these choices for the founder, which could be paraphrased as “move on or move out”.

The first one might be acquisitions that could be made to achieve a step-change in growth as opposed to being satisfied with organic growth. My business partner Stephen Furner is something of a guru in this space. He looks a lot at acquisition drivers, which could include the need to widen your product or service offering, and/or to enter proven markets at home or abroad, in order to stay ahead of the competition.

“Your company will benefit from speed of access to new products and services, broader skill sets, and established customer/client bases. This approach can avoid a huge drain on cash resources for a company attempting to achieve growth by way of organic development, particularly in overseas markets”.

The other two key components to an acquisition strategy are getting ready to acquire and getting it right!

As Stephen says in terms of getting ready:

“You have to be well prepared for the process, with a capable management team and scalable technology that can absorb the target company with minimum disruption. Your business plan will have identified areas for potential growth and your second step is to make a full, ‘acquisition search’. Hiring a non-executive director or business adviser at this stage will minimise your early costs, provide expert guidance in the process and prevent you from making poor decisions.

Your acquisition plan will need to state the amount of funding available to acquire a target company and you must arrange access to finance before you start the process.

Ask yourself whether the target company will add value to your business through wider offering and markets. Ensure that market growth is sustainable and fits with your business model. Make sure the target has a product or service that differentiates itself from the competition. You should always ask why the company is for sale. Check for healthy profit and loss and cash flow indicators, and quality of customer base, including the level of concentration with major customers.

Research external factors in target markets so that you are aware of potential disruptions. Confirm that the target has a strong second-tier management in place, especially if you cannot tie in the owner to an earn-out deal or a service contract.”

And he is always at pains to stress the importance of getting it right:

“When you have identified your targets, you can approach them, discuss the possibly of an acquisition and establish a sound valuation. From there the detailed buying process can start. You will need to hire a commercially-minded solicitor to guide the legal process.

Acquisition is just the start, so don’t delay planning your implementation strategy with your new asset until after the deal is done. You need to be ready to hit the ground running.”

Another choice the founder has is the reverse strategy i.e. exit. It’s vital to get this right after all the hard work that he or she has put into building up the business so it is potentially attractive to a buyer. The most common exit route is a trade sale, so let’s focus on that.

A few key aspects to reflect on:

1. Careful planning is essential – allow up to 5 years to groom the business for sale.
2. Your key objectives would be:
   a. To find three or more buyers willing and capable of bidding for the company at about the same time.
   b. To organise and present the business in such a way that the transfer of ownership is smooth and relatively quick.
   c. To be able to turn down unacceptable offers.
3. Always have a “Plan B” i.e. what will you do if there are no appropriate buyers?
4. Make sure you get advice early, starting with a reality check on planning for a sale, as it is not easy to sell a small company. This should include how attractive is your company to a potential buyer, and can it be made more attractive, and what will the mindset of a potential buyer be in terms of expectations, valuations etc.
5. Ensure that throughout the process you always maintain the momentum and trajectory of the business and don’t get distracted by the sale process.
6. Make sure you have assessed the value destroyers (get rid of these) and value enhancers (protect these) in your business.
7. Surround yourself with quality advisers (a non-executive director perhaps, plus a corporate finance firm, accountant, tax adviser and solicitor)

In summary, you need to be as meticulous in planning for a successful sale as you were at the outset planning for a business capable of sustainable profitable growth.

One alternative to a trade sale is succession planning, where the theory is you withdraw from the business gracefully at a time of your choosing, leaving it in capable hands. You probably need to allow at least 18 months to build a well-balanced management team capable of stepping up to board responsibilities when you move on. You may have to make some hard choices as the people who have helped you to grow the business may not be the best people to run it after your departure.

If you put in place a sound management performance system, with key indicators that your team are meeting the demands of the business, you can test them out before you hand over the reins, as you will have established a process whereby there is no need for you to micromanage or interfere unnecessarily.

The final option to consider is franchising. This is a tricky option and far from straightforward, but it could represent a financially attractive option for taking your business to the next (and a significantly different) level.

It is vital that you seek professional advice for the outset, as this is such a specialist area. One of the key issues is that your operating model is moving from being a pure business to being a training and support organisation for a group of independent bosses.

Some questions to ask yourself:

1. Are you fully satisfied that you can consider the performance of the business to be “proven”?
2. Have you the wherewithal to make the necessary investment to operate as the franchisor e.g. creating a central infrastructure, legal costs, creating handbooks, manuals and plans, establishing training and monitoring programmes, creating marketing and sales collateral etc.?
3. Have you the management skills to act as franchisor?
4. How will you protect your brand?
5. How will you find and recruit franchisees?

A couple of people I have worked with had eminently “franchisable” businesses, and tested their respective models by arranging pilots with “warm” contacts. They also undertook a great deal of research, interviewing other franchisors so that they were genuinely going into the franchise world “eyes wide open”.

So, there is plenty for a successful owner to consider in terms of next steps.

#14: Choices

Now that you know how to assess the financial strength and stability of your business, which we covered in my previous article, you may now find yourself facing a series of choices you need to confront as your business continues to develop and grow. A business achieving sustainable profitable growth offers choices to its owner or owners, as it is operating from a position of comparative strength. Choices could include:

• Positioning the business for eventual sale
• Going on the acquisition trail in order to achieve a “step-change” in growth.
• Raising equity or debt on more attractive terms
• Entering into joint ventures or strategic alliances on more advantageous terms and conditions

You have created choices because you have probably worked on (as opposed to in) your business (see this article on prerequisites of sustainable profit growth), and managed to bring about strategic change whilst achieving and maintaining a significant degree of balance between five key components, which are the standing blocks to your existing and ongoing prosperity:

1. You have aligned your staff in a way that they share the same picture as you do of the strategic direction of the business. In other words, you are all on the same bus! To do this you have probably kept it simple, referenced it repeatedly and consistently, and tested their understanding and that of other stakeholders.
2. A key part of the alignment is the leadership approach; you have adapted your behaviour to relate better to your staff, and enable them to take ownership of the growth, changes and challenges they face.
3. Another key part of the alignment is a common understanding of the required customer experience through sales and after-sales. The understanding in turn is probably derived from clear sales and delivery processes which are followed consistently by all, so that the customer experience can be repeated time after time with the same results.
4. You have devised a methodology to assess both how the business is doing and how the staff are doing, and link the two aspects as a performance management strategy. So, you are measuring business progress with KPI’s and balanced scorecards, and measuring people processes with a thought-through approach encompassing  a) performance management, b) reward and recognition, and c) training and development, which will be key components in reinforcing employee engagement.
5. Finally, as a result of the 4 approaches set out above, you have created a positive culture, whereby your staff are motivated and energised to make the right things happen in the right order, and in the right way. Culture drives strategy, but it can equally destroy it. But through your leadership, you have created a culture which is an enabler, not a destroyer.

There may have been other factors at work, but I think the above five, applied in “synch”, are quite often the ones that create a business environment where you can indeed begin to make choices.

In my next article, we shall consider the implications of some of these choices, and how these will have a direct impact of the future of the business and the founder, or founders, themselves.

#13: Financial strength and stability

Over the past few articles, we have been looking at how to build and develop a business successfully, using skills both old and new. Many of these have been key characteristics, such as strategic planning, and managing implementation risk.

If you have embarked on a transformation process to move your business forward, one of the outcomes should be that the business achieves a different level of financial resilience.

One way to assess the extent to which this has been achieved is to evaluate how your business would stack up, from a financial standpoint, in terms of being attractive to a potential buyer. There are other types of due diligence which would be undertaken, notably around your market, product or service, management, and your people. But for the moment let’s stay focused on financial aspects, with a couple of risk factors thrown in.

I would suggest that you consider the following areas of financial analysis:

1.  Are the following on an upward trajectory:                                                                                                                      – Turnover                                                                                                                                                                – Maintainable earnings (profit excluding exceptional items)                                                                                    – Cash flow

2. What is the quality of the revenue stream:                                                                                                                        – Transaction based or ongoing                                                                                                                                – Repeat business

3. Is there a strong balance sheet?
4. In particular, how heavy geared is the business (ration of debt to equity), and how liquid is it (in its simplest         form can all short-term creditors be funded out of cash and debtors)?
5. Is there a reliance on a small number of customers?
6. Is there a reliance on one supplier or service provider?
7. Is there any liability to past customers?

It may be useful to go back say three years, and score yourself not just on where you are now, but where you have come from. Depending upon what you discover you can then move on with confidence or take corrective action where required.

In my next article, we will focus on the choices you may now be facing as your business continues to develop and grow, and how to tackle these effectively.

#12: Measuring progress

Going back to my previous article on managing implementation risk and why this is important to building your business further, I mentioned that knowledge was also a key component in this process.

Knowledge is a massive asset for any business. Some of it is written down or captured somehow, but most of it is “tacit” and inside either your head, or that of one of your partners or employees. How you manage your knowledge will have a significant impact on how successful you are in growing your business.

It is worth spending some time assessing what information you do have. Ask yourself the following questions:

• Can I get hold of it on a timely basis?
• When I do is it accurate?
• Is it meaningful and relevant?
• Can it be monitored, measured and compared to my targets?
• Does it enable me to take action?

The key issue to keep in mind at all times is that you want to create value in your business, so what information will help you achieve that?

I see a lot of businesses that suffer from “analysis paralysis” – they have more information than they can cope with and can’t strip out the key “nuggets” which will help with decision-making. Quite often, when you are wading through an established company’s board pack, you can figure out how they have done in the last month or quarter. But you wouldn’t necessarily know how they had achieved their results, what you could learn from them, and what should be done differently going forward to realise the full potential of the business.

Let’s consider value creation for a moment.

Wouldn’t it be good to grow value contributors to your business? By way of example, your more profitable products or services and customer types. Equally it would be helpful to reduce or eliminate value destroyers; the less profitable or unprofitable products, services and clients. In other words, you could improve the financial value of your business mix. You could also assess opportunities to sell more and improve margins, thus creating financial value from sales and operational efficiencies.

Another thing to look at is how you manage your net working capital. How could you achieve improvements in your cash management practices? Not forgetting debtor management, creditor management, and inventory control. You could also review and dispose of underperforming assets, such as property, machinery and so on. By doing this, you would be making better use of your capital.

Finally, you could review how you were funding the business and see whether you could make any financially attractive adjustments to your cost of capital.

Tracking all these aspects would be an invaluable discipline. You could capture these in some form of “dashboard”, so you could see at a glance what was working and what wasn’t, and take immediate corrective action. Another useful tool in this regard is the Balanced Scorecard, where typically you would measure how you were doing in 4 key areas of the business:

I know a mutual organisation that created a great little scorecard to ensure they were measuring their performance against the pledges they had made to their members. It is worth bearing in mind that profit was not their only measure of success.

The elements they measured were:

Finance:

• Number of members voting at AGM (refection of member support and engagement)
• Operating profit (to ensure their solvency and payment of a “divi” to their members
• Net interest margin (they wanted theirs to be lower than any of their competitors i.e. difference between the rate they would lend at and the rate they would pay on deposits)

Customers:

• Number of membership points per member (measure of relationship depth and breadth)
• Share of UK mortgage market (sign of operational and technical excellence)
• Customer advocacy (reflection of customer satisfaction)

Staff:

• Customer satisfaction with employee performance (customers happy with behaviour of employees)
• Employee engagement survey results (satisfaction with leadership and development)
• Position in national surveys (recognition of a good place to work)

Process:

• Cost:asset ratio (sign of cost-efficient systems and processes)
• Percentage improvement in processes over time (sign of continuous improvement)
• Number of compliance breaches  (satisfying regulatory requirements)

If a “balanced” approach is taken to these areas of activity, then the chances of strategic objectives being hit is increased significantly.

So now that you know how to properly use your knowledge to your advantage, it is time to look at another skill for growing your business, managing your finances.

#11: Managing implemetation risk

Now that you know how to put a strategic plan together, it is time to look at how you can use your knowledge to build your business further.

When I used to work in Venture Capital we were regularly assessing strategic and business plans. If we liked the people, and the idea, we would move on to more detailed due diligence about every aspect of the business. Only then would you get in to negotiation of terms and conditions, which would lead to an investment being agreed. The whole process would regularly take over 6 months. To give you an idea, over one 12-month period we looked at 700 plans, and invested in 15 of them, so around 2%, which is in line with the industry norm.

On the day the final decision is being made about whether to invest or not, about 60% of the weight of the decision is around implementation risk. All the reasons not to do the deal had been removed by the due diligence process. However, it didn’t matter how perfectly crafted the business plan was, and how sound the underlying idea was, the focus was really on did we believe that the management team could execute the plan.

A wise old American venture capitalist once said:

“I would rather have the A Team with the B Plan than the other way round”!

Managing Implementation Risk is therefore of the utmost importance. A good starting point is around staff engagement. Ask yourself the following five questions:

1. Can you inspire and motivate your people with your vision for the future direction of the business?
2. Can you explain to them with absolute clarity what the process is going to be for the vision to be realised?
3. Can you get them to take ownership of the challenges, so that they set the outcomes and transition from being focused on “busyness” to being focused on achievement?
4. Can you lead the way by demonstrating an attitude that embraces change where it makes sense to do so i.e. not change for change’s sake? In this context it is important to note that if you are trying to change something you have to stick at it for a protracted period of time until your brain accepts it as the “new norm”.
5. Can you create a culture of trust and integrity, so that information sharing is encouraged and people collaborate better by following key common processes?

If this resonates with you I encourage you to read the work of Michael Gerber and Mark Fritz, who have so many helpful suggestions for you to make this work.

A few tips to help you with this:

1. You need a clear and robust plan, a strong purpose, and to be surrounded by the right people.
2. You need to encourage communication.
3. Look for some easy and early “quick wins”, which will help you build momentum.
4. Be aware of the team supporting you, and check regularly where they are in the Forming/Storming/Norming/Performing sequence, bearing in mind they can go backwards as well as forwards, particularly when there are changes to the composition of the team.
5. Focus on growing your best people (in terms of both attitude and achievement); they will help you deal with the rest of your people.
6. Ask your team questions, and get them to give you options, which will increase the possibility they come up with an option you can support
7. Keep everyone aligned in terms of what success is going to look like.
8. Stick to your values – know what you will/won’t tolerate and refuse to compromise.
9. Be open to feedback and act on it.
10. Review progress regularly and don’t be afraid to take swift corrective action if necessary.

A final thought for you on this topic. I remember back in the mists of time an annual appraisal where one of the comments was “He gets things done because of his people, rather than at the expense of his people”. That made me very happy.

Next month, we will look at how your business knowledge can be used to build a successful and growing business.

#10: The strategic planning process

Following on my from my last article on business growth, I would now like to talk about how you can achieve this through implementing a strategic plan for your business.

A Strategic Plan is fundamental to your ambitions being realised. In simple terms, you really need to be able to assess where you are with the business, identify where you would like to take it to achieve your goals, and then devise a plan that will enable you to get there.

If this is a topic which really interests you, I suggest you read The Strategic Planning Workbook by Neville Lake, which will really give you a comprehensive framework for devising a strategy and implementing it. We haven’t the time or space to do that, so will take a more “minimalist approach”.

I was fortunate enough to do some work in 2008 with Dr. John Marti of Southampton University, and I loved his no-nonsense approach to this topic. I will summarise some of his key thoughts and recommendations below.

Firstly, I remember he made some very helpful overarching remarks:

1. Strategy needs to be simple, crafted in everyday unambiguous language.

2. It needs to be communicated to and understood by everyone.

3. Keep it brief – ideally on one-page (I love one-page plans!).

4. It needs to be internally consistent, and use a common language.

5. It needs to be capable of being implemented.

He then moved on to present a very useful framework for the creation of an effective strategy:

1. Starting with context is a pre-requisite to crafting a plan. So questions for consideration might include:

• What are the owner’s values, philosophies and beliefs?
• What do the senior team want to achieve?
• What is the purpose of the business?
• What is the vision?
• What business is the company in?
• What business should it be in?

2. You would now have a platform which would permit a strategy to be developed. So the next set of questions might include:

• What is the business objective? This is the “what”.
  John recommended restricting yourself to one objective which would maximise focus and concentrate effort, committing it to paper and limiting yourself to the fewest number of words possible, starting with “To”. For example, “To be the provider of choice in Sussex of social media training for business start-ups”.

• What is the business strategy? This is the “how”.
  This would be an equally short statement starting with “By”. For example “ By creating a network of evangelical start-ups who direct other business to us”.
• What is the competitive position?
• What are the sustainable competitive advantages?
• What are the organisation’s capabilities?

3.  You would then conclude with assessing how to create an implementation plan:

• What are the tactical plans?
• How will they be implemented?
• What resources are needed?
• What changes will be required?
• What is the timescale?
• Who will be responsible and accountable?

Obviously, as you work through this you may have to undertake some information gathering, in order to ensure that your analysis and resultant decisions are done on a fully informed basis.