Navigating Uncertainty

I am back from my self imposed sabbatical on blogging.  I recently put together a presentation on growth strategies for small business and I have recently developed a forecasting template that analyzes past financial performance and allows a business to forecast different scenarios for the future based on managerial decisions business owners can make to increase profitability.  It begins with the basics:

• Increase Margin (raise prices, reduce supplier costs, increase productivity)
• Increase Volume (get more customers or get each existing customer to purchase a bit more)
• Decrease Expenses (reduce operating expenses by eliminating waste and negotiating cost savings)

There is a simple law of business management that holds true as strategies are developed to increase profitability - Every decision will have a consequence.  Unfortunately, forecasting the results of decisions are based on numerous variables and unknowns.  There is no certainty in the future and developing business projections involves taking the logic and facts of past performance and stepping into an abstract world of possibilities and uncertainty.


I stress this fact because anytime I present growth strategies that involve raising prices or increasing volume to clients, the most common response I get is, "Are you kidding? In this economy?"  No, I am not kidding; whether times may seem good or bad at the present time, there will always be an uncertain future.


Our economy is a fluid that flows with the individual pricing decisions of producers and the purchasing decisions of consumers.  It changes constantly based on a sum total of a series of small decisions made by business owners of all sizes; it is not a year to year change, but literally an hour to hour change.  In the world market place there are many entrepreneurs who seek to chart a course to maximize their earnings in this great ocean of activity and there are others who just go where the currents take them.


Obviously, I support setting a course for action.  Still, some will say that the tempest of today's economy leaves too much uncertainty.  I struggle to understand that rationalization for inaction in business development.  When was the future ever certain?   Predicting the future will always be uncertain.  We can't control the consequences, but we certainly have the power to influence them with our actions.  


Business planning is about developing strategies to influence market share, and at some point an entrepreneur is going to have to take some risk and make decisions to increase market share and maximize profits.   Getting more customers to purchase from your business may involve investing in more marketing.  Perhaps there are more product/service lines that you can add to get more customers to purchase from your business, or you can increase your inventory to make sure you can have what your clients want, when they want it.  Or maybe your product and services are slightly under priced and you have the opportunity to get a bit more value from each transaction.  


Business is holistic process of decision making where you the producer develops a product or service that offers value to the marketplace.  Consumers make decisions based on value comparisons that include quality, trust, service and ease of possession;  while price certainly figures into that equation, it is not the be all end all determining factor.   This past article in Bloomberg Businessweek sites an example of a combination of pricing strategies, marketing and quality propositions that have contributed to one businesses' continued success in making them a market leader, even in the gloom and doom world economy represented by our media.  While I don't agree with all of the strategies noted in this article, it makes some interesting points about consumer behavior to stress that price is not the only influencer in purchasing.


As you develop your set of growth strategies, be mindful that what you hope to happen may differ from what actually happens.  Any decision can have negative consequences if efforts made to increase profit come at too great of an expense.  Pricing strategies need to account for a potential loss of sales volume, marketing plans need to produce results and production efficiencies need to be properly managed.  No growth action plan is bullet proof.  


So how do you control your businesses' destiny with so much uncertainty?  Setting a course of action with clearly defined expectations of performance is the heart to any successful plan.  Measure those results and make adjustments if the market reacts differently than expected.   While this may sound too simple to be effective, I have found that few small business owners actually go through this process.  When I ran my own businesses, many of my decisions were based on intuition and my judgment on effectiveness of decisions were often based on rationalizing success (who wants to be wrong?), rather than a fair analysis of actual net profit performance efficiencies.


I've since learned that a more frequent review of your P&L Statements and Balance Sheets will provide indications of whether your strategies are working effectively.  Growth strategies should be based on a combination of profitability and return on investment efficiencies.  Your financial statements tell a story of the past and improving performance is an exercise of replicating those successes and repairing any inefficiencies found.  I can't stress enough the need to review return on investment in your growth strategies, as well as profitability.  There are many tools at your disposal to increase growth and if you take a small net profit increase and look at that as a complete success, you may be missing other opportunities for growth that can give a larger net return on your efforts.


Another point I would like to stress is that profit growth strategies are as fleeting as the future; once realized, they are past history and the future will bring new challenges and opportunities.  Business planning is a never ending process and it's never wise to fall asleep at the helm.


Vincent Van Gogh once said, “For my part I know nothing with any certainty, but the sight of the stars makes me dream.”  Most business owners see a prosperous future in the stars, but it those who make a plan to reach for them who are more likely to achieve success.

In Memory

I have spent my last three Septembers in Plattsburgh, NY.  Each year during the second weekend in September, we remember the Battle of Plattsburgh, a pivotal battle that ended the final invasion by British troops in the northern states during the War of 1812.  Each year we have a battle reenactment, a parade and a weekend full of festive events in Downtown Plattsburgh.  The actual battle took place on September 11, 1814.


So tomorrow I will be out with fellow members of my Rotary Club at a series of events.  I just got back from decorating our parade float.  Tomorrow we will be preparing the track for our Roducky Derby and then sponsoring a Bed Race, both fundraisers that raise money for various local community service projects. 


Of course, tomorrow is a day that is more nationally recognized for something else and my guess is that most people outside of Upstate NY know very little about the Battle of Plattsburgh.  It is a day that will forever live in infamy and I still am personally haunted by the horror we experienced nine years ago.


For the rest of my life, I will never forget what happened on that day.  We all have our own ways of dealing with that tragedy and I can't help but to get emotional on this day every year.  I still feel sadness and vulnerability.  Mostly, I still feel confused.  I cannot fathom that there were people that would take such sophisticated measures to senselessly murder so many innocent and wonderful people.


Another thing that confuses me is how our society has responded to this.  There is so much that I have heard over the past nine years that just doesn't make sense.  Everyone is entitled to their opinion and their own way of dealing with a tragedy such as this, but that doesn't mean that I have to understand or approve of it.


There is always quite a bit of noise in the media this time each year and most of it just annoys me or makes me sad.  What can I do about it?  It is out of my control.  Still, the phrase "Nine Eleven" makes me cringe every time I hear it.  It has become too much of a catch phrase  and I personally have a hard time with that.  


I believe it should be a day to honor those who lives were ended prematurely.  It is a day to remember how special those people were and and a day to comfort those who are still struggling to deal with such a tragic loss.


I choose on this day to remember one man who perished.  He was not someone I knew very well.  He was just a nice person who used to visit my place of business on occasion and who had some nice conversations with us while there.  I happen to remember one conversation in particular, because it was shortly after the birth of my daughter.  He took the time to congratulate me when he noticed the birth announcement by our cash register.  He told me about his two daughters and how special they made him feel.  


This man, Vic Saracini, passed away on September 11, 2001.  He was a special person who shared a kind thought and I will always remember the way he spoke of how he loved his family.  How can someone senselessly take the life of a person who had so much kindness in his voice, such a friendly smile and the sparkle of love in his eyes when he spoke of his beautiful children?  Of course there is no answer to this, yet it happened.  That is why I will always be confused.


There is a Garden of Reflection in Yardley, PA where people can go and remember Vic Saracini and some of the seventeen other loving people from Bucks County who perished on September 11, 2001.  


"The events of this day cause every thinking person to stop their daily lives, whatever is going on in them, and to ponder deeply the larger questions of life. We search again for not only the meaning of life, but the purpose of our individual and collective experience as we have created it - and we look earnestly for ways in which we might recreate ourselves anew as a human species, so that we will never treat each other this way again." Dalai Lama

Priceless Opportunities

This is an edited version of an article I wrote for the July issue of Strictly Business magazine:

Recently, our family had the good fortune of sharing a wonderful dinner with some friends who have a beautiful house on Cumberland Head in Plattsburgh.  It was a gorgeous evening with the clouds shaded hues that ranged from bright orange to pink in contrast with the dark, blue water of Lake Champlain.   From our location, Clinton Community College, the former Champlain Hotel, looked majestic sitting on top of the hill on the other side of the lake from Valcour Island.  

Our gracious hosts grilled some sesame-encrusted tuna and served it with a nutty, Caribbean style rice and some blanched green beans in seasoned garlic butter sauce.  With our meal, we enjoyed a glass of a full bodied, Lodi Zinfandel and spent some time sharing stories of our history, travels and children’s follies.  To paraphrase the popular MasterCard commercial, Groceries - $40.00; Cookbooks - $40.00; bottle of wine - $18.00; a memorable evening – Priceless.

Why am I sharing this experience?  Because there is a price that we are willing to pay for memorable experiences and this fuels a major driver to our economy.  In New York State, the hospitality industry generates of $50.9 Billion in direct revenues.  It employs over 650,000 workers and pays over $26.4 Billion in salaries.   It is estimated that over $3.2 Billion in State and $3.5 Billion in local taxes are generated from this industry.  According to a NY Department of Labor report releases in 2008, the tourism industry accounted for 4.9% of local jobs in the North Country and 12.8% and 15.4% of the employment in Essex and Hamilton Counties respectively.   Similar ratios of what the hospitality industry contributes to the economy can be found in many other locales.

From an entrepreneur’s perspective, the attraction to the food and beverage, accommodation and recreation industries is very appealing.  The reason behind this is that many prospective small business owners believe that they have the culinary talents or they have built accommodations in a beautiful setting that any visitor would appreciate.  They may have detailed knowledge in their favorite recreational hobby and think they can be a guide or run a retail store selling and renting the supplies visiting enthusiasts need.   The thought of profiting from doing something we love in a beautiful setting is a very enticing draw to self employment in the tourism, hospitality and recreational industries.

Unfortunately, these industries also tend to have some very high failure rates.   There is much more to running a successful business than knowing how to cook, make up a room or providing recreational support. Successful business models require significant planning to develop effective pricing strategies, detailed market and competitive analyses and focused advertising strategies.  

Adding to the difficulty of successfully operating tourism related businesses is the fact that many of the experiences can be effected by unpredictable variables such as the weather, natural disaster, human disasters (oil spill) and even disease outbreaks (Alaska lost a huge chunk of visitor traffic with the SARS epidemic in 2003).   Tourists also tend to travel in groups, bringing different personalities, abilities and interests; many would agree with Jerry Seinfeld’s sentiment that, “There is no such thing as fun for the whole family.”

Despite these challenges, the opportunity remains for businesses to prosper from the wealth of hospitality and recreational opportunities in this country. The key to developing a plan that leads to sustainable success is to remain focused on creating exceptional guest experiences. Looking at some of the more successful restaurants, lodges and outfitters in the travel industry, there tends to be a bit more to success than just providing quality.  It takes some talent and thought to develop something that provides the intangible value to make a guest experience special.  

I can think of no person who best embodies the core to success in the hospitality industry than the great Walt Disney. There are certainly theme parks with better amusement rides, hotels with more comfortable accommodations and restaurants with higher quality food than what you can get at Disneyland and Disneyworld.   Still, the vision and imagination of Mr. Disney created a brand that revolves around delivering memorable family experiences. 

Walt Disney once said, “The era we are living in today is a dream of coming true.”   For small business owners, opportunity has no boundaries for those who can imagine ways to provide guests with priceless and indelible memories.

Intangible Productivity

I posted an interview the other day the Becky McRay had with Bob Phibbs, the Retail Doctor. Becky McRay is one of the contributors to Small Business Survival, a great rural and small town business resource website. One of the questions Ms. McRay asked was, "Limited workforce is another big issue in small towns. Are there special techniques retailers can use to manage their smaller workforce?"

I would like to take an unsolicited opportunity at share my thoughts on this question. I think many small business owners in rural regions often look at their labor pools as being a challenge due to the limited number of workers. I prefer to look at this as more of an opportunity.

There is an old saying used by HR professionals to "hire for talent, train for skills." In rural regions, there may be some limits to the number of workers to choose from, but there is a tremendous amount of talent to be found in remote regions. Talents include things like being polite, taking initiative and determination to exceed expectations.

In small towns, talents are often easier to recognize. As it is difficult to judge whether someone has talents from just a quick interview, the benefit of knowing a little background on a candidate prior the interview provides a huge benefit. Talents are often best recognized by some level of familiarity with the person and small business owners in rural communities should always keep their eyes open for those who display talents. Sometimes the best way to recognize talent is to notice that special teammate on a sporting team who may not have had the been the best athlete, but who always gave 100% effort and tried to be a helpful contributor to the team. Talent can be found in that Boy/Girl Scout, 4H club member or Key Club member who took the initiative to develop a special project for the county fair. Maybe you will recognize talent in that special volunteer at the local picnic who was cleaning up long after most others left. If you are not familiar with a particular employee candidate, it's not hard to find someone who is in a small community.

Once you recognize talent, making your company the employer of choice is the next task. While larger employers often have access to more resources and better comprehensive benefit plans, the intangible benefits of working for an employer that cares will often attract the best employees. You may not be able to offer all of the benefits that they offer, but by creating more pleasant worker friendly atmosphere, offering flexible scheduling and more personalized training your company stands a good chance of attracting that talent. Of course, should you attract that talent, personal recognition for a job well done and offering opportunities for growth within your organization may be necessary to retain those talented individuals.

I can't emphasize enough the dividends that talented employees offer an organization. Another competitive advantage small employers often have is that they don't manage by just the numbers. There is a recognition of what I refer to as intangible productivity.

With the five businesses that my wife and I have owned, we have had the pleasure to have many very talented employees and the success of our businesses was greatly attributed to their efforts. Productivity is something that can be measured fairly easily. At our bagel stores or taco restaurant, we could measure production times for various kitchen duties or sales per labor hour for our cashiers like other large corporations do.

Yet, beyond those measures, there are many intangible levels of productivity. How do you quantify the value of that worker that is willing to go the extra mile to make a customer feel special? Hidden in the gross sales of your income statement may be the sales from that one customer who patronizes your business over and over again because they like that special employee. The financial statements can't accurately measure opportunity lost when a customer walks out of a store simply because they found the atmosphere cold and impersonal. Small businesses have the competitive advantage in paying attention to these details and in training their workers to utilize those talents to help grow the business.

Furthermore, there is a team dynamic that often can't be measured. I compliment my wife for her ability to recognize the strengths of her workers and adjust the roles within the organization to get the most out who she has available for a more productive day. Large companies make the employees do the task at hand and rarely flex the tasks that need to be done to build a base of loyal customers around the strengths of the employees available at a given time.

As with many of my posts, the onus is on the small business owner to take responsibility for the leadership of their own company. Building a team that gives tangible results from the intangible productivity takes effort to coordinate the talents available and give them a clear direction. As H. Jackson Brown, Jr. once said, “Talent without discipline is like an octopus on roller skates. There's plenty of movement, but you never know if it's going to be forward, backwards, or sideways.”

Move your company forward by finding the the best workers and giving them the guidance necessary to enhance the profitability of your business.

Hometown Retailers

I just want to repost this interview with Bob Phibbs, as I think he offers some excellent advice - http://bit.ly/d2v0C8

I will be adding a follow up response to one of the interviewer's questions in a later post, as it really made me think about some past experiences I have had with my small town businesses. I promise to write sooner!

Fool Me Once

I made a very expensive mistake in helping my wife with her business. It is embarrassing to admit my foolishness, but hopefully my lesson learned may benefit some other small business owners out who will heed my advice to be very selective when choosing a merchant service provider.

Last year, I helped my wife choose her merchant service provider for her business. Unfortunately, I did not read our agreement carefully enough and recently had to pay some unexpected fees when she closed her account upon selling the business.

The reason I say unexpected, is because I thought I carefully questioned the salesperson on the phone about the terms of their merchant services. I asked very specific questions about discount rates, monthly fees and terms of service. He verbally told me that it was only a one year agreement (which we fulfilled), he clearly outlined the monthly fee for service, provided the discount rates and assured me that there would no fee for cancellation if we completed one full year of service. Unfortunately, what he said and what was written in the contract that my wife signed did not match up.

The reality is that I was not thorough enough in reading all the documents that he sent to my wife to sign after our discussion. I have no legal recourse and I have no one to blame but myself for not paying attention to the details in this merchant agreement.

If your business is considering choosing merchant services, I suggest reading this article of some fees you can expect to encounter when choosing a merchant service. 7 Merchant Fees to Look Out For. I provide the disclaimer that this is not an endorsement of any particular merchant account service provider.

Remember that a merchant service agreement is a legal contract and no legal document should be signed without some due diligence. When choosing merchant services, you should never feel pressured to make a quick decision. While not all salespeople are disingenuous, the reality is that most merchant service representatives get paid to sell services, not to help you understand the details in the contracts that you sign.

In my case, by not thoroughly reviewing the details in our merchant agreement, I cost my wife and I our planned summer vacation for this year. It was expensive, but this fool learned one more important life lesson. Sacha Guitry once said, "Our wisdom comes from our experience, and our experience comes from our foolishness." At least I can say that I gained some more wisdom.

It's The Value, Stupid!

It was during the 1992 election, when Bill Clinton's campaign staff coined the phrase, "It's the economy stupid!" While this refrain has earned its place in our pop culture, it is more than just catchy slogan. It contains a valuable lesson, to not forget what the populace really wants.

This lesson transcends politics and could easily be applied to small business management and, more specifically, it relates to the core to developing a successful marketing strategy. Marketing is a complex subject and a single blog post could not come near to covering all the intricacies in developing a successful marketing plan.

As I work with my clients on their marketing, I often listen to them tell me about their ad campaigns and how they are going to market their businesses via brochures, newspapers, radio, television, social media and various other channels. Often they will talk more about their media rather than focusing on their message. When it comes to developing an effective marketing campaign, to paraphrase the political quote, "It's the value, stupid."

If a company hopes to be successful, it simply must provide some value to the marketplace. It doesn't matter how creative you may be or how much you spend, if the customers don't find value in your products or services, you won't have success with marketing.

I recently read an interesting article about the Old Spice Ad with the actor saying, "I'm on a horse." Despite the exposure this ad has had on national television, and the fact that this ad has resurfaced on YouTube and received an additional 2.9 million views, sales of the actual product being promoted have dropped by 7%.

Why hasn't the success in the number of views and popularity of the ad not been reflected in the sales of the product being promoted? While I certainly don't speak for every male who purchases body wash, I just don't find anything in that commercial that shows me the value of Old Spice body wash.

I find the commercial to be silly and perhaps there is some entertainment value in the ad. Yet after watching the commercial a couple of times, I noticed that the actual "Old Spice" product or logo is only visually displayed for 13 seconds of the 30 second commercial. The name "Old Spice" is only mentioned twice. While I didn't do scientific research on this, my guess is that more people refer to this commercial as the "I'm On a Horse" ad rather than the "Old Spice" ad.

Perhaps the ad is clever and memorable enough to get past the lack of product placement, but it still does not give me the desire to go out and buy this body wash. Maybe it is because he is addressing the ad to women and I happen to be a man. Let's assume for a moment that it was my wife who made the body wash purchases in our household (which is not the case) and she was swayed by the line, "sadly, he's isn't me...but he could smell like me." How do you think her insecure husband would feel about this? Even if I was secure, do you think I would appreciate getting this body wash from her? Does the advertising agency not get this?

We live in a world with a fickle marketplace, where emotion often trumps logic when it comes to studying the results of past marketing successes. While some marketing success stories may seem baffling, one can usually find a value proposition behind every successful campaign. Here is a link to an article on the top 100 advertising campaigns - Top 100 Ads. While I'm not familiar with all the ads, in most cases these ads clearly define some form of value proposition to go along with the creativity of the campaign.

When marketing a product, the heart of your endeavor is to convince the consumers that your product or service has some benefit to them that is better than what the competition has to offer. Looking at the successful campaigns, you can usually define what is special about the product. Sometimes, it is blatantly obvious such as Campbell Soup's, "Mmmm, Mmmm Good," which is clearly promoting that their soup tastes good. Other times, the value proposition may be a bit more abstract, such as Nike's "Just Do It" campaign. While this ad campaign did not spend much time highlighting anything special about a specific Nike product, their is no denying that clear intent to associate the brand with athletics, fun, style and achievement.

As you search for a value proposition for your products or services, it is best to keep in mind the 4 P's of marketing. They are:

* Product (product/service quality)
* Price (fiscal value)
* Place (ease of possession/convenience)
* Promotion (branding and consumer recognition)

In one or more of the areas above, you should be able to differentiate what makes your product better than the competition. So before putting together an ad campaign that may achieve the viral success, make sure you have a message that will convert the views into sales. The market planning may not be easy, but the goal is simple - it's the value!

Going back to the Old Spice commercial, my guess from viewing that commercial is that they were trying to differentiate Old Spice as the brand for a "man's scent." Click on this link to an older Old Spice Ad. It says the same message, with a similar sense of humor. Yet at the same time, it would be inoffensive for either a man or woman to buy an Old Spice product after viewing this ad. Unfortunately, the "I'm on the horse" commercial sends mixed messages and both men or women could find reason to feel uncomfortable about buying that product after viewing that ad.

As I noted earlier, marketing is a complex topic and there is quite a bit involved in developing a successful marketing campaign. Winston Churchill once said, "However beautiful the strategy, you should occasionally look at the results." If your marketing is not producing the desired results, revise your strategy. But start with the basics - define the value!