Productivity. Profitability. Peace of Mind.

Things To Consider Before Diving Into A Marketing Communications Project

By Terry Bolda

Previous blog postings have explained the advantages of having professional and regular communications with your target audience, whether it is a letter, annual report, blog post, printed newsletter or email newsletter. As an executive director or CEO with little knowledge of the publishing or marketing communications world, what should you be thinking about when you are looking at expanding your marketing efforts with a regular newsletter to your customers and potential clients?

  • A production schedule should be the first thing. Depending on how many pages the publication is, a designer needs a week to 10 days and a printer needs 7-10 working days to produce a 12-page annual report. Then you need to build in a schedule for writing content. The more department heads involved in reviewing and approving content, the longer it will take. This process alone could easily be a month or two.
  • Find a good printer and designer. There are a lot to chose from, so build in time to meet with several designers and view their portfolios. There can be a pretty wide range of quotes from printers. It helps to get recommendations from other contacts to see who they’ve used. Some designers have printers they work with directly which will save you time but you’ll likely want another quote to compare.
  • What is your content? What do you want to tell the reader that is not only informational, but motivational too?  Ask others in your organization, customers and associates what would they want to know?
  • Finally, who is going to put this together? Look for a writer or editor with a journalism background. Journalists know to write compelling copy that moves readers along a path. If you have an email or print newsletter, or annual report, it needs to be written for the audience and on a production schedule. A journalist not only loves to write, but is comfortable working under deadline pressure.

Oak Hill Business Partners’ Growth Management Services will work with your management team to devise and execute an overall strategy for growing your organization.  Whether it’s a refined marketing strategy or improved communications with your target audience, we have the expertise to support you so you can focus more effort on your core expertise.   For more information, Contact Us today.

Terry Bolda is a Partner with Oak Hill Business Partners specializing in copywriting, editing and marketing communications.  He has more than 20 years of experience working with businesses and nonprofit organizations. His background includes being editor of a Wisconsin weekly newspaper, state correspondent reporter for the former Milwaukee Journal, and a public relations account executive for a large Milwaukee ad agency.

 

Preparing to Exit – Assembling Your Exit Planning Team

By  Frank Orlando

We’re entering the heart of tax season, and business owners are meeting with their CPAs and accountants to review their taxes and discussing the previous year’s performance.   While this annual ritual of meeting with your accountant is important, there is another regular meeting that should be taking place for every business owner and that is with their Exit Planning Team.

If you’re like most business owners, you probably already have an accountant or CPA firm, and perhaps even a business attorney and or financial advisor.  However, have you ever sat down with all of these professionals and fully articulated your plan for exiting the business?  Do you have a formal written exit plan that you’re actively executing?

According to a 2008 study performed by Whitehorse Advisors, a vast majority of business owners (greater than 9 in 10) agree that having an exit strategy for their business is important for their future as well as the future of their business.  In contrast only 1 in 10 business owners actually have a written, up-to-date exit plan.  Of those business owners without a plan, 80% have given the issue of exit planning little to no attention whatsoever!

I find this last statistic astonishing given that most business owners have a very significant amount of their net worth tied up in their business. Yet have no written and executable plan on how to properly monetize the value they’ve worked so hard to create.  In business school they tell you that you should be planning your exit the day you start your business.  Unfortunately, as the Whitehorse study pointed out, this is rarely the case.  That does not mean that you should not start planning now.  Obviously, the sooner you start planning, the better your chances are of attaining your personal and financial goals.

The way you exit the business and maximize the monetization of the value you’ve created must be carefully planned and discussed together with your trusted advisors – your Exit Planning Team.

The Exit Planning Team

Generally speaking, your Exit Planning Team should include a tax advisor or accounting firm, your financial advisor or wealth manager, your corporate lawyer and an estate planning attorney, and an experienced business intermediary or business broker.  A well crafted and properly communicated exit plan involves the functional expertise of all of these individuals, well in advance of the day or year you plan to exit your business either voluntarily or because of reasons beyond your control.

Tax Accountant/CPA

Regardless of how you exit your business, through a sale, transfer to a family member(s), management buy-out, merger or even IPO, there are tax implications that will affect the transaction.  Many times, tax strategies need to be in place years before the transaction in order for certain transactions to take place and be effective.

Financial Advisor

A good financial advisor regularly meets with their clients to review their investment portfolio.  Many times, the biggest investment a business owner has is the business enterprise itself.  How you plan to use the proceeds of the sale or transfer needs to be properly articulated to the financial advisor, so he/she can properly inform you about how the tax implications of the sale of your business will affect the overall investment portfolio strategy.

M&A Investment Banker / Business Broker

An experienced M&A intermediary can provide you with an objective and unbiased valuation based on market conditions (which are constantly changing) and comparable transaction data.  The valuation serves as a data point, and together with your other advisors you will determine the benchmark valuation and desired after tax proceeds you ultimately want to attain. Another benefit to be gained from involving an M&A professional early is that he/she can make suggestions on improvements you can make to your business to enhance its sale valuation.

Corporate Counsel & Estate Planning Attorney

Besides your company’s lawyer, getting an experienced estate planning attorney involved early in the process is critical to executing a successful exit plan. This is particularly important in situations involving privately-held, family businesses.

Each member of your Exit Planning Team has a functional area of expertise.  The exit plan should be written out, properly communicated with all members of the team (and family members where necessary) and regularly reviewed just like your business plan.  Engage these professionals early and often.

Oak Hill Business Partners is a professional services firm serving small and mid-sized businesses.  Oak Hill provides Growth Management Services, Mergers & Acquisitions Advisory Services, and Bank Management Services.  Our deep experience allows us to work “where strategy meets execution” – our strategy and our execution are based on years of experience doing the work.

Frank Orlando is a Partner of Oak Hill Business Partners, specializing in Mergers & Acquisitions for medium- and small-sized privately-held companies.  His background includes over 15 years of experience in buying, selling and operating companies in several industries including manufacturing, information technology, telecommunications, consumer products, gaming and entertainment.  Frank has also been appointed as a chief restructuring officer (CRO) for several private and publicly held companies.

Finding (And Satisfying) The Unarticulated Need

By Jim Buell

What if Henry Ford had only listened to his customer?  I don’t think he would have been nearly as successful as he was.

Henry Ford is quoted as saying “If I had asked people what they wanted they would have said faster horses”.  He was right.  His customer couldn’t imagine the car.  I picture Henry using focus groups and deciding that what he needed to do was become a master horse breeder.

Thank goodness, that is not what Mr. Ford did.  Yes, Henry Ford was a brilliant inventor and had great faith in his own vision.  But did his vision ignore his customer?  No.  Instead of only listening to his customer he really looked at them and figured out what they needed.  Farmers needed to get their families into town for church or shopping.  City people needed to get around town without worrying about feeding and caring for animals.  And pedestrians needed to cross streets without stepping in . . . well, you know.
I would rather spend a half day with a single customer than read a survey from 100 customers.  It is that deep dive into your customers’ world where you discover that great competitive difference.  Let me give you an example.

Some years ago I was asked to launch a new brand of frozen pasta for a foodservice division of a Fortune 500 company.  The initial ground work had been laid prior to my being brought in.  Customer surveys had been completed which indicated that our customers cared most about price and quality.  The going in plan was to focus on the highest quality ingredients and price our product 10% below the market leader.

I doubted that this strategy would give us the clear and compelling point of difference needed for any new product to find a secure spot in the market.  So I went to our target customer (college & universities) and really tried to learn.  Instead of conducting a market survey I spent a day shadowing the foodservice director at my alma mater.  I talked to him about how he is evaluated.  What his goals were.  I worked to understand the most important topics (on and below the surface) at his staff’s meetings.  Not once did I hear the need to purchase even higher quality foods (the market was filled with very high quality offerings).  I didn’t observe any deep concern about the cost of the food they purchased.  What was important to this team was termed “increased participation”.  They woke up every morning trying to figure out how to get the students at their school to use the cafeteria more frequently.

Really?  That was it?  When I thought about it this made sense.  Most of the costs of a college foodservice operation were fixed (facility, equipment, even labor).  Students purchased a set amount of funds to spend at the school at the beginning of the year.  If “junior” ate at the school cafeteria more often it was likely he would be forced to call his parents around Thanksgiving asking for another thousand to be deposited in his foodservice account.  Those late deposits were where the foodservice operation got its profits.

When we launched our new line of pasta we did not ignore quality or price, but we placed are sharpest focus on helping college foodservice directors increase participation.  In exchange for frequent menu placements in their cafeteria we offered a promotion that would allow the school’s foodservice staff run a special Italian theme meal, complete with a 10 speed Italian bike we awarded.  Armed with this our sales team sold 6 of the 10 largest college foodservice operations in the nation during our first year and we created a $13 M business.

Yes, listen to what your customers say.  But do more than that.  Spend time with them in their operation.  Watch what they do.  Understand how they are evaluated.  And then see how your product or service can meet that all important unarticulated need.

Oak Hill Business Partners’ Growth Management Services will work with your management team to devise and execute an overall strategy for growing your organization.  Whether it’s a refined marketing strategy or improved communications with your target audience, we have the expertise to support you so you can focus more effort on your core expertise.   For more information, Contact Us today.

Jim Buell is a Strategic Partner of Oak Hill Business Partners, helping companies build their brand by developing compelling customer focused solutions.

Sales Accountability vs. Organizational Responsibility

By Peter Rathmann

Customers are disappearing, buying habits have changed, profit margins are shrinking, marketing budgets have been stripped, and the competition is entrenched. To compound the problem, your sales team is only selling 20% of the time, call reports are fictional, sales are unpredictable, and the training you purchased has had no impact on results whatsoever. In this day and age, more production is needed from the sales team and they need to be held accountable for results.

To truly hold sales people accountable, organizations have a responsibility to have certain things in place.  These responsibilities include:

  • Having a lofty goal in place
  • Aligning the company on the lofty goal
  • Knowing their “ideal” client
  • Having current marketing materials
  • Knowing opportunities exist in the market
  • Being market-oriented and customer-centric
  • Being able to measure success

Once these responsibilities are taken care of, the next step is to design a sales system and create a roadmap that is reverse engineered on the lofty goal.  This road map should include clearly defined expectations such as:

  • Specific activity metrics
  • Weekly sales plans
  • Public activity calendars
  • Expected funnel size and velocities
  • Structured reporting mechanisms
  • Time bound results

Once an organization has taken care of their responsibilities, developed a sales system to follow and fully communicated what is expected, only then can the sales people be held accountable.

Oak Hill Business Partners is a professional services firm serving small and mid-sized businesses.  Oak Hill provides Growth Management Services, Mergers & Acquisitions, and Bank Management Solutions.

Peter Rathmann is a Partner in Oak Hill Business Partners, specializing in sales force engineering, integration, and optimization.  He has more than 20 years of experience in sales leadership in many industries.

 

What’s Your Product? Selling Using Customer Norms

By Jim Buell

The bottom line? Businesses run on numbers. Why is it, then, that when many companies market their products and services to businesses they usually offer up only one meaningful number – their price? Oh, product specifications include numbers and, to build credibility, companies talk about the number of years of experience they have. These numbers may be meaningful to your customer, but are they significant? Is it any wonder that price too often becomes the most important factor in so many B2B buying decisions?

Then why don’t we talk to our customers about what they value? Take my fictional friend Randall Runner. He conducts a training course for NFL running backs. In fact he has a unique system that is absolutely proven to improve running backs’ results. Yet he doesn’t get many sales. Here’s his pitch:

“I have twenty years experience working with running backs and I operate training centers all over the world. Each training center is staffed with experienced running backs

who follow my training method. When I was in the NFL I led the league in rushing yards. Since then I’ve patented my shoulders down rushing approach which helps runners get more lift when they hit the line. This displaces defensive backs, pushing them off balance and rendering them unable to effectively wrap their arms around the runner’s legs.”

All this great experience and yet, Randall is unable to sell his training to many NFL teams. Let’s look at another path Randall may take to sell his services.

“Coach, your team averages 4.3 yards per carry. Running backs using my new running style average 5.7 yards per carry within six weeks of completing my program. Would you like me to help get your top running backs closer to my normal results?”

Which approach do you find more compelling? Most decision makers find the second approach to be the persuasive one. Why not? It addresses a key need (increasing running back productivity) and uses data that is significant to the decision maker. Finally, the second approach introduces a normal result, or “norm” to quantify the result the customer could expect by buying the product or service presented.

I worked with an organization where this approach turned out to be, literally, a million dollar idea. Selling B2B consumables through distributors our growth rate had slowed to a crawl. One wizened distributor GM told me he didn’t want to talk about what was in the cases we sold because, whether I wanted to admit it or not, we had a commodity that offered limited difference between competitiveproduct. The GM only wanted to turn product. We developed a program to help increase turns by consolidating the distributors’ inventory – of course to our brand. After validating our solution we were able to approach our distributors as follows: “Your turn rate for our category is 5.7 times each year. People who adopt our approach average 8.5 turns per year without any loss of volume. Increasing your turns to our normal level would free up $53 K. Would you like to work with us toward realizing our normal result?”

This effort required no new product development expense nor did we reduce our margins through expensive promotions. We simply understood how our customers made money, developed a solution to help them and only discussed how we could help them using numbers that were important to them. Our reward? $1.3 M in new business from this single effort!

All senior level decision makers either use norms to manage their business or can quickly grasp the importance of key norms you may introduce. Which of your customers’ norms can you affect? Can you produce a “gold standard” norm (e.g., the best in the industry)? If you can, your selling cycle will accelerate rapidly and your ability to defend your business against competitive threats will be dramatically improved.

Yes, it’s important to know your product/service. But it is critical to know how your product/service improves your customers’ business and be able to discuss this improvement using metrics they value.

Oak Hill Business Partners’ Growth Management Services will work with your management team to devise and execute an overall strategy for growing your organization.  Whether it’s a refined marketing strategy or improved communications with your target audience, we have the expertise to support you so you can focus more effort on your core expertise.   For more information, Contact Us today.

Jim Buell is a Strategic Partner of Oak Hill Business Partners, helping companies build their brand by developing compelling customer focused solutions.

Consider the Value, Advantages of a Printed Newsletter

By Terry Bolda

Call me old-fashioned, but I still subscribe to a daily newspaper. I’ve been doing it since my college days. I treasure the walk to the mailbox each morning to pick up a printed newspaper, opening it up at the breakfast table, and catching up on the latest news with paper in one hand and coffee in the other. Since, like many of us, I’m spending more and more time transfixed on a computer screen, reading the newspaper is a refreshing break.

How are you communicating with your customers? As customers, they are interested in knowing the latest developments in your company’s services and technology. Improvements through staffing, product developments, and your successes–these are all newsworthy.

Are you doing an email newsletter? If not, don’t shy away from it because of the cost because it might not be as expensive as you think. A small agency or an independent consultant could be doing it for you for $200 to $300 a month or quarter for formatting and sending of content you’ve provided.  There would be one-time charge for design and layout in your emailing program.

But what about the old-fashioned printed newsletter? For less than $700, your business could mail 500 printed newsletters to 500 customers or prospects. That’s provided that you either write or supply the newsletter content. To hire a writer for your content, expect to pay about $750-$900 for the average four-page, letter-sized newsletter. There are many benefits— that could pay your company dividends via new customers— for printing a company newsletter. To name a few…

  • How many emails do you receive a day? How many do you press “delete” on? That could be the fate for many electronic newsletters hitting inboxes. If the recipient knows you, you would expect that they’d open your email. But that delete key is so tempting. If your customer receives a mailed newsletter with a personal letter included, she will more likely open it and read it. You might be the only old-fashioned vendor doing this.
  • Did you know that 84% of browsers automatically have pictures and images of emails turned off to guard against spam and viruses? This means that your beautifully designed flyer or newsletters looks like a bunch of cut and paste copy boxes and red-X squares when opened. Now what are the chances of it not being read or hitting the trash? A printed newsletter is opened with all the content and pictures in place and thus, is more likely to be read.
  • While it is true that an emailed newsletter can easily be forwarded to friends, an email can’t be taken to trade shows, left on desks, placed in reception areas, tucked in jacket pockets, or be nicely archived in a binder. A printed newsletter or brochure will have multiple views by various potential customers over its shelf life of 30 to 90 days.
  • Then, there’s the “value statement” made when a business takes the step of printing and mailing its newsletter. Like opening the morning paper, opening a letter and actually holding the newsletter in hand carries greater value.

Some years ago, digital printing hit the scene, making it more cost-effective for short print runs of less than 500. Digital printing is basically a glorified color copier.  Unlike commercial offset printing, digital printing does not use the photo mechanical transfer process that creates dot patterns. The dots provide a higher quality output and crisper photos. Offset printing maintains a better registration and can be adjusted for ink flow.

What about cost? A Milwaukee printer, who also has in-house design capability, will print 500, four-page letter-sized newsletters for $457. Add $17 for a 750 run, and double the quantity to 1,000 for an extra 34 bucks.  You can save a few dollars with on-line printers and designers (one listed design services starting at $30) but you lose some control and have to use pre-designed templates.

A future article (oh, excuse me, blog) will consider direct mail’s ROI. But for now, consider how your business is communicating with customers and potential clients and whether a printed newsletter may be the piece you’re missing.

Oak Hill Business Partners’ Growth Management Services will work with your management team to devise and execute an overall strategy for growing your organization.  Whether it’s a refined marketing strategy or improved communications with your target audience, we have the expertise to support you so you can focus more effort on your core expertise.   For more information, Contact Us today.

Terry Bolda is a Partner with Oak Hill Business Partners specializing in writing, editing, marketing communications, and public relations.  He has more than 20 years of experience working with businesses and nonprofit organizations. His background includes being editor of a Wisconsin weekly newspaper, a public relations account executive, communications director for a large NPO, and director of development for a Milwaukee church and school.

Keep Close Tabs on Technology Performance During a Downturn

By Bill King

As southeastern Wisconsin businesses strive to manage costs during the current economic downturn, it’s important not to overlook how your company’s technology is being managed.

Make sure you get the most for your technology dollar and your Information Technology performs at peak efficiency.

Trying economic times require executives to understand the IT component of the business as a whole. Executives know their financials, their marketing and sales, human resources and administration issues. But with technology, they spend money sometimes without knowing where the return on investment comes from because some companies do not establish, measure or track meaningful IT metrics.

Variables such as system availability, frequency and severity of trouble calls, and estimated vs. actual support or performance expectations provide a starting point to determine your technology’s return on investment (ROI).

In a slower economy, as budgets get squeezed, management is pulled in many different directions. Everyone is asking for resources. Marketing wants dollars to advertise; human resources needs funds to attract or retain talent; and IT wants upgrades and improvements. But if business owners don’t understand the value IT brings, they can’t allocate IT dollars wisely.

It’s apparent to management when technology does not deliver but more difficult to truly understand what makes IT consistently work well. This can create a frustrating environment with IT stuck in the unenviable position of having to justify itself and the technology it supports.

During slow economic times, we see a number of tactics that companies can utilize to improve their technology management. For example, department charge-backs – the specific requests IT receives from engineering, marketing, finance, HR and other departments are charged directly to the requesting department. Charge-backs show which areas of a business use IT resources and to what degree. Charge-backs give management visibility to how IT dollars and time are used and the benefits that IT provides across the company.  Such benefits include improved productivity, more streamlined business processes or improving the customer experience. This knowledge helps management define the return on their IT investment.

If a department, such as engineering, spends $25,000 worth of IT resources, they need to be able to pinpoint exactly how the dollars used benefited the department. Conversely, charge-backs may illustrate a department’s inefficient use of IT resources.  For example, a department with a high number of support calls to IT related to how to use a specific technology could signal a need to improve employee training or Human Resource’s new hire screening process.

Ultimately, any company can benefit from more insight into their expenses and how their IT resource/dollars are truly being used. Investigate if expenses are used for technology improvements, such as adding new capabilities. Or are funds needed for upgrades to an existing function or system or just for maintenance, keeping what is currently in place running – maintaining the status quo?

There are several steps a company can take to better manage technology.

  1. Learn the mechanics of your IT system(s). What are the individual components of your system? For example, file, print, Internet, email and backup server(s) – security, antivirus, mal-ware protection and remote access capability.  Use documentation and diagramming to allow you to understand which functions are performed in-house and which are outsourced or hosted elsewhere. Then you will better understand which system costs are fixed and which may be variable.
  2. Understand where you are in the lifecycle of your system(s). For example, if all of your workstations are over five years old and your server(s) are over six years old – running Windows 2000, you may be due for some substantial hardware and software improvements in the near future. As a rule of thumb, for budgetary purposes, the typical workstation and server have life cycles of three to five years.
  3. Learn where your IT resource is being used. Take the information you gathered in the two previous steps to develop and/or analyze what resources are required to keep what you have running – or to “keep the lights on,” so to speak.  Think of this as a minimum system requirements exercise. Information gathered through a department charge-back process will help you pinpoint use of IT resources.
  4. Turn the previous steps into meaningful procedures. Take what you you’ve learned in the previous steps to implement meaningful procedures to ensure ongoing success. By doing so, you will not only be assured that your IT performs in any economy, but also that it will evolve with and support your business objectives.

To further improve your technology management determine your company’s technology personality, set expectations and objectives for how technology is used and how it contributes to your overall business objectives, consistently review plans based on those objectives, establish measurable metrics and collect data based on metrics to evaluate and manage the entire process.

Assess your company’s IT health; take the time to learn about your technology users and where inefficiencies represent opportunity. Work with your internal IT department or your IT partner so you understand where your money is going (hardware, software, support, etc.) and how you can spend it more wisely. Good technology management can pay your company big dividends, especially during uncertain times.

Oak Hill Business Partners is a professional services firm serving small and mid-sized businesses.  Oak Hill provides Growth Management Services, Mergers & Acquisitions, Turnaround Solutions, and Bank Management Services.  Our deep experience allows us to work “where strategy meets execution” – our strategy and our execution are based on years of experience doing the work.

Bill King is a Strategic Partner of Oak Hill Business Partners, specializing in technology solutions for medium- and small-sized companies.

What in the World is Business Continuity Planning?

By Scott Owens, PMP, CBCP

Business Continuity Planning involves the analysis, preparation, and planning that are necessary to minimize loss and ensure continuity of an organization’s critical business functions in the event of a disaster.

A Business Continuity Plan (BCP) is designed to outline the steps required to recover the systems and business processes that are critical to routine operations.

So why should you care if your company has one?

Nearly every day a disaster impacts a company or a community. Hurricanes, wildfires, blizzards, extreme heat, tornadoes, and tsunamis create big headlines, but it is often the events that do not create headlines, such as server failures, that create havoc for business.  The consequences can be measured in a variety of ways: human loss or injury, financial loss or fines, impact to reputation or brand image, failure to comply with governmental regulations, and more.

According to a study by the Disaster Recovery Journal in 2007, “43 percent of businesses suffering a disaster never recover sufficiently to resume business. Of those that do reopen, only 29 percent are still operating two years later.”

The Dallas Morning News reported in January, 2007 that “A four-day computer crash at Parkland Memorial Hospital in November [2006] could end up costing $6 million to $7 million in lost bill collections, hospital officials acknowledged this week.”

The list of examples like these is long, yet many organizations still feel it isn’t important.

Future posts will share information about business continuity planning, the respective industry best practices, and lessons learned, in hopes that more organizations will consider business continuity planning a serious component of their enterprise risk management strategy.

Oak Hill Business Partners is a strategic advisory services firm serving small and mid-sized businesses and banks.  Oak Hill helps our clients successfully execute their business strategy using functional experts and a team approach.  We believe entrepreneurs and business leaders want to win based on their business ideas not all the other things that get in the way.

Scott Owens is a Partner with Oak Hill Business Partners specializing in business continuity, technology implementation, and project management.  He has more than 20 years of experience working with businesses in many different industries.

Things you probably don’t want to know: How much is your bad sales forecast costing you?

By Mike Williams and Erik Owen

If you’ve stopped trying to fix the bad guesses about future sales, then you must be resigned to the amount of money it’s costing you. It’s just the way it is, “The Cost Of Doing Business.” Of course we beg to differ, and convincing you starts with putting a number on the losses. You’ve probably never estimated it, because you’re afraid to look. But you need to know the answer.

Sure, the answer is, like everything else, “It depends on your business.” No help there. But here’s how to calculate it and what you need to take into consideration. Take what applies to you, and leave the rest (like your favorite Salad Bar):

Inventory Costs. Applies to: Retail, Restaurant, Manufacturing, Distribution, Tradesmen, some others

If the forecast was even a little closer to actual, you could carry less inventory. In some businesses this means Raw Material or Goods Available For Sale, in some you can add Finished Goods Inventory.

If you’re preparing to cost this excess inventory based on the rent for the space it consumes, plus costs to keep the inventory climate-controlled, insured, and secure, STOP. Will a closer sales forecast save you these costs? Not unless you plan to move into a smaller space or are somehow able to rid yourself of the excess square footage (rent it out, move out of it, sell it off). Don’t count these costs, since you’re going to incur them no matter what. Here’s what does count:

  • Interest on the cash you had to put up to buy the inventory – how much could you pay off toward lines of credit, loans etc. if you didn’t need this inventory? What interest expense will this save?
  • The amount of shrinkage, spoilage, obsolescence, etc. that old inventory suffers. HUGE in retail: If you don’t sell it today, who will want it tomorrow? Will it be out of date, out of style, replaced by version 2.0 as it gathers dust in your showroom/stockroom/warehouse?  Manufacturers, are you sure your customer will keep sending you orders for the same product forever, or someday will you have raw material that you use to make. . . nothing?

Value the second point this way: How much inventory, ready to sell, do you have on hand right now? If it’s lower than normal add a little; drop it a little if today’s number is abnormally high. This is what you will someday have to just eat. Your customer for that inventory goes out of business (TWO of Mike’s went under in the same week once – that was fun), the competition makes your inventory obsolete, fashions change, the menu needs to be changed, you get the idea.

Labor Costs. Applies to: Us All

Okay, there are some exceptions out there, service businesses with no physical products and all personnel on commission-only. Fine. The rest of us can pull back on staff if we know sales will decline, and can staff-up to the right level as they increase. Most companies, though no one likes to, can cut back overtime, put staff on reduced hours, let some positions vanish to attrition, or let people go. These days it’s fairly easy to do hiring, and 1099 labor (completely variable) can be used in many cases, consult your labor attorney and make sure it’s legal for you. In all these cases, an improved forecast lets you capture these savings or control these costs, putting that money back in your pocket.

Lost Sales Due To Cannibalization Fear. Applies to: Retail, Wholesale, Restaurant, Manufacturing, Tradesmen

What on earth does that mean? Tell me if you would do the same: Mike had a client who had a great new product ready to go. It had advantages that the market wanted. But they had an entire warehouse full of the old product, and they knew that no one would want it once the new product was launched. So they played chicken with the marketplace. “How long can we keep getting sales of the old product, without our competitors leap-frogging us? Can we get the warehouse emptied out and then launch?” They are smart people, they knew this was a bad decision, but who wants to admit they’re going to take a bath on the money already spent to make the old product? I know this is difficult to hang a number on, but clearly if you don’t tighten the forecast, this will be you someday.

We’ve already accounted for the amount of inventory you’re going to get soaked on, but what about lost sales? Will a new product improve sales? Of course it will, or you wouldn’t be bothering with it. Maybe it will only prevent sales from declining, which you perceive will happen if you stick with the old product. You’ve probably already done work to estimate how the new product will help sales. Take that dollar amount of improved sales, multiply by the gross margin you earn on the new product, and flush that money down the toilet. That’s what the bad decision described above is costing you. And you’re making the bad decision because you never tried to improve your sales forecasting.

Lost Sales Due to Lack of Accountability and Measurement.  Applies to all

When you don’t forecast sales, you fail to create the measuring stick used to objectively measure and drive your sales force.  When you don’t have an objective measuring stick, it’s far more challenging to hold the sales force accountable for the numbers.  This is about discipline and measurement.

How do you measure the cost?  It is the additional gross margin dollars you would have gotten if you had set the bar higher and held the sales team to their goal.

By the way, sales forecasting also gives you a tool to better compensate your sales team, further connecting performance to pay and driving more results.

Have we convinced you that forecasting is valuable?  We would welcome your comments and discussion.

Oak Hill Business Partners’ Growth Management Services will work with your management team to devise and execute an overall strategy for growing your organization.  Whether it’s a refined marketing strategy or improved communications with your target audience, we have the expertise to support you so you can focus more effort on your core expertise.   For more information, Contact Us today.

Mike Williams is a Partner with Oak Hill Business Partners specializing in sales and operations.  He has more than 20 years of experience working with businesses in many different industries.  His background includes sales, sales management, operations, and entrepreneurship.

Erik Owen is the President of Oak Hill Business Partners and has over 20 years of professional experience working with startups to Fortune 100 listed public companies.  His background covers finance and accounting, administration, general management, and entrepreneurship.

What is your company’s technology personality?

By Bill King

Change. It’s life’s one true constant.

In the business world, the ability to keep up with change is vital.  Over the past 17 years, as an information technology (IT) service provider working with small to mid-sized businesses, we’ve seen a great deal of change in the way businesses work, in many different areas – electronic correspondence, remote connectivity and offsite data backup, to name just a few.  Quickly changing technology offers as many exciting possibilities as it does new threats and risks.  Viruses.  Hackers.  Spy-ware (mal-ware).  These challenges were not on the SMB marketplace radar in the early 1990s.

How do you stay ahead of the game?  What is the most efficient way to address new challenges while meeting your company’s technology needs?  There is no one size fits all answer.  Finding your true technology fit is as unique as your company – and the combination of people in it.  The key is to understand your company’s technology personality.

For example, is your company always after the latest and greatest or do you prefer the tried and true?  Do you want to manage your technology in-house or would you prefer that a close business partner assume all or a portion of the responsibility?

Discovering your technology personality is fairly easy and well worth the effort.  Take the following “Company Technology Personality Quiz.” ?Select the answer that best describes your company:

When it comes to considering new ideas/concepts:

  1. We’re open; we like to be the first to try something.
  2. We take a wait and see approach.  We want to know what will work and what won’t.
  3. We’re content to let others forge the way.

When working with new ideas/concepts:

  1. We see the innovation advantages early.
  2. We prefer improving on accepted ideas rather than forging new ground.
  3. We only embrace widely accepted ideas/concepts that have been around for a while.

Regarding surprises:

  1. We have a tolerance for surprises.  We easily roll with the punches.
  2. We can handle a few here and there, but would rather avoid surprises.
  3. We have no tolerance for surprises, we like the predictable.

Our technology approach:

  1. Push the limits.
  2. Maintain the status quo.
  3. Just the basics.

When thinking about technology, I view my company as:

  1. Innovator
  2. Realist
  3. Cost conscious

If you mostly chose “1” to answer the questions, your company fits the leader/innovator personality.  Companies whose industry is growing or facing a lot of changes may fit this type of personality.  They view technology as the driving force in their business that provides a competitive advantage.  This personality has its strengths and limitations.  On the plus side, such companies find innovative ways of doing things.  In turn, such innovation gets perfected into a skill and they see advantages sooner than others.  These companies adapt easily to unpredictable environments, uncover new opportunities and realize bigger returns.  On the other side, these companies may do things because they are new, not necessarily because they’re better.  They may lose sight of disadvantages, take unnecessary risks and stand to realize bigger losses.

Most companies fitting this profile are best suited to the Managed Information Technology (IT) Care service model.  By finding a managed IT care partner they can trust that they are able to look beyond simply resolving technical issues.  A close partner is better suited to look ahead and anticipate future company needs.  Since the partner, not the company, is responsible for technical decision-making, the company’s management overhead is reduced.  The partner shares the IT risk including loss from hardware or software failure, viruses, disaster, user error and other issues.  And, because service costs are “not to exceed” based, IT expenses are largely fixed and predictable without budget spikes or surprises.  Managed IT Care frees resources so the company can focus on core business activities.

If you usually picked “2” to answer the questions, you’re in the mainstream/realist personality group.  Generally speaking, smaller companies in mature industries usually fit this personality type.  They view technology as giving them a distinct competitive advantage.  Mainstream/realist companies are open to exploring new ideas and concepts and will adopt the idea that represents the best result.  They reduce risks associated with new ideas and concepts resulting in a predictable success rate.  But, they may also be close-minded at times shying away from innovation.  These companies have a lower return on investment potential associated with new ideas and concepts than the leader/innovator type.  They may also be slower to adapt to unpredictable environments.

The mainstream/realist company is usually best suited to a hybrid of the Managed IT Care, which I mentioned earlier, combined with As You Need IT care, better known as time and materials.  In a combined Managed IT Care and time/materials arrangement, you leave certain aspects of your technology management up to your provider and on other aspects, you take the lead to manage your provider’s support.  A hybrid of Managed and As You Need IT Care offers a degree of predictability and reduced technology risk while retaining your ability to manage your hourly service requirements.

Finally, if you mostly picked “3” to answer the questions, your company fits the cautious/follower technology personality.  You always look before you leap!  You are interested in ideas and concepts with known results, good or bad, to manage your risks.  You are very predictable overall, can easily recognize ideas and concepts that will work.  You make choices that are widely accepted and minimize innovation risks.

On the flip side, your company adapts to change very slowly and might be hesitant to consider ideas that aren’t highly predictable.  Companies with this personality may miss opportunities or fail to capitalize on early innovation advantages.

If you fit this technology personality, the As You Need IT Care service model, as mentioned earlier, will likely work best for you.  In this arrangement, you’re in charge of your technology.  A provider may offer counsel but you ultimately decide what gets done and when.  You are happy to assume a degree of responsibility for technology management by purchasing your providers time only when you need them.  The As You Need IT Care model suits your hands on management style.

Learning your company’s technology personality definitely helps you choose the right technology partner and combination of IT services.  Personality compatible technology choices will do more than just help with your bottom line.  They will give you real peace of mind – and that’s priceless.

Oak Hill Business Partners is a professional services firm serving small and mid-sized businesses.  Oak Hill provides Growth Management Services, Mergers & Acquisitions, Turnaround Solutions, and Bank Management Services.  We help entrepreneurs and business leaders win based on their business ideas instead of all the other things that get in the way.

Bill King is a Strategic Partner of Oak Hill Business Partners, specializing in technology solutions for medium- and small-sized companies.