The Case of the Mistaken Measures

Recently a company asked for my help in solving a mystery. Their revenue was growing but their profitability had declined over the past couple of years and they couldn’t figure out why. They thought it might have to do with operations and supply chain, but they weren’t sure.

As I investigated, it soon became apparent that most of their key performance indicators (KPIs) were activity oriented. They measured output per hour, number of purchase orders received, number of lines shipped, number of orders processed, total headcount, etc. One day they received 100 purchase orders and the next day they received 120. Which is better?
When I started to ask questions about average order size, dollars shipped per labor dollar and other elements of economic value, they said, “That’s not the way we measure things.” And that’s why their profit was declining.
To read more about the importance of measuring the right things at the right time, check out my latest Growth Accelerator newsletter.
© 2018 Rick Pay, all rights reserved.

Reform Your Business When Business Is Good

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Last year I sent out a Growth Accelerator newsletter about why it’s essential to keep growing your business, especially when things are going well:

I find it very interesting how many executives want to wait to meet, start projects, hire key people and start change initiatives, because they’re making a profit and “Things are fine.” Why should they put effort into improvement when nothing’s wrong right now? Here’s why:

1) Succumbing to the status quo (even if it’s good) can be dangerous.

2) Their competitors are getting better everyday.

Toyota, the icon of Lean and continuous improvement, is always striving to get better. In an article “The Contradictions That Drive Toyota’s Success” (Harvard Business Review, June, 2008) senior executives said, “Never be satisfied.” The chairperson of Toyota said, “There has got to be a better way, and we need to reform business when business is good.”

Click here to read the full article.

Click here to join my Growth Accelerator mailing list.

 

©2018 Rick Pay – All rights reserved.

Thinker-Uppers

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I was talking to a friend who is a retired senior partner in a very successful advertising agency. We were discussing what drives profit and growth acceleration in companies. He explained that there are three kinds of people in companies: doers, getter-doners, and thinker-uppers.

Doers are those who execute – important certainly, but you can find and develop doers relatively easily. Getter-doners are those who make sure the work gets accomplished, setting priorities and project managing to ensure quality goals and deadlines are met. These people are harder to find, but again, can be developed or hired as needed.

The third type is the rare breed, the thinker-uppers. These are the people who develop innovative approaches, generate imaginative ideas and often use disruptive thinking to create new ways of doing things. These people are hard to find.

Senior executives are responsible for assuring the presence of all three kinds of people in the organization. Without doers, the work never gets done. Without getter-doners, the priorities are lost and the work drifts. Without thinker-uppers, profit and growth won’t accelerate.

Do you have the right people on your team? If you lack thinker-uppers, do you use outside resources to help accelerate profit and growth?

© 2018 – Rick Pay – All Rights Reserved

What Bankers Want

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A good banker has your best interests at heart and can be a key advisor to your business. Not only do commercial lenders provide lines of credit and short term cash flow, but they can also offer import/export cash management and protection assistance, cash for expansion and growth, and advice and counsel about a number of issues related to your business. Of course bankers can’t tell you how to run your business and they walk a fine line to keep the regulators happy, but most mid-market bankers I know are excited to help their clients in any way they can.

So what does a banker look for in a well-managed, bankable business? First and foremost, the ideal owner is honest, realistic and communicates openly with accurate information. They have a clear strategy and the team to execute it. They have a strong succession plan and allow their team to run the day-to-day aspects of the business while they focus on developing a vision and strategy for growth and profitability.

Second, bankers tend to focus on the balance sheet more than the income statement. Of course they want the company to be profitable, but over the years, I’ve seen many “profitable” companies run out of cash and end up in the ditch. Bankers look for a strong relationship between asset and liabilities and a short cash-to-cash cycle, which is the number of days from when you spend a dollar on goods and services to when you get it back from the customer. Inventory is a particularly big part of that.

Third, bankers look at how companies manage capacity. Is the company ready for growth? Do they have the resources to support it? Do you need to work with your banker on a capital line to support expansion?

Use your banker as a key advisor. They can have a useful perspective on your company, and if they don’t, perhaps it’s time to seek a new banker. Your successful future might depend on it.

© 2018 – Rick Pay – All Rights Reserved

Driving Robust Value From a Supply Chain

I was recently interviewed for an article in CFO Magazine on the radical changes we’re seeing in supply chain. Interestingly, the author discusses some of the same concepts I investigated in my last Growth Accelerator newsletter. I hope you’ll check out the article, and read how these techniques can “can drive robust value from a supply chain, value that enables no less than a reinvention of a company.”

© 2017 Rick Pay, all rights reserved.

Some of the Best Measures Aren’t Numbers

Most companies measure their progress in numbers – revenue growth, profit growth, EBITDA, shipped on time, market share and so on, but actually, some of the best measures are reputation, trust and relationships. In my book, 1 + 1 = 100: Achieving Breakthrough Results Through Partnerships, I propose that two keys to developing trust in partnerships are knowing what is expected and knowing how each partner is doing.

My friend and business confidant, Val Wright, suggests that one exercise to know how you’re doing is to list the three traits that set you apart from your competition, and the top sound bites or phrases that you’re known for.

Reputation speaks loudly for your partners both within your company and externally. Have you heard Ralph Waldo Emerson’s phrase, “What you are doing speaks so loudly, I cannot hear what you say?”

Trust and relationship are the foundations of strong partnerships. If you want to measure how you’re doing, check your reputation. It speaks volumes!

 

© 2017 – Rick Pay – All Rights Reserved.

 

Reform Your Business When Business is Good

Earlier this week I sent out a Growth Accelerator newsletter about why it’s essential to keep evolving and growing your business, especially when things are going well:

I find it very interesting how many executives want to wait to meet, start projects, hire key people and start change initiatives, because they’re making a profit and “Things are fine.” Why should they put effort into improvement when nothing’s wrong right now? Here’s why:

1) Succumbing to the status quo (even if it’s good) can be dangerous.

2) Their competitors are getting better everyday.

 

Toyota, the icon of Lean and continuous improvement, is always striving to get better. In an article “The Contradictions That Drive Toyota’s Success” (Harvard Business Review, June, 2008) senior executives said, “Never be satisfied.” The chairperson of Toyota said, “There has got to be a better way, and we need to reform business when business is good.”

 

Click here to read the full article.

Click here to join my Growth Accelerator mailing list.

 

©2017 Rick Pay – All rights reserved.

Should You Get A Return On Effort?

I was talking to the owner of a rapidly growing company who was concerned because despite working hard on growing the company, profits were falling short of their hopes. The question of the moment was, “Shouldn’t we get a return on our effort?” The short answer is yes, but the longer answer is, it depends on how you define “return.”

A recent Wall Street Journal article (“Amazon’s River of Profit” May 1, 2017, p B9), noted that Amazon just achieved eight quarters in a row of profitability. Amazon was founded in 1994! It started as an online bookstore, and is now one of the largest Internet retailers in the world, based on total sales and market capitalization. It looks more like a high-tech company than a retailer.

I remember back in the 1990s when investment analysts were questioning the fact that Amazon wasn’t turning a profit. They seemed very concerned that this start-up was potentially years away from profitability and they naturally questioned if it was a “good investment.” Well, if we had all invested in Amazon stock at that time, we would all be millionaires.

Jeff Bezos clearly defined “return” a bit differently than the analysts. His initial goal was growth and market share. Then he moved toward innovation, using his company’s distribution strength to add additional products. Recently, they added cloud-based services, Amazon Web Services. In the last two years, the stock has more than doubled and is well on its way to $1,000 per share.

Amazon is very innovative and continues to focus on growth, but is now also earning money. Their “return” is market capitalization driven by innovation, growth and profitability. As they’ve matured, their overall strategy has shifted. Bezos was a genius of strategy and kept his focus, not buckling to the analyst’s comments.

What is your strategy? Does it define your return? Is your return on effort what you hoped it would be?

© 2017 – Rick Pay – All Rights Reserved

 

Is Your Operations Strategy Aligned?

In my forthcoming book, Moving Into The Express Lane: How to Rapidly Increase The Value of Your Company, I explore how to align your operations strategy with the business vision. To prepare for writing, I interviewed CEOs, CFOs and COOs of middle market companies.

 

Some of the questions included:

  • What drives value in your business?
  • What is the 2 – 3 year vision for your company?
  • Is your operations geared to the various customer types/channels you sell to?
  • What operations capabilities do you need to strengthen to achieve that vision?
  • Who decides that?
  • How will your workforce need to change to support growth?
  • Do you plan capacity?
  • What metrics do you track to tell you that operations is ready to support growth?

Ask the questions to your own team about your company. You’ll discover if you’re in alignment. If you aren’t, the ride becomes very uncomfortable.

© 2017 – Rick Pay – All Rights Reserved

Are You Ready for Growth?

When companies want to grow, they usually think “more sales!” But can you keep your promises to your customers? When the captain calls for full speed ahead, is the company ready to respond? Can you accelerate profit and growth at the same time? It’s important to measure the right things to move the needle on your business model and to change behaviors in your organization. Doing so can help you respond the call for full speed ahead.

Click here to find out how to measure your company’s potential for growth.

© 2016 Rick Pay – All rights reserved.