The following is a summary of the lessons skillfully communicated in a new book by a veteran of private company turnaround, Gary Sutton, as interpreted and written by the editors of The Business Owner. Mr. Sutton’s enlightened advice, drawn from years of experience finding and building profits in failing companies, rings true and should be applied to every business, not just to those in trouble today.
The following summary is certainly not comprehensive and persons interested in this topic should read the book to gain in-depth insight and first hand lessons from the author himself.
Identify What You Do Best What meaningful customer benefit do you provide better than anyone else? Your ability to do so is the only basis by which you will be able to keep customers, earn a profit and stay in business. If you don’t do anything better than the rest, you’re on borrowed time. Not sure what you do best? You’d better find out or create something and quick.
To begin, ask your customers why they do business with you and what you do better then anyone else. Write it down. Share it with others. Hone it and revise it until you get it right. Don’t worry if there isn’t conclusive evidence that you do it “better than anyone else,” just get it down. More importantly than what it says about you today, is that it should become the vision for your company and the heart of your mission statement. It should be achievable and sustainable. It will be how and why you will compete effectively in the future, keep existing customers, gain new clients and succeed.
Focus. Once you determine what you do best, stick to it. Don’t create confusion among your customers and employees by offering products or services that are not in your core area of expertise. Fuzzy direction kills more businesses than competition and dying markets. Specialize and be the best at something of value to customers or die.
Domino’s Pizza is a great example. They deliver fast. They don’t sell quality or price but “deliver in 30 minutes or less.” Home Depot is another great example. They could sell about anything in their huge, well-located warehouses. However, they only sell home and garden supplies. When you need home and garden supplies, you know exactly where to go, don’t you? On the other hand, Sears tries to be everything to everybody. An approach that simply does not work today when excellence is demanded by consumers. Stake your claim on a niche, stick to it and focus on getting better at it every day.
Know What Your Customers Really Want. Get close to your customers. Really close. If you have closer relationships with your vendors than your customers, you have a problem. Organize periodic gatherings with your customers at which you can get feedback, advice and industry intelligence from them. Find out why they buy, what they really want and what your competitors are offering. Get below the surface and down to the emotional level. Buyers of cell phones want freedom and productivity, not phone service. Fitness centers sell hope, dreams and romance, not exercise. Cigarette and alcohol companies sell self-image and a sense of maturity and independence. McDonalds sells fun family times, not burgers. What do you sell?
Make What Sells. Don’t Sell What You Make. When you have gotten close to your customers and learn what they really want, give it to them. Your entire organization should serve the wants and needs of your customers. Not all customers, but a select group of customers or potential customers that have certain wants or needs that you are more capable of fulfilling (or more determined or focused) than anyone else. If you are making products and then trying hard to find someone that will buy them, you have it backwards. Start instead by asking yourself what customer types you are uniquely suited serve with your products and/or services.
Find the Profit. Identify the products and services that make money and stop doing the rest. Reinforce, improve and solidify the profitable business, and cut all expenses that are not necessary to the delivery of the profitable products and services. Scorn money losing and break-even products. If a product or service is losing money, try to make it profitable by raising prices. If that does not work, lower prices and see if volume picks up to achieve profitability. If neither works, discontinue it the product line altogether. Then resist the temptation to add products or services that are not competitive and thus are not profitable.
Build Your Brand. Once you identify what you do best and commit yourself to total focus, tell the world. Turn your area of focus into your mantra. Be specific. Instead of using generic words like “fast” or “quality,” say “in 30 minutes or it’s free” or “ the only NASA certified parts.” Put your identifying mantra on everything you distribute. Educate your employees, vendors and customers in what you are great at so that they too, can spot ideal customers for you. This is called branding – the creation of an identity. Great companies are great marketers. Some of the most successful companies today are lead by marketers and do a tremendous job at branding their image such as Microsoft, Intuit and AOL.
Cut Costs. Above all, the customer wants lower prices. The lower the better. As such, the company that can afford to offer it the cheapest will win. Who can offer it the cheapest? The company with the lowest operating costs. In a competitive environment and during difficult economic times, the most important competitive dimension may be operating costs. The company with the lower cost structure can charge market prices and gain financially compared to the competition, or it can use its cost advantage to undercut the prices offered by the competitor and gain market share.
When your costs are lower then everyone else, you win every time. So, do yourself a favor. Fall in love with being cheap. Don’t buy anything that does not enhance the customer relationship in a meaningful way. Don’t buy anything new unless it is more productive per dollar spent than the used alternative. Moreover, don’t make any product or service in-house that can be purchase elsewhere for less. Beware of any urge to spend money on non-essentials. Take a lesson from The Millionaire Next Door … “The bottom line is the only place to flaunt your wealth.”
Pay for Performance. Hire proven winners. Downgrade education as criteria for hiring and promotion and enhance the stature of real results. Within your company, track performance and make the results open to all. Make continued employment contingent on production. Pay commissions based on customer satisfaction survey results as well as sales. Track the results from every marketing and advertising effort, product, employee, vendor and business unit. Incentivize everyone including your lawyer, accountant, ad agency, etc. Hold family members to the same standards as non-family members or watch you company implode.
Remove Politics, Fighting, Secrets, Lies, Sex, Alcohol, Drugs and Gambling from the Workplace. Demand integrity and make swift examples out of those that do not follow your lead. Encourage straight talk, questions, ideas and constructive criticism. Discourage adulation and yes-sayers. Get real people with the guts to express their real opinions, even when they disagree with your own. Treat people fairly. Do what is right and demand the same of others.
Don’t Bet on the Break-Through Order. Serve your core, existing customers profitably and add more just like them. When you have the luxury to spend some time and money on new products or markets, do so. However, don’t bet your business on breakthrough products or customers. Too often, they never come through. Close is not good enough.
Keep it simple. Track the key results. Manage from one piece of paper, literally. Track customers won and lost, shipments, back orders, cancellations, returns, payroll expense, advertising responses, number of inbound calls, product development status, cash balance, cash flow and asset balances. Highlight deviations and take swift action when trends are in the wrong direction.
Reassess Your Do-Good Attitude. Too many business owners spend time, when their businesses are struggling, giving speeches, volunteering at the chamber, cutting ribbons and sitting on non-profit boards. You, as the owner of a tax-paying business, are a rare commodity. By being successful and earning a profit you employ others, provide for families and pay taxes that fund schools, roads, police, politicians and social services. The most important thing that you can do for your community is to keep your business running, employee people and pay taxes.
If your bottom line isn’t above the industry average and continually growing, eliminate all non-essential activities that take the time of you or your employees. Duck the speeches, ribbon cuttings and community board duties … you have more important work to do.
Cash is King. What you want is cash flow and cash in the bank. Anything else can’t buy groceries. Don’t look at anything but cash and the things that lead to cash. Balance sheet assets are evil. They take up cash, so be relentless in lowering their values. Increasing non-cash assets spells trouble unless your cash flow is growing along with it.
Sell Harder. Sales calls lead to sales. Get your sales force cracking and personally show them the way. As the owner, you should be selling more than anyone else should. Track the number of calls, letters, emails, meetings and results.
Focus on Getting Better, Not Bigger. Bigger will come when you get better. Raise quality and two great things will happen: 1) Your costs will fall with lower waste, fewer returns and cancelled orders, and 2) Revenues will rise through lower customer attrition and more customer referrals.
Stop Flattering Yourself. You are only as good as the satisfaction of the last customer served. Your customers and your bottom line don’t care how long you have been in business or what your grandfather went through to get you where you are today. If your strategy for success includes a historical story or reference, think again. Get over the fact that you “were the first” or “we founded this industry.” Stop flattering yourself and get to work.
