where is your firm in its lifecycle?

how to change if you don’t like what you learn.

by ed mendlowitz
77 ways to wow!

a while ago i gave a speech on business performance measurement and, to prepare, i searched online and found many books on performance measurement, but they were for personnel performance, not for businesses where i found only a dismal few.

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however, that’s what i have been doing my entire career, so i was able to put together an enlightening presentation. that also got me thinking about the areas business owners and managers should concentrate on to improve their business’ performance.

for starters, here are three basic premises:

1. the purpose of a business is to make a profit, provide customers with value-based products or services, support personnel with adequate compensation and a safe work environment, pay suppliers on time, and to be a good citizen of the area where the business is situated and for the overall environment.
2. to do this, products and services need to be priced properly and delivered in a timely manner, personnel need to be empowered to assume responsibility and to develop further, amounts due and payable must be collected and paid timely and there must be a plan for growth and business continuance.
3. the owners and managers need to exercise due diligence to accomplish its goals; and that includes engaging appropriate personnel and consultants and proper training for their staff. there also needs to be a recognition that not everything that ought to be done, can be done, and that priorities need to be assigned. when assigning priorities, it is suggested that the most critical areas be dealt with first, not the easiest to resolve if they are low payback areas.

checklist: 12 areas where performance can be evaluated

1. sales including pricing
2. production, product cost and margins, and quality
3. distribution
4. human resources including training, growth and development
5. overhead and expenses
6. finances and capital structure
7. cash flow
8. management
9. leadership
10. new product development and product enhancement
11. marketing
12. risk management

books can be written about each topic. my suggestion to business owners and managers is to be aware of your business’ performance in each area, question variations, look for changes, any changes, and changes in trends. look, really look, at your personnel’s activities and see if there are changes there. be in constant contact with your customers and the value you provide, and work at being a manager of your business.

whether you are starting up or a seasoned entrepreneur, the details need to be watched, including being sensitive to what is happening in every part of the business, and making sure the business is aligned with your goals and raison d’être.

business focus

the headline in the wall street journal declared that ge was narrowing its focus. it was 2014, but the lessons are timeless.

ge was selling its electric appliance business and abandoning a highly visible but somewhat profitable segment.

the article asks, “what is ge?” what ge is, is not important to this discussion; what is important is the emphasis placed on focus. many businesses are not focused, do not have a clear identity, have management whose energies are diffused and fragmented and a confused customer base about the company identity with diminishing brand values.

companies of all types and sizes add divisions, brands and products trying to grow, obtain greater market share, and cross-pollinate customers to get more of their purchase dollars. many times, the result is not clear other than to get bigger. in a larger sense the end-result should be to make more money and be a more secure company with a sustainable future. i believe this is usually overlooked because it is a long-term outcome that thwarts the “importance” of the short-term chase.

ge is an old company that is growing and has morphed into a completely different company than its founders, who included thomas edison, imagined. with imaginative leadership, its growth went where opportunities led. its leaders were alert to innovation and creatively applied it to growth and company identity evolution. along the way its large size had to divert its leaders’ attention from everything except the most immediate profit contributors. the original core became a drag on overall growth and in reshaping the company, and diminished the big-picture focus needed to continue growing.

divestment of less profitable or slower growing segments is a smart way to monetize some assets while allowing better and truer focus on the larger parts of the business, permitting a clearer focus on future growth.

you do not have to be a ge to have this apply to your business or not-for-profit organization. critically examine your product lines, your customer base, your human resource allocation, your greatest and least profitable segments and those requiring the most attention, infrastructure and/or financing. also examine your core capabilities and activities, whether and how your customers identify with your organization and pinpoint any growth inhibitors. then, consider doing what ge did and get out of the drags. size is not what creates value and sustainability and does not equate to cash flow, which is what will really create long-term health and value.

ge is not the only “mega-large” company going through this process, but its action precipitated these thoughts and comments.

use the ge case study as a starting point to examine and possibly simplify your organization, add value and allow the right focus.

swot analysis

a swot analysis is an effective way to examine a business. swot is an acronym for “strengths, weaknesses, opportunities and threats.”

a swot analysis identifies the strengths and weaknesses of an organization and the opportunities and threats from its external environment. it can be done by owners, primary managers, team members, board members or advisors such as the organization’s cpa. the swot analysis can be just as effective for a not-for-profit organization. it can be used to develop a long-range strategic plan or to find a solution to a specific issue or problem. the analysis enables the concentration of efforts on maximizing the strengths and opportunities and minimizing the effects of the weaknesses and threats.

following is illustrative data that would be included in the analysis:

strengths

1. what the company does well
2. the company’s position in the market
3. the company’s long-term customers
4. the supplier relationships
5. proprietary products and processes
6. the company’s key employees
7. the company’s culture
8. the teamwork
9. new products that are being developed
10. sells directly to consumers (or distributors, wholesalers or franchisees)

weaknesses

1. what the company does poorly
2. the company’s lack of a strong or dominant position in the market
3. lack of solid capital structure
4. customer and/or employee turnover
5. lack of identifiable culture or team feeling
6. older management base that needs to be replaced within the next number of years
7. no relationships with distributors
8. a weaker brand than competitors
9. the opposite of any of the suggested strengths

opportunities

1. favorable industry trends
2. new products that are being developed
3. possibility of new markets for company’s products
4. new technologies that can be applied to company
5. expansion of present customers into new markets that will need support from company
6. customer buying patterns toward the full line company sells
7. expansion into global markets
8. lowering interest rates or easier credit

threats

1. aggressiveness of competitors
2. alternative products that can replace company’s products
3. greater demand for specialized employees that company hires
4. litigious attitude against products that company produces or sells
5. environmental concerns
6. customer buying patterns away from the partial line company sells toward full-service vendors
7. strengthening euro against the dollar
8. tightness of availability of credit
9. tariffs

my experience has been that the identification of issues is not that difficult when the people involved “lock” themselves in an office for an hour or two and focus in on the swot components. the problems come when there is an inability to recognize how to approach the identified issues and after coming up with a plan, the failure to implement and execute.

to make the swot meaningful – and beneficial – assign each person at the meeting two items to work on with a two- or three-week reporting period. the plan can be to better the strong items or work on reducing the effect of the negative items.

meetings should not last more than 1½ hours. the tight time limit reduces chit-chat and a feeling there is no rush and fosters a “let’s get down to business” attitude. frequent shorter meetings can be much more productive than longer meetings.

when followed as suggested above, the swot analysis can be an effective tool and greatly help the participating managers do a better job.

lifecycles of an organization

 

organizations do not last forever. they have lifecycles and the truly successful ones find ways to extend their lives. this is just as applicable for not-for-profits as for businesses.

businesses have a growth stage where they develop and mature. at maturity, they become stable and left alone, they age and decline. the successful organizations find ways to continue developing and growing.

i have seen many businesses grow very nicely after they start … only to max out at some point. there are many reasons for this, but the point here is to make you aware of the cycles and have you work on overcoming the inertia that settles in. companies cannot rest on their laurels and must keep their focus on continuous growth. past the peak, arrogance sets in that then hastens the decline and death.

what to do

1. find the position on the curve where you think you are.
2. evaluate the momentum.
3. develop a plan to get to the next lifecycle if you are on the left side of the curve. reverse the trend if you are on the right side.
4. if at the stable peak, work out a method to continue growth and forestall the decline.
5. one extremely effective method to follow is to lay out your previous three- or four-years’ operating statements and use the trends to project the next three or four years.
6. do the same as the last bullet, but with units, e.g., products, pounds or hours. if the trend of what you sell is different than the dollar trend, examine the effect on your market share or position in marketplace.
7. evaluate the trends and decide if that is where you want to be, or how to do better.

the lifecycle measurement is an effective tool that can help place your business in perspective with indications of the direction the business is headed toward.

posted on june 5, 2023