Cold Weather – Forecasting

The US is experiencing one of its Decembers cold weather blasts.  In the Pacific NW, we hit new low temp records.  The Small and Medium Business environment is experiencing some of its coldest times as well.  Not from an artic freeze but from the legislative lack of understanding regarding what business is and what it will take to really allow growth.  What increases the complexity of a business to be able to forecast budgets, manpower requirements, new product development and growth in general is the inane activities of government and a bunch of academics called economist who have no sense of reality.  The policy decisions being driven by the wrong view of economics and what drives an economy is perpetuating the cold weather that affects business forecasting.

What can any size business do in developing forecast and how is it segmented for growth in any environment or market segment?  One simple and fast method is known as the PEST analysis.  This stands for Political, Economic, Social and Technical.  There are a plethora of examples of this on the Internet but I prefer the KISS principle in all things.  With that I like the to use the relational matrix of PEST to SBSNeR which is Supplier, Buyer, Substitutes, New entrants and Rivalries.  The idea is to pull your team together and put on your Beany* copter hat and do some brainstorming.  As far as the matrix design, put your PEST on the top and your SBSNeR along the left side.  Now begin asking the simple questions about each box in the matrix to get the process engaged.  Expand your questions as the matrix is further explored.

Example questions could be:

1. What is happening with deregulation, protectionism and subsidies and how does that affect the industry the business entity is involved in?
2. What are the local, national and international economic shifts?
3. What are the social shifts related to industry, customers or suppliers?
4. What technologies are affecting the industry, how and why?

Use the results of this exercise to look at the business’s market, product set, personnel and financial model.  Then consider the results that need to be addressed in each area to meet the objectives that are defined as growth areas for the business.  Hopefully your primary growth target is increased cash flow.

An additional influence in forecasting is the question: what will happen with inflation?  We are all concerned about what the political powers will do to manipulate this indicator.  Professor Rothbard states, “Inflation, distorts that keystone of our economy: business calculation.  Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of the consumers or their cost of operations.”  It is a challenge for business executives, especially in the small and medium business environment, to assess what this means in relationship to supplier price increases, cost of living adjustments for employees, demand by customers for price adjustments and maintaining a consistent Net Margin that will maintain positive cash flow.  Determining the influence of inflation is about looking at the complete picture of the living entity, the business, and seeing into the future the best we can.  Add this component to the PEST analysis then readjust all the variables to establish what are the goals set as growth factors for the particular business.

Forecasting is not the crystal ball activity many make it to be.  It is a methodology that is affected by numerous variables and therefore, a lot of work.  The lack of time and the value proposition of forecasting becomes the limiting aspect to accomplishing it in a small and medium size enterprise.  Yet, paying attention to it addresses several valuable business metrics that affect market knowledge, product alignment to the market and the affects of policy on future execution.  Properly done forecasting will heat up the incentive to execute to growth.

A Little Political Rant

It never ceases to amaze me that those that are in the trenches have a clear view of what it takes to restore jobs and allow individuals to develop real wealth.  The issue is philosophical.  What has happened over the last 50 years?  Simply put; instead of those elected to office really listening to the constituency, these elected persons rely on academics who for the most part have no true scientific or moral basis to influence policy that then affects the lives of individuals and the lives of businesses which are also living entities.  It is unknown to most of us that the Union for Radical Political Economics is 1,200 members strong that are academics that have direct influence on policy, especially in this present Congress and Administration. 

This organization believes and argues for the abolition of corporate profits and the elimination of pricing on eighty percent of the goods in the American economy.  We see this influence now in the attack on corporations and the interference by government in free-market exchange through Agency rules and regulations.  This is done not only at the national level but at the State level as well.  The assault on small and medium business is felt through the trickle down of egregious Federal, State and Local Agency rule making that set encumbering regulations and fees.  The constant barrage of incongruous business legislation and regulation seriously impacts how small business executives can forecast when they are wondering what is the next shoe that will drop.

The critical issue is that small and medium business owners need to be involved in the legislative process at some level.  Joining associations such as the Small Business & Entrepreneurial Council (www.sbecouncil.org) can inform business executives of national issues that will affect the elements of forecasting.  Contacting your State Legislator or County Commissioners will give one insight into local issues being addressed that will affect the business entity. 

With the fact that policy will affect business, every business needs to be involved in the political process.  Know who your elected officials are and communicate with them.  It is the responsibility of the business executive to do this for the sake of the living entity, the business.

*For the younger generation see Beany & Cecil cartoons by Bob Clampett

Exit Strategy Part 3 – Succession Planning

Funny how a discussion regarding politics and election cycles got me thinking about Succession Planning. The question that got all this really going had to do with how we raise up true Statesmen in our present political climate. Where do we find those that can be critical thinkers that act on principle and not on the dictates of a political party? The same questions are relevant to business. Where do we find and develop our next CEO, Vice Presidents, Boards of Directors and Small Business Executive/Owners?

So, we find the business entity in a moment of transition that is significantly going to affect operations. A senior executive is leaving. It doesn’t necessarily matter why but in this case; it is one of the top three decision makers in the entity. An Exit Strategy is being executed whether it is personal or that of the organization. What happens now? Let’s take a real life example; the CEO of General Motors (GM) is gone. The example being that I have defined every key person in the SMB environment as an executive and if your number one in the organization you’re most likely the CEO or President. What’s happening if you are gone? Who’s there to step in? Who will succeed you?

Succession planning is big business for Human Resources and Organizational Consultants. It is often thought of as the thing that heavy hitter and large corporations do to make sure that the good old boys keep the wraps on things. Wow, what wrong thinking that is. As we see with the GM example, the Board of Directors made a decision to remove the CEO and now are in a hunt for a new one not to keep an old boys club going but to increase the value of the company to the stakeholders.

The idea of increasing value of the business entity in a sustainable manner into perpetuity is a first principle of a Succession Plan. The basic concept for all businesses no matter what the size is should be to understand how to keep the entity moving forward with the inevitability that the most senior leadership will exit at some point for any of the reasons that I discussed in Exit Strategy Part 1. When someone heads out the door, what happens is a long conversation but the question here is – who is ready to step in?

I look at Succession Planning as an investment in critical assets of the business entity. As you know, I view a business as a Living Entity so that means there must be stewardship of that which is part of the entity. With that thought in mind, developing the individuals to succeed is critical to the growth and development of the business. Ensuring that someone will be able to step into the next role in leadership and management is critical. That is why I think that this list is some of the top reasons for a Succession Plan as part of the business entity Exit Strategy.

• It will prepare current employees to undertake key roles
• It develops talent and long-term growth
• It will improve workforce capabilities and performance
• It most often improves employee commitment and therefore retention
• It will meet the career development requirements of existing employees
• It will most certainly counter the increasing difficulty of recruiting employees externally
• If done right, it focuses on leadership continuity and improved knowledge sharing
• It will provide for more effective monitoring and tracking of employee proficiency levels and skill gaps
  

I believe that in short, Succession Planning is simply training and better yet, mentoring. I know, too simple yet very difficult to implement especially if there are a lot of ego’s in the senior management hallways. Just a quick reminder, the sustainability of the business entity isn’t just about you; it is about the longevity of the business.

OK, ego’s aside. All the HR experts and academics will agree that without a plan several things could happen to the organization such as:

• ß Loss of expertise and business knowledge
• Loss of business continuity
• Damaged client relationships
• Time and effort to recruit and train replacement employees
  

What are the basic things that should be in the Succession Plan?

• Identifying roles for succession
• Developing a clear understanding of the capabilities required to undertake those roles
• Identify top performers in all departments and make sure that they are engaged and satisfied to stay with you for a long period
• Prepare and develop employees to be ready for advancement into each identified role
• Understand the time needed to backfill the key roles
• Continually review and check the process of succession and whether planned individual development has taken place
  

You are thinking; well, I’m just a two, maybe a three person shop at best. What do I need to think about this for? I would suggest that you reconsider what Murphy can do in any business and that if you’re that entity that was just mentioned, what happens to the other couple employees if you exit unplanned? Honestly, any lack of planning leads to potential failure of the business. Without proper succession planning, the future success of the business is left to chance once the leadership is gone. Under these possible circumstances, if the entity succeeds at all, it is by default rather than planned.

Proper business continuity for sustainability is dependent on succession planning that can help prevent a business from being frozen and discontinued. If the business entity is family owned, a plan also helps avoid conflict among family member and between heirs and surviving owner-executives. Remember, that no matter the size of the business entity; it endures the same pain when it has to go through management changes. It all scales according to the complexity of the organization as a Living Entity.

If the entity is a corporation with a Board of Directors, the discussion does become even more complex when it comes to CEO and Board Member succession planning. It is even coming to the point that legislation is in effect for publicly traded companies that require succession planning for CEO’s. Ah, another discussion.

Changing Business Times

The changing times of the U. S. economy are driving more individuals to look at alternative ways to build income. For years, there has been the transition in the American workforce from the single employer for life employment to thinking about multiple streams of income. This transient employee milieu began emerging as the society began to move away from heavy industry to more financial services, intellectual industry and the explosion of technology.

We saw in the 1990’s that as quickly as a new technology company was started there were sometimes mass exodus of key employees from one company to the new. The incentives to do this overcame any sense of loyalty to the initial company. We know that the younger end of the baby boomers to the present will change careers on the order of 10 to 15 different jobs by the time they are 50 years old.

With this being the case and the present economic cycle, it is only reasonable that we are seeing the increase in entrepreneurship. The Small Business Administration Presidential Reports have commented consistently that about 30 million individuals a year go into business for themselves. What that means is that there a lot of folks that are looking for honest and well-compiled information about how to do business correctly. What is happening is that the information super highway has terabytes of data around the “how to” of this or that. Yet, the consolidation of that information is not presented from a real life human perspective.

What we will continue to do at NCDCS is work hard to give a credible Life Lessons Learned approach to business. What is a business as a Living Entity and how are those participating in the Living Entity, building a sustainable legacy. We are here to be committed to you, our readers and clients. We have returned from a long-term engagement and family medical issues. We are more ready than ever to be the Strategically Whole-istic Organization that you have known us to be.

Many thanks and Blessing to all those who have been our trustworthy colleagues and friends through this last year and into the future.