Three Steps Will Recharge Your Business

Washington Post, July 2, 2012: “Outlook for U.S. economy dims as manufacturing shrinks for the first time in nearly 3 years… ‘Our forecast that the U.S. will grow by around 2 percent this year is now looking a bit optimistic,’  said Paul Dales, an economist at Capital Economics.”

Being the CEO requires committing to a “no excuses” life. Others may offer plausible reasons for non-performance, but if your company plateaus, CEO excuses aren’t an option – you must take action:

  • Softening economy? Find a way to take advantage of a changing business landscape.
  • Lengthening sales cycles? Determine how to identify highly motivated prospects.
  • Shrinking margins? Examine whether your company is leveraging its strengths.

Changing your business to address these and similar challenges incurs risk, but the risk of doing nothing is greater. How can you adopt an effective breakout strategy that will recharge you and your executive team?

Here’s a rational, three-step process guaranteed to provide direction: (1) reexamine your company’s true value and what sets it apart; (2) in light of market conditions and competition, determine an altered direction that will maximize value; and (3) identify new business relationships that will open doors to new business. In other words, you need to clarify, comprehend, and connect:

Clarify – Who are you as a company and what sets you apart? What truly separates companies like Apple, Southwest, Berkshire Hathaway, and the NE Patriots from the rest, year after year, is a sense of purpose. Clarifying the organization’s purpose and unique assets beyond a simple mission statement actually increases efficiency. It’s imperative to get this right.

Highly successful companies perform at a high level because they focus on a clearly identifiable market with a differentiated solution. Even successful companies eventually let pressure to increase revenue force acceptance of business outside their primary focus. Since profitability grows by exploiting core competencies, losing focus erodes margins. Having a crystal-clear shared vision of who your company targets and what customer problems it uniquely addresses enables employees to make decisions more rapidly (fewer meetings and emails needed) so more gets accomplished faster and margins increase.

Comprehend – Once you understand your company better, update your understanding of your immediate market. What change in direction will maximize value? Finding the right direction in a complex and competitive market accelerates growth. How do you define who’s in it and who isn’t? What is your relationship to other companies in your space?

One proven method is to pretend you’re selling your company and identify a number of companies that could acquire you and another set that you might acquire or partner with.  By comprehending the needs of potential acquirers, acquisition targets, and partners, you will develop a value framework that identifies high value opportunities.

Connect – Which relationships will increase business the most? Whether your company is B2B or B2C, strong relationships with other companies can help it grow faster. That said, many CEOs have been burned by partnerships that failed due to poor planning, unrealistic expectations, and unmonitored execution.

The solution? Design self-fueling partnerships that continually reinforce each partner’s objectives. Partnering with potential acquirers and industry leaders will drive new revenue by providing access to new markets, extended geographies, enhanced product and service offerings, better branding, and staff augmentation.

By following this three-step process, breaking out of flat growth may be easier than you think.

The Molecule Behind Effective Teamwork

If you’re a CEO, you may have days when you’d be ecstatic to learn that instant teamwork would happen by simply asking each employee to take a pill. That day may be imminent, but recent research points to ways you can get more cooperation without prescription meds.

Paul Zak organized and leads the first doctoral program in neuroeconomics at Claremont Graduate University. In 2004, his lab discovered the role that the brain chemical oxytocin plays in enabling us to determine who to trust – the higher the level of the hormone, the greater the degree of trust. He’s worked for years to understand the connection between brain chemistry and decision-making, and how that ultimately affects our economic system.

The research around the hormone oxytocin provides a neurochemical understanding of important management principles that have evolved over the years. For example, keeping employees engaged in the outcome of the project they’re working on yields more success. Dr. Zak suggests that team leaders identify goals, establish how those goals will be reached, and put stress on each individual by explaining his/her role in achieving the group’s success. “Clear outcome measures build trust.”

Even more interesting is the work his lab has done in determining the effect that social media has on oxytocin levels in the brain. The findings show that oxytocin goes up during the use of social media, and furthermore, the precise level correlates with the subject’s perceived closeness to the person he/she is engaged with.

A video interview conducted by Harvard Business Review gives more detail. To oversimplify his conclusions, be nice to those around you. It’ll make you and your employees feel better and you’ll both produce more.

In this video interview, researcher Paul Zak describes recent findings about how oxytocin encourages cooperation in the workplace and how its level is affected by the use of social media.

 

Breakout Strategies

The best time to evaluate the direction of your business is while it is thriving. I’m currently rethinking 20/20 Outlook’s strategic positioning, and it’s focused on creating breakout strategies.

What are breakout strategies?

The work “breakout” implies constraints. Most companies fail early, a precious few like Amazon, Google, and Facebook rise meteorically, and the remainder become “established” businesses. These established companies often hit a plateau in their growth, resulting in flattened revenue and profit. At that point, it’s common to find a CEO frustrated by a period of constrained growth and experiencing the “CEO dilemma.”

Breaking out of a growth plateau implies change. Most CEOs are visionary, so it’s their business vision that defines targeted outcomes for the company. The CEO’s vision may point the company toward an inspiring destination, yet without clear strategies, employees may be clueless about how to get there, or even worse, may waste resources by taking conflicting routes.

Maybe the CEO’s vision is unrealistic given a changing market environment that he/she fails to recognize. Maybe good strategies are hampered by bad or non-existent external communication. Maybe the company hasn’t learned to properly leverage relationships with other companies in order to expand their offerings, open new markets, or gain access to a broader prospect base.

In every instance, breakout thinking is needed to create breakout strategies that:

  • provide a deep understanding of the market situation,
  • develop a clear picture of the competitive landscape, and
  • provide credible data on which to base plans
  • give a clear rationale for action from which detailed department plans will flow,
  • lead the company to an optimal return on investment of its finite resources
  • last but not least, create energy and enthusiasm.

Truly visionary CEOs sense when an outside catalyst can challenge the status quo and illuminate new possibilities, then they act decisively to introduce change that leads to breakout strategies.

Too Broad, Too Narrow, or Just Right

Driving down a major boulevard in a city where we lived at the time, my wife spied a new restaurant in a place where many others had failed. In the window, it advertised food from multiple ethnicities, including both Mexican and Chinese! I’d be surprised if “Bueno Wok” lasted long.

There’s a truism about how a lack of focus can kill an enterprise. Being “a mile wide and a quarter inch deep” is widely recognized as a cause of failure.  Typically, a desire to increase revenue leads to pursuit of business that doesn’t leverage the company’s strengths and results in lower margins and muddled branding. But, are there instances where too narrow a focus can be just as harmful?

The diagram below categorizes organizations according to two attributes, focus and potential. The Focus axis ranges from single domain to multiple domains through all domains, while Potential ranges from restrictive to growing through saturated. Companies focused on several verticals are distinguished from those whose offerings are truly horizontal (i.e. domain-independent). Of course, each axis represents a continuum so that an infinite set of combinations is possible, allowing for the unique positioning of any specific company.

Back to the original question: is it possible to be too focused? Consider the example of a company providing a niche offering to several vertical markets. In the diagram it would be classified as “saturated domain-specific.”

Suppose you’re advising a new CEO hired to grow this “plateauing” company, Your first inclination may be to assess each of the company’s currently targeted vertical markets in hopes of focusing on the one with greatest growth potential. However, if the frequency of opportunities within each vertical domain is found to be sporadic and sensitive to changing business cycles, it may make more sense to remain diversified. Finding additional verticals that the company can target may represent a more fruitful direction.

So a key factor in opting to narrow or broaden our focus ia available market opportunities. Other factors include strength of brand, plus the company’s ability to execute (e.g. capitalization), integrate, partner, and acquire. These affect companies in each of the diagram’s nine categories in different ways. (NOTE: future posts will consider how, so if one of the nine categories is of particular interest, let me know when you sign up on this page to be notified by email when the next post is available.)

Translating the CEO’s vision for growth into breakout strategies requires careful thought to determine the best way to target and deploy finite corporate resources. Too often a new direction is based on an unrealistic view of the company’s position and capabilities. While it takes an optimist to run a company, it takes a realist to lead one toward its highest value.

 

Thanks for Two

Today is the second anniversary of 20/20 Outlook LLC. Helping visionary CEOs create breakout strategies is enjoyable beyond all expectation. Before the launch in February 2010, experienced consulting friends advised that it would take a year for people to remember what 20/20 Outlook is, then another year for the business to hit full stride. They were spot on.

Nine months into it in December, 2010, opportunities started arriving on their own. I remember getting a call from a California friend asking for help in opening up U.S. operations for a European company, then days later came a request to write an article for TexasCEO magazine. The juxtaposition of two unanticipated invitations was encouraging.

My goal remains to provide cycles to busy CEOs immersed in urgent issues so they can accomplish their important but non-urgent ones. While the original 20/20 Outlook process remains an essential weapon, the scope has evolved into the role of trusted advisor to CEOs, bringing clarity and direction to the dreams those CEOs have for their enterprises.

This post is written to thank the numerous friends who have given continual guidance over the past two years, including CEO clients and other long-time friends across multiple disciplines. You make it fun to learn new ways to think about and address the challenges CEO face. From an A- guy blessed with a multitude of A+ friends, thank you!

TexasCEO and Vistage

“Symphony…is the ability to put together the pieces. It is the capacity to synthesize rather than to analyze; to see relationships between seemingly unrelated fields; to detect broad patterns rather than to deliver specific answers; and to invent something new by combining elements nobody else thought to pair.”

— Dan Pink in A Whole New Mind

Vistage CEO Rafael Pastor spoke this morning at a breakfast organized by TexasCEO magazine. He covered a range of topics near and dear to my heart (e.g., “what makes America great? its restlessness”), then reviewed the results of the most recent Vistage member survey, a reliable leading indicator of GDP and hiring trends (good news: CEO confidence is heading back toward the 2004 level).

Finally, he shared four traits of a good leader that combine to produce character:

  1. Confidence – uplifting and inspiring all constituencies to higher performance
  2. Curiosity – looking around and asking questions to learn new ways of thinking
  3. Courage – having determination to risk and innovate
  4. Collaboration – creating and learning from external relationships

How does an organization exhibit these traits? Consider TexasCEO as an example:

  1. Confidence – Driving the creation of the magazine was a desire to distribute information that helps CEOs grow their enterprises. TexasCEO founders were confident they could draw contributing authors from multiple industries to deliver value through lessons that cross domains.
  2. Curiosity – By continually meeting with CEOs and advisors from multiple industries to understand their expertise, publisher Pat Niekamp and staff provide a continual stream of challenging articles on business development, people matters, marketing, sales, leadership, finance, governance, professional development, and other topics that CEOs must track.
  3. Courage – Does it take courage in a down economy to start a combined print and online magazine? Of course, but that courage was based on a clear analysis: no statewide business publication existed in a business-friendly state.
  4. CollaborationTexasCEO continues to build relationships with groups and individuals that share their passion for helping CEOs achieve their dreams. Like Vistage, they appreciate the power of collaboration to broaden our vision. Rafael Pastor said it best when he quoted Marshall Goldsmith: “What got you here won’t get you there.” Often we can learn what works from our peers.

Joel Trammell recently told me about becoming a CEO. “Many people think that the CEO job is just the next progression after being a senior executive in a business… the CEO job is actually a unique role that doesn’t really have much in common with the other executive roles in a business.” He then related how he quickly learned to reach out to other business leaders when he became a CEO.

Vistage and TexasCEO were founded on the common goal of sharing CEO knowledge and expertise to improve business performance. With that common focus, maybe a new partnership was born this morning.

New CEO/Mentor Dialogs

If you follow this blog, you already know that I’m accumulating material for a book. It’s a compendium of the wisdom of successful serial CEOs presented in the form of dialogs between a new CEO and his/her mentor.

The latest dialog addresses the question, “Do you really want the CEO job?” and is entitled “Becoming a CEO“. It’s based on discussions with CEO Joel Trammell who has successfully started and grown several technology businesses. He has a unique perspective on how the CEO role differs from any other job and what you need to know before accepting the position.

Other recent dialogs include Market Trumps Execution, and Less is More. The point of publishing the dialogs is to gain more insight, so feel free to share yours in the comments at the end of each chapter.

 

2012 CEO Resolution: Disciplined Dreaming!

During the holidays I focused far less on business and far more on family and friends. Pushing back from normal activities gave extra time for some creative thinking. High on my list was reading one of 2011’s top business books, Disciplined Dreaming.

Author Josh Linkner is a  successful serial entrepreneur.  Founder of ePrize, a dominant company in the promotions industry, he’s proven the value of tapping into the creativity of the every individual in his business. His book outlines various processes and techniques that encourage and enable innovation among employees.

But what about the CEO? If the CEO doesn’t dream, the business doesn’t grow. Most business leaders find it easier to work in their business than on it, i.e. to handle urgent operational matters than to focus on important growth initiatives. Incorporating more creativity into a CEO’s schedule demands opening space for it.

Linkner suggests deliberately scheduling “heads-up” time for the creative process. He contrasts the differences between heads-up and heads-down operation:

The challenge in switching between heads-down and heads-up thinking is learning to use the analytical and creative sides of your brain simultaneously. Daniel Pink has suggested that the most successful 21st century ventures will be led by those who combine both modes of thinking, enabling them to spot patterns and trends faster than competitors. The result will be superior products, more relevant services, and higher market share.

The CEO who neglects creative thinking and stays in the comfort zone (solving operational issues and managing finances) falls behind competitors. It takes effort to break out of the zone, and it can require reaching outside the organization.  Successfully implementing the discipline to dream may require creating a network of friends who are regularly tapped for advice and who act as a sounding board. It means joining a group of like-minded CEOs (e.g., Vistage), or leveraging a special board member, or hiring a trusted advisor, or a combination.

Resolve that 2012 is going to be different for your business. Despite a challenging economy, it’s time to take it to the next step. Leave your comfort zone and grow your business by unleashing your own creativity and the creativity of your entire organization, and resolve to do it in a disciplined way.

Two Reasons for Five Common Strategy Mistakes

Growth relies on having a superior strategy, and in her recent HBR post, Joan Magretta identifies five common strategy mistakes. In reading the piece, two common antecedents became apparent. Hopefully, naming them will amplify rather than oversimplify her points, since she expertly explains how to correct each of the five.

The twin antecedent causes are a lack of clarity and a lack of focus:

  1. Confusing marketing with strategy – While good marketing is important, simply identifying your value to customers is insufficient to win big and often. A clear understanding of why you’ll win using focused execution is vital.
  2. Confusing competitive advantage with “what you’re good at” – Just being good at certain things isn’t enough to win business. Most companies are good in multiple areas, but sometimes the “strengths” they identify are merely minimum requirements to stay in business, like good customer service. Clarifying what you’re uniquely good at and how your unique blend of products, services, and relationships delivers higher value than competitors’ offerings leads to real growth.
  3. Pursuing size above all else, because if you’re the biggest, you’ll be more profitable – A young, smaller company with a clear and focused strategy can maintain higher margins than larger competitors. It happens in many industries, and Joan’s example of BMW versus GM makes the point.
  4. Thinking that “growth” or “reaching $1 billion in revenue” is a strategy – Desiring to “grow the business” and “enhance revenue” constitute objectives; they don’t identify the strategic moves needed to fulfill them. As discussed often in this blog (e.g., see “Attacking Business Entropy“), clarity about positioning is crucial and fundamental to a successful strategy.
  5. Focusing on high-growth markets, because that’s where the money is – The retail sector was not a high growth market when Amazon entered it. It’s a classic example of finding a new, better way of attacking an old, slow growth market to take share from existing competitors.

Why is it important to get strategy right? Operations-focused CEOs sometimes wonder if strategy is about hiring high-paid consultants to create pretty slides and well-written plans for consumption by boards of directors and investment bankers. As pointed out here before, clear and focused strategic thinking is the key to effective execution. Clarity and focus provide the foundation, and the value of the results – accelerated growth, higher margins, and increased understanding of the market – profoundly surpass the value of a new presentation.

“It’s Hard to Understand If You Haven’t Lived Here”

When I was recently interviewed for a Wall Street Journal article, answering questions about doing business in Texas came remarkably easy. The interview was nominally about Rick Perry, but almost all our time was spent discussing the state’s relatively healthy job scene.

When asked why Texas is special, I told Dan Henninger about a Brooklyn native and friend named John who worked for me in Dallas in the late 80’s. After having lived in half a dozen cities across the country during his career, he deliberately targeted moving to Dallas when he and his wife were ready to start a family. What inspired him was the attitude of businesspeople in Texas when they lived there once before in the early 80’s.

At that time, the energy sector was spiraling downward at a record pace, but he remembered that, instead of bemoaning their situation, the Texans around him were talking about what they were going to do next. In some cases it meant starting over in new areas of the energy sector, while others were planning how to start anew in other markets. No one spent time crying about their dire situation. The optimism he saw in Texas was like nothing he’d seen elsewhere, so he and his wife deliberately returned a few years later.

My friend Ed Trevis (also quoted in the article) provides another perspective from a non-native Texan. As the long-time CEO of a high tech embedded computing business in Silicon Valley, Ed finally became fed up with California’s overbearing tax and regulatory environment, so he surveyed locations in many other states, looking for the best place to relocate. His criteria included a strong, well-educated labor force, less government interference, and an attractive cost of doing business. Texas came out far ahead in his analysis, and the city of Cedar Park outside Austin provided the perfect place to move his business, which has thrived there since the move two-and-a-half years ago.

To be fair, there are great people everywhere, there are thriving businesses in other states, and there are spots that beat out Texas in one way or another. What is unique about Texas, though, is not only its labor force, its supportive governmental policies, and its low cost structure, but the optimism and collaborative attitude so prevalent among its people. As David Booth, who moved Dimensional Fund Advisors’s headquarters to Austin from California, said, “It’s hard to understand if you haven’t lived here.”

 

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