Business musings

I have just finished Good to Great by Jim Collins and I wanted to record my reflections about the book. However, I am in somewhat of a dilemma. On the one hand, I really enjoyed the book and felt that many of the concepts Jim talks about are values and ideas that I recognise as important in building a great business. On the other, I have read a number of critical reviews of the book (such as that by Rob May) pulling apart both the fundamental research foundations of the book and also its findings.

On balance

Overall, I think that Good to Great provides a very useful model and framework for developing and creating a great business. Concepts such as the flywheel go some way to challenging the ‘magic bullet’ fascination within the business world. Similarly, a Level 5 leader in place of ‘Fred the Shred’ might have created a very different outcome for Royal Bank of Scotland in the last year.

Solving the impossible

At the same time, trying to unravel the complexity of the business world to create a model that enables a business to become great is a tall order! Businesses operate in too complex an environment for a ‘key to business success’ to exist. Any business book that claims to have discovered the ‘secret to success’ is deceiving itself. Although I don’t feel that Jim Collins does claim the key to success in Good to Great, the book is taking on a huge task in assessing what creates ‘greatness’ and I suppose it is not surprising if it falls a little short of the answers.

Everlasting greatness

Obviously, there are other criticisms leveled against the book regarding the companies that were chosen and their subsequent fall from grace – Fannie Mae, being the most recent. However, the book never claims that the companies chosen will continue to be great beyond the 15 years of great performance shown. Indeed, 4 of the 11 great companies used in the study were facing serious challenges to their greatness or had already lost it by the time the book was published. It is also worth noting that Jim has recently published a new book (although I haven’t yet had chance to read it), entitled ‘How the mighty fall: And why some companies never give in‘, which I imagine begins to examine some of the questions raised by the fall of great companies.

Correlation versus Causality

I think one of the key problems with many studies and books is that of causality and correlation. Causality and correlation are similar and yet entirely different. Causality is where one or more factors cause an effect; correlation is where a relationship of some kind exists between two factors but one is not necessarily the cause of the other. Yet, so often when correlation is discovered, people assume they have discovered causality. Good to Great discovers correlation, but cannot prove causality: there are too many other uncontrollable and unexaminable factors to pin down exactly what causes greatness.

Should you read it?

If you are looking for factors (or levers) within a business that can be proven beyond doubt to create success then you might as well stop reading business books!

If however, you are looking for interesting ideas that help develop you and your business, not as a magic formula but rather as concepts to play against and spark off, then Jim Collins’ Good to Great does just that. It may not hold the secrets to success but it will certainly provide you with food for thought!

Let me ask you a question…

What’s next for your business?

It can be tempting in the tough times to put your head down, and just try to get through each day hoping that you come out the other side.

But, on the other hand, why waste a good crisis?

It is actually times like these that we should be looking up, not down.

By taking stock, reviewing what we are in business for; by asking the questions around where we want our businesses to be in 5 years time, and what it will look like, we gain a new perspective on our current struggles.

What are we struggling for? Why is our business here beyond just surviving?

By answering these future based questions, we gain insight and challenge for the now, as well as strategic direction to aid decision making.

So, if it is only just for a morning, lift your head up and look ahead. It can have a powerfully motivating effect on both you and your staff.

Profit is an output, not a purpose

A business must have reason to exist beyond that of making money and maximising shareholder value. Profit cannot be the goal, vision, or the purpose of an organisation. An organisation that posts great year end results doesn’t automatically earn the title of being a great company.

Seeking profit as a primary business purpose is like building a house of cards or building a house on sand – it will eventually lead to collapse (ably demonstrated by many financial institutions over the previous months). Profit is too temporary to guide a business by.

If a business’ main purpose is to make a profit, this will both lead to a lack of strategic direction and reduced staff motivation. For employees, once they have earned the company enough to cover their salaries, they make money for the owner of the business. That’s not a real purpose!

6 good reasons not to use profit as your primary purpose

• Profit is an output and a symptom of success, not the cause.
• Profit is temporary and can be wiped out in an instant.
• In tough times, profit can be hard to come by.
• You need more purpose than profit to make it through.
• Profit doesn’t motivate the salaried staff who make success happen.
• Customers don’t appreciate being seen just for their revenue.
• Consumers are increasingly focusing on values and contribution to society when choosing who to do business with.

Beyond profit…

A true vision for a business rests on foundations of both purpose and values. The people within the business have to be passionate about what they do and why they do it. The business’ goals must then align with this foundation. Without a clear foundation, a business will never be truly strategic.

Values

A business’ core values are defined internally through a process of introspection and discovery, and are based not on the outside but on what lies within. Core values do not change with the seasons but are deeply held values already embedded within the DNA of an organisation.

To give you some examples, core values held by a variety of well-known organisations include: imagination; product excellence; great customer service; respect for the individual; quality; market focus; teamwork.

Your organisation does not have to hold these values but will need to discover its own. Core values are the handful of values that, even when push comes to shove, your business is not prepared to sacrifice to get ahead.

Purpose

The core purpose of a business is also discovered by introspection and discovery. A business’ core purpose is its most fundamental reason for being. By stripping away the layers of what a business does and what motivates it, any company will discover a deeper purpose that unifies and motivates. In essence, to discover your business’ core purpose, you could ask, “Why does this business exist?”

Again, to give you an example, the core purpose of my wife’s tutoring business is to “Help people realise their full potential.”

Why does your business do what it does? What is the bottom line about why you make the products you make or deliver the services you deliver?

6 good reasons for your business to look beyond profit

• Purpose and values motivate and unify management and staff.
• Purpose and values give a company a solid foundation from which to make decisions.
• Purpose and values provide a navigational compass to all elements of the business.
• Customers will have more to buy into and engage with.
• Purpose and values encourage loyalty of both staff and customers.
• Purpose and values encourage a strong culture and ethos within a business.

What next?

Start working on it! You need to involve staff and managment alike and discuss and argue over what the key values your business does (or should) hold and what, at the end of the day, your business is about. Look beyond what it does. In challenging times such as these, going back to basics and understanding the bottom line foundation of your business may well be the thing that gets you and your staff through.

If you would like support through this process, then please contact me. You may also be interested in my workshop, Vision, purpose & values: a solid foundation.

Many thanks go to James Collins and Jerry Porras, whose work provided the foundation for this article: Collins, J.C. & Porras, J.I. (1996), Building Your Company’s Vision, Harvard Business Review.

Whilst not a ‘cutting edge’ idea, the concept of conversion rates is an extremely powerful one.

Your sales conversion rate (as a percentage) is basically:

([number of sales generated] / [number of interactions with potential customers]) x 100

Whether for online shops (where your sales conversion is the number of visitors who make an order) or for more traditional businesses (where the sales conversion may be the number of telephone enquiries you win business from), the general principle is the same.

I’ll show you the calculations and let you see for yourself.

Current position for this year
Number of website visitors = 500,000
Number of orders = 10,000
Conversion rate = 2%
Average spent per order = £20
Total value sold = £200,000

Increased sales – same conversion rate
Number of website visitors = 550,000 (10% increase)
Conversion rate = 2%
Number of orders = 11,000 (1000 extra orders)
Average spent per order = £20
Total value sold = £220,000 (increase in sales value of £20,000)

Same sales - increased conversion rate
Number of website visitors = 500,000
Conversion rate = 3% (increased by 1%)
Number of orders = 15,000 (5000 extra orders)
Average spent per order = £20
Total value sold = £300,000 (increase in sales value of £100,000)

For every company the figures will be somewhat different, but the concept is still the same: converting your existing potential customers is often more lucrative. The beauty of conversion is that it doesn’t have to cost you anything in trying to find new customers. They have already found you; it is now your chance to turn them into customers.

Learning is a key part of what I do.

I’m learning and developing my own skill-set all the time. I push myself to learn new skills and develop existing ones.

If I don’t grow and develop, I limit my business and limit my clients’ businesses.

Learning is a process. I put time, money and effort into that process, through which I am rewarded with increased knowledge and skill.

Yet, whenever and whatever I’m learning, I’ve noticed the same two feelings occur: excitement and frustration.

The frustration occurs during the stages in the process at which I am investing time and effort, but don’t have the immediate gratification of knowing and understanding.

The excitement comes from ‘knowing’ something new and being able to do something that I couldn’t do before. Learning is fun!

So what can we learn from this process?

1. We need to judge frustration correctly. Will the frustration break through to excitement, in which case we just need to keep pressing on? Or do we need some help or need to pursue another avenue? It is pointless pressing on if the frustration is there because we have reached a dead end, but we also shouldn’t give up too quickly.
2. If we are not getting frustrated about the learning process, then this may be telling us that we’re not being stretched enough.  Maybe we’re just coasting when we should be pushing through into a new area.
3. ‘Breakthrough’ is difficult to predict – normally it comes after, or in the middle of, frustration, but we have no way of knowing exactly when it will happen. It often feels like one of those lightbulb moments when suddenly it all makes sense.

Applying this to our businesses…

In business, we find the experience of learning in both our own personal development and also in the implementation of new projects and tasks.  How often have you felt frustrated that a project seems to be going nowhere and you just feel stuck?  Maybe you’re trying to re-write the copy for your website but you just can’t quite grasp those elusive words that say what you really want to say!  The same principles as above apply.

1. We need to judge frustration in a project correctly.  It may be that we’re on the right path, we just haven’t reached the point of breakthrough yet; in which case, we need to keep pressing on.  Alternatively, we may need some external input and support – it’s amazing what a fresh pair of eyes can see.  Or, we may have actually reached a dead end; using a business analogy, maybe the marketplace we’re competing in just isn’t the right one anymore and we need to target a new set of customers.
2. If all the projects we take on as a company or as individuals are easy and never give us any sense of breaking through, it may be that we’re coasting.  Although coasting can be great – especially if the company is making good profits and returns from something that they find relatively easy – coasting can lead to complacency and also never gives that great sense of achievement we gain from breaking through in something we’ve found quite challenging.  I can’t imagine that the truly great companies out there have ever achieved that status without stretching themselves.
3. Breakthrough is difficult to predict, so when we feel we really are on the right path, we need to press on through and not get discouraged.  Breakthrough may be just around the corner and it will be a fantastic moment of elation when we reach it.

One of the key challenges in business improvement is “holding the gain”.

Holding the gain means ensuring that, once improvements to your business have been implemented, the area you have been working on stays improved. Continually.

Without a focus on holding the gain, you run the risk that when you move onto the next development project, all your hard won gains from the last are lost. As your focus moves elsewhere in the business, there is a danger that you leave the previous improvements to slowly deteriorate.

So how can you make sure you don’t lose your hard won gain? Shewhart/Deming’s PDCA Cycle is a good place to start…

• Plan. Work out your improvement plan before you start implementing it so you know exactly what you’ve agreed, how you are going to measure it and what you are expecting to be the result.
• Do. If you don’t actually carry out the improvement, you won’t find out if it works! “If objectives are only good intentions they are worthless. They must degenerate into work.” (Drucker, 2007, Management: Tasks, Responsibilities, Practices, p.101)
• Check. If you don’t check your target measures (e.g. volume of sales) before implementing the improvement and after it has been implemented, you’ll only be guessing as to whether the improvement worked. Checking these measures allows you to find out if the improvement is achieving the results you expected. A note of caution however – make sure you allow enough time for the improvement to bed-in before you jump to conclusions about the results.  Some measures may take several months to achieve the intended results; checking them in the first week may lead you to believe the improvement has not worked, whereas really it just needed time to get up to speed. Over time, you will then need to keep checking these results at regular intervals: this allows you to compare performance to the results you got first time around and to your expected results over time, thereby assessing whether the improvement is still performing at the expected level or whether it has lost its gain over time.
• Act. Having planned, done and checked, you now need to act. If the improvement has had the desired results, you need to act to hold your gain, or if it hasn’t performed as expected, you may need to start again by re-planning. It can be tempting to quickly move onto the next area of improvement without actually putting in measures to ensure you hold your gain. Measures to hold your gain may include (for example): revising processes; (re)writing policy; implementing ongoing staff training processes, and so on. And, at this stage, don’t forget to schedule the next time you’re going to check your results again to ensure you’ve held the gain over the long term.

Once you’ve done all of the above, you may proceed to plan your next improvement!

Becoming aware of how areas within your business communicate with your customers is vital if you want to convey a consistent message about your brand/business.

The difficulty is that your customers don’t just read the words you write, or hear what you say about your business. They tend to read a whole lot more into every single interaction with your business. Both consciously and unconsciously. They even read things into the interactions they don’t have, or the things you don’t do.

Some examples…

• Shabby carpet in a reception area.
  Customer perception: Maybe your business isn’t doing very well if you can’t afford a new carpet.
• Taking a long time to answer the phone.
  Customer perception: Maybe you don’t actually want my business.
  
• Old fashioned branding.
  Customer perception: Maybe you are just an old fashioned company delivering out-of-date solutions.

Becoming aware of what your business is saying about itself can be hard when you’re so close to it, but with some outside help you can train yourself into noticing again. Try interacting with your business as if you were a customer – how does it make you feel? What would you be thinking if you saw or experienced those things in another business? Ask your friends, family, colleagues and customers what they think about your business.  Listen to their honest opinions.  Then aim to change the things you can.

Being confident that your business is communicating what you want to communicate is a great place to be.  Don’t let your business undermine what it is you really want to say!

Business excellence isn’t about being the ‘perfect’ business. And it isn’t about always getting everything right.

But nor is it accepting and maintaining the status quo.

Rather, business excellence is about the continual striving to develop and improve our businesses, one step at a time.

It is a mindset that says, “Whatever and wherever my business is right now, it can be better, and it will be better.”

And so that’s what we do: we take each element of our business, assess it, and improve it.   We listen to our customers, we listen to our staff, we listen to people in the know, and then we act.

Again, and again, and again.

And the result?
We have more loyal customers, more involved staff, better products/services, more efficient operations, more awareness of what is going on around us in the market place.

Our businesses start to become stronger, more competitive, better.

That’s real world business excellence!

As cool things go, a flying car is certainly one of them! If you’ve got the cash to splash, then this should certainly be on your list…

Being able to fly and drive certainly opens up your options for commuting! Think of the time saving – that’s got to be worth something!

Church of the Customer picked up the flying car a while back and suggested it was prime material for word-of-mouth marketing: it’s a great idea and if people know about it, they’re likely to talk about it.  People want to talk about cool stuff to their friends, family, colleagues, anyone who will listen. However, people can’t talk about your idea if they don’t know about it and if the channels for communication aren’t easily available, and that’s what Church of the Customer picked up as the problem with the flying car. The company who had the idea (Terrafugia) weren’t making it easy for people to connect and share their excitement about this great product. Ben McConnell (who wrote the original blog) also suggested videos, social media, Twitter etc. to increase participation and help generate word of mouth.

The flying car company now at least have some videos.

In Ben’s most recent post, ‘The flying car flies’ (which includes the first video above) he suggested a multi-media fest, including videos on the front page, to help get people excited and to create a buzz; along with the code to embed the videos to help us bloggers!

However, I’d go one step further.

To create a real buzz you need a real sense of participation. At $194,000 anticipated retail price (when it goes on the market) that’s going to be out of reach for most of us and therefore limit the sense of being involved.

If however Terrafugia were to offer 5 lucky winners the chance to go for a drive/flight in the flying car by entering a special competition, then I’d be excited (especially if they flew me over to America for the prize – I’m based in the UK!).

Then, if they then offered me an extra chance to win for every one of my friends who also entered the competition, I’d happily suggest they entered – for my sake as well as theirs!

At very little cost to them, they could generate huge marketing and PR opportunities.

Within a short space of time you would have generated a buzz and a sense of participation far beyond what could be generated by YouTube and social media assistance alone. Combine the social media, YouTube and an exciting competition and you’d get something that was greater than the sum of its parts!

ps. If  you’re a member of Terrafugia and you’re reading this, you can sign me (and all my friends) up for the competition!

The Google AdWords concept is very simple: connect a customer who is looking for something with a company that is selling something. The better the match, the happier both parties are.

But for people who are less familiar with Adwords and the technology behind them, this concept can sometimes be quite hard to visualise and understand.

Last week, I was attending an initial meeting with a client to explore whether they would like me to update their Google Adwords campaign and drew a brief sketch to take with me explaining how Google Adwords works as a marketing concept. They loved the sketch and we found that it really unlocked the concept in a way that just wouldn’t have happened with words. So, I thought I’d share the pictures with you here…

(To view the full size image, just click on the picture. Depending on your browser settings, you might need to click on the picture a second time to get it full screen width.)