Monday, February 28, 2011

When You Pivot, Remember Cash Flow

I am a fan of movement toward the use of the word "pivot" to describe the key business model changes a start-up implements in its quest for the most effective and scalable way to deliver its products/services to the market. I am an advocate of making sure that each of the pivots improves the cash flow and working capital cycle of the venture.

In a recent article I wrote for American Express OPEN Forum, 10 Business Model Pivots to Improve Cash Flow, I detail some of the ways this can be accomplished. Here are a few examples of how this works.

Example 1: Lean Inventory
An e-commerce company warehouses all of the products sold through the website. The founder quickly realizes all of his cash is tied up in the inventory he is holding in his warehouse, and he doesn't have enough cash to grow at the pace he could. By getting the supplier of several of the products to start drop-shipping about 80% of the sales, the company could grow much more quickly for very little cost. The supplier was happy with the increase in business, and charged very little for the extra warehousing costs (shipping charges were the same).

Example 2: Master Marketing
Marketing needs to be a metrics-driven part of your business. Writing-off marketing expenses as "branding" is wholly unacceptable for start-ups trying to pivot to maximize cash flow and grow. we have to focus on qualified lead generation with the best chances to convert into paying customers. When a founder counts every dollar spent on marketing and tracks its efficacy, the founder is empowered to grow in the most cost-effective mediums available. Reducing cost per lead and customer acquisition cuts expenses and increases revenue, a double-jolt of cash into the working capital cycle.

Example 3: Variable Cost Reliance
Out-of-the-gate one entrepreneurial founder hired several employees and signed an expensive lease for office space. But when it came time to make a pivot based on customer feedback and demand, those fixed costs became a burden that ultimately sunk the business. Use contractors and stay out of long-term fixed cost agreements to give yourself the freedom to shift and pivot towards your most effective business model.

Example 4: Invoice Timing and Terms
One entrepreneur was afraid to invoice her customers too early. She would wait weeks after the delivery of her products to charge her customers. With a little research and a pivot, she now receives payment before the product is delivered, and her customers are just as happy as when she waited up to 45 days longer to get her cash.

Conclusion
Business is about cash flow generation. Every pivot you make should be directed at accelerating your cash flow, or you'll find yourself falling far short of your potential.

Monday, February 21, 2011

Why the 9-80 Schedule Does Not Work for Entrepreneurs

What is the 9-80 Schedule?
There has been a trend over the last couple of years to reduce the number of days employees have to be in the office. The 9/80 workweek reduces the number of days in the office by one per every two weeks. In most companies this means you get to take every other Friday off, and most employees love this idea. You still put in the same amount of time, but you work a little longer each of the nine days you are in the office during each two week period. It reduces travel to work, fuel, and stress and can bring some other benefits as well. But it doesn't work well in a lot of entrepreneurial companies. I'll outline the main reasons it fails and give some suggestions for making it successful, if you are willing to give it a try.

Key People Missing
Half the employees are missing each Friday. This can cause all sorts of complications from having no one to answer the phone to no sales person available to jump on a hot lead from a satisified client. Entrepreneurs and their companies usually pride themselves on being nimble and quick to serve their customers.

Key Processes Fall Off Track
With half the office missing each week, some critical weekly and monthly processes can fall apart. For example, if you have an important operations meeting every Monday morning, half the employees will have to finish their preparations for that meeting on Thursday. And perhaps some of the information they need will not be avalailable until Friday, when they are off. To make the 9/80 work, you have to build your meetings and other processes around the inconvenience of half your staff missing each Friday.

Entrepeneurs and Executives Don't Adhere to It
The salaried, or exempt, employees and the founders, owners, and entrepreneurs never stick to the schedule for themeselves. These folks will usually make appointments and do work on their every-other-Friday off if it is convenient for the customers or other employees. They end up working longer on the first nine days and then working the entire tenth day as well.

Conclusion
If you want to implement the 9/80 schedule, you need to thinkn through these and other issues and make sure it will really benefit you and your business.

Monday, February 14, 2011

Why Accountants Make Horrible Leaders

Peter Drucker wrote: “Leadership is something that must be learned.” So when I say accountants make horrible business leaders, please know that it is primarily their choice--they could be great business leaders if they wanted to put in the work and discipline themselves to develop the key leadership skills. There are basically five areas of learned leadership that I’m going to discuss, each of them critical to being a great business leader.

Before I start, I need to share a couple of qualifying disclaimers. First, many accountants are actually great leaders in other areas of their lives, but fail to be successful leaders in business--which is one of the major angles of this article. Second, please put aside your pre-conceived ideas of what a great leader is. People of all genders, creeds, religions, political parties, and more can be and are great business leaders, and it often isn’t the smartest person in the room or someone that has one or two very visible perceived leadership attributes. In describing the varieties of effective leadership, Neal A. Maxwell said: “Trying to describe leadership is like having several viewers trying to compare what they see in a kaleidoscope when the mere act of passing the kaleidoscope shakes up the design.”

Leadership Skill 1 - Service
“Life is like a game of tennis--those who serve well seldom lose” (C.S. Lewis). Comparing leadership to life, the same holds true--those who serve others well are very effective leaders. But many accountants fail to apply this principle outside of their department and function. They get along well with their like-minded peers, but they clash with the marketing, sales, and operations departments regularly. Accounting and finance exist to serve the rest of the organization, but all too often they forget that and become too self-interested.

In his book The World’s Most Powerful Leadership Principle, James C. Hunter powerfully teaches the principles associated with servant leadership. The core of his message is that the leader exists to serve those he or she leads. And many accountants fail to take this attitude towards others around them, especially if they don’t understand debits and credits and can’t reconcile retained earnings to the prior year equity transactions.

If you are feeling a little guilty about this, that’s okay. This is fixable, and it’s about changing your perspective on everyone around you and what you are trying to help them accomplish (notice you’ve got to put your self-interest aside). It will take work and great discipline, but it can be done.

Leadership Skill 2 - Vision
In the same book, Mr. Hunter says that the first job of a leader is to set the vision, or course of direction, for the organization. Then the second and all-consuming job of the leader is to serve. But why do so many accountants lack the ability to have a business vision?

That’s a trick question. They don’t lack the ability, but they usually neglect it. And the reason is that they are usually so buried in the details of their functions that they don’t step back to look at, contemplate, understand, and embrace the bigger picture. If you are an accountant and you want to be a business leader, you have to train yourself to step out of the details and put the entire puzzle of the business together. And here’s the amazing payoff--the best business leaders I’ve seen are the ones that understand the accounting stuff but can apply it to the success of the entire organization.

Leadership Skill 3 - Communication
Yes, accountants are often accused of not being good communicators. The reason--they don’t listen well. In the famous Dilbert cartoon, the Dogbert character once said: “If yours are the only lips moving, a conversation isn’t actually occurring.” And just letting other people talk isn’t enough. It’s got to be sincere, concentrated listening. And if you ever find yourself thinking about what you’re going to say next instead of actually listening to what the other person is saying, then you might be able to improve your communication skills.

One’s ability to communicate effectively is at the core of that person’s ability to build trust. James Hunter  wrote: “Empathetic listening is one of the most effective ways to build trust.” In addition, the more accountants can effectively listen, the more they will build trust with others, which is essential to effective business leadership.

Leadership Skill 4 - Organization
While it is perceived that most accountants already have great organization skills, you’d be surprised how many don’t. They are often so focused on the past that they fail to think about and plan for the future. As such, they struggle to gain traction as leaders because leadership is as much about seeing and planning for the future as it is about understanding the past.

In business this can be particularly difficult since the accounting department is usually the last to hear about new strategies and changes in the business. Most accountants carry that frustration but do nothing to fix it. Become a thought-leader in your organization, serve everyone, and you’ll find you become part of those strategic discussions. Your ability to plan and organize the future will increase dramatically, making you an even more effective leader.

Leadership Skill 5 - Synergy
Why do so many accountants struggle to play well with others? Rather than always needing to be right and working feverishly to protect a reputation of flawless accounting prowess, accountants need to let down their guard and realize they will always be better in a synergistic team than left to their sole abilities.

To be effective business leaders, accountants need to work as a team and contribute to the trust of the team through their open communication. Yes, that means when you make a mistake, own up to it and don’t try to bury it or blame it on someone else. Believe it or not, your team will trust more for it.

Conclusion
I realize it may seem like I’m picking on accountants, but these principles really apply to everyone. I know from first-hand experience that accountants have what it takes to be great business leaders. If you’re an accountant, I hope some of the content of this article will help you in your progression to excellent business leadership!

Monday, February 7, 2011

The Best Way to Solve Your Cash Flow Problems

A friend of mine has said there is no such thing as a bad business or entrepreneur; it’s just that most of them run out of cash before they can figure out how to build a sustainable business model. Whether you agree or disagree, at the heart of that sustainable business model is paying customers.

The most common challenge I see with start-up ventures is product infatuation. The founders are usually pretty excited about their product or service, having invented it or been heavily involved in its design, engineering, or implementation. But their infatuation gets in the way of solving the cash flow problems common in start-ups--no paying customers.

I would classify start-ups into two categories--those with paying customers and those without. Those with paying customers are much more likely to succeed, having passed the proof concept phase and validating they know how to get at least prospects to take the plunge into their product or service. I authored an article on American Express OPEN Forum in which I identify the nine ways paying customers are The Silver Bullet of Cash Flow.

The best way to solve the cash flow problems of a business is to focus on getting and retaining paying customers. If not having paying customers feels like you are stuck in the middle of the dessert during a drought, then you'll be amazed at how paying customers will end that drought and land you in plush land wherein there are more water sources than you even knew existed.

Friday, February 4, 2011

Business Scoreboards

Running a business without understanding performance is a lot like watching a sporting event with no scoreboard--you find yourself wondering what the point is. Every performance measurement and statistic imaginable is employed in the world of sports, but too many business owners and entrepreneurs just don’t know how they are really doing. I find this particularly true in businesses that have grown beyond the capacity of one founder/entrepreneur to be involved I every detail of the business every day, which is usually once the company has a at least a few employees.

I spoke at an event in 2010 wherein I was given 5 minutes to cover 20 presentation slides--the event is called a Crunch Lunch wherein experts and specialists in different areas provide back-to-back information-packed training to those in attendance. Here is the video of my presentation, which discusses the Six Scoreboards Every Business Needs™ and the IMPACT they can have on a business.