I was having a cup of coffee with a former co-worker when she mentioned a problem very common in the professional services world — evaluating whether clients who require most of your energy and resources are the same ones who provide most of the positive impact on your business. This is certainly not a new issue and not industry specific — whether you sell services or products, it’s important to check your current assumptions about the value of specific clients/customers. One way to evaluate would be to segment using straight numbers — revenue and expense data. Maybe drilling down with an 80/20 perspective. And…this might mean another pie chart. Meh. While it may be informative, this process may not be meaningful to cross-functional teams. And, of course, value can mean more than a sterile profitability analysis.
This reminded me of a handy matrix I had seen recently (LBS) on customer segmentation that is a quick and easy way to start the discussion. You will still need to understand profitability by segment (for a complete picture) after everyone has had a chance to place clients on the grid, but this first cut gets at the right questions. And, best of all, we started on a piece of paper in a coffee shop!
My coffee shop art…
Stars: Your best clients. They like you (always good for a professional reference), you love to do business with them. Remember that current customers are your future customers so work hard to understand this group. And, understand the economics.
Time Wasters: You know these clients — they call you for free work, always promising future contracts and/or expanded scope that never materializes. You really like to work with them, but it just doesn’t pencil and it frustrates the team.
Desirable: You’d love to work with them, but your offerings don’t meet their needs. See if you can find out what they value and match that with your selling proposition. You might be able to make them your Stars someday.
Need to be Fired: These are the clients that keep coming back to you, but you cannot figure out why. Your team struggles to keep them happy throughout the projects and the follow-up phases. As a COO, I have gotten the phone calls from this segment often, sending us all scrambling to please them. And you really want to keep them happy, you do, because they are clients, but sometimes you find it’s an impossible task. It’s time to move on for both sides.
So, get everyone on the same page as to which clients/customers go where and then move to the revenue and expense filter. You’ll then get a better idea of where your assumptions are right and where you may need to shift strategy.
And draw more matrices in coffee shops — they are a great way to get a fast visual to direct data gathering or strategic direction. I’m working on Venn diagrams next!
“Have
you ever heard the saying ‘There are no stupid questions?’ That was a stupid
question.”
Well, that was embarrassing. You are in the weekly staff
meeting and you decide to do it – speak up and ask a question about the COO’s
report on Bookings and you are on blast for not knowing what that means and why
there is a report each week on this line item. This is why you don’t typically
ask questions, which is why you don’t typically understand what your coworkers
do and why.
A solid way to learn about the cross-functional nature of a business is going back to school and getting that MBA you’ve considered. The one you considered mostly because you feel as though you are stuck in second gear and wondered if this is the missing piece. But, the timing isn’t right and, wow, the money isn’t right. So what else can you do? There are many options for supplemental and adaptive learning that allow you to DIY an MBA style education. But, for now, let’s use some tech-speak and look at a Minimum Viable Product (MVP) of what you need to know to save you from the stupid question syndrome. Although, please, continue to ask questions – some may be stupid, but that’s not the point. The point is learning – endlessly, relentlessly.
A ‘traditional’ MBA curriculum from Wharton includes:
Accounting
Ethics
Finance
Macroeconomics
Marketing
Management
Microeconomics
Operations
Statistics
Keep those
in mind and, again, supplement. For quick and dirty purposes, though (the MVP),
we’ll break it down into the three most important concepts to understand in a
generic business environment in each the following functions: Operations;
Finance & Accounting, Sales & Marketing.
Today’s
installment is…
Operations
‘Rivers are easiest to cross at their source.’ Publius Syrus
The operations function of a company is concerned with the delivery of goods or services to the customer. This could entail disciplines such as project management, in the case of services, or order fulfillment when selling products. It includes human capital (the HR or People Op functions), Information Technology (the IT function), Customer Service/Customer Success, Technical Service, and, even Legal and Compliance in some firms. It’s a large umbrella really, and can look very different from company to company.
Ultimately, to create a sustainable company, you need to create a product people want, take care of your customers, and manage your cash. Repeat that again and again. Make sure stakeholders are included in the caring part – employees, investors, suppliers – and you’ve got an organization that can thrive, not just sustain.
MVP in Business Operations Concepts
Business Model. A business model is a representation of a company’s business logic, how a company competes, comprised of the following elements:
Value Proposition – the value the company provides to customers, the pain point or problem to be solved, the products offered.
Customer Relationships, Segments, and Channels – how the company reaches the customers and relates to them.
Key Activities, Resources, and Partners – critical tasks and function the company needs to do to deliver on the value proposition along with resources required (technology, financial, people).
Revenue and Cost Structure – what customers are willing to pay and the key costs required to deliver.
Operational Excellence. Operational excellence is the execution of the business strategy more effectively and efficiently than the competition. It occurs under the following conditions:
When everyone in an organization has the mindset (they want to), and behaviors, to perform. And management models that mindset – they also hold themselves accountable to the wants to piece.
All employees have the tools, information, and resources (they are able to) to be effective and efficient.
The value chain is known and anything that does not serve the customer (internal or external) is removed.
Better, Faster, Cheaper. Always.
Better – focus on the quality of products, service, processes, internal and external customer experience, and value
Faster – Service, response, delivery, processing times
Cheaper – cost effective operations, processing and purchasing
Get Inside an Ops Leader’s Head
Ultimately, the leaders within operations
functions are thinking about the right people doing the right things right.
It’s a massive hiring (mindset and behaviors), alignment (strategy, priorities,
policies), and allocation (tools and resources) exercise. They are looking to
ask the right questions and aligning the organization design, purpose, goals
and behaviors to provide value. Taking the big picture and mapping out the step
by step approach to execution.
What You Can do to Advance
Show
that you understand the company business model, you get the basic components of
operational excellence, and you are thinking value delivery in all areas you
touch.
Demonstrate
you are willing to carry the load when it comes to the execution piece and you see
where the company is trying to go. There may to complexities and
responsibilities that fall well beyond your function, particularly in large
organizations, but show you are managing yourself around your key responsibilities
in service of the greater vision. This starts with your direct supervisor and
then can appear in other cross-functional communications – meetings, emails,
slack discussions, or even informal networking.
Check
whether the organization is open to lite cross-training, or pseudo job shadowing,
with operations team members that are downstream from your function. For
example, if you are in Customer Success, and your role in the value chain is order
entry for fulfillment, ask the team what a complete order looks like; get
feedback on some of the errors they may see in your work; talk to them about what
you can do, from your seat, to make their jobs easier.
The careful and responsible management of something
entrusted to one’s care.
In a ‘normal’ world, there are so many areas of our personal
and professional lives that require stewardship. In this current operating environment,
we are seeing a heightened level of need for this mindset.
Personally, many are navigating the care of a variety of emotions,
with a variety of family members, in their homes. You may be managing your
child’s education as an interim teacher. You may be carefully managing a
household budget after a layoff. As a community, physical distancing is intended
to avoid overburdening healthcare resources. We are responsibly managing our behavior
and subsequent impacts on our vulnerable populations. So, there is all of that. And that’s a lot.
Enough to address in its own post.
Professionally, we have an unexpected work from home experiment
occurring and, within the same company, we may also have certain staff that
cannot work from home, leaving disjointed communications and a loss of shared daily
experience. We are caring for assets like empty, or mostly empty, facilities
that still receive mail, have mechanical breakdowns, and may have security
issues. We may have stranded inventory caught up somewhere along a supply chain
that needs responsible managing. Maybe we were in the middle of a product launch
and now need to carefully park the work to date with the least amount of damage
upon restart. So, there is all of that. And that’s a lot.
In recent conversations (and webinars, thank you internet) with
a few CEOs it really hit home how many decisions they are making right now,
quickly, with little information or measures of certainty. That must be exhausting.
Talk about decision fatigue. And, it occurred to me, if trust exists, the CEOs
aren’t alone, they have management teams. And the management teams aren’t alone,
they have lateral peers and may even have their own teams. And many of the
individual team members aren’t alone, they have coworkers (excepting, of course,
job losses which equate to teams with severe headcount reductions – I am deeply
sorry to all experiencing those issues). Taking that a step further, it
reminded me that none of us are alone and, no matter the position within the
organization, we are all leaders, more so now than ever. Further, I believe a marker
of leadership is demonstrating stewardship, the careful and responsible management
of something entrusted to one’s care.
In my world of finance and business operations, I spend a
lot of time thinking about people, processes and the numbers. Here’s what I’m
wondering – with this crush of new data and slew of distractions, can we, no
matter what our functional roles may be, ease decision fatigue for all by simplifying
our thinking into buckets of people, processes, and the numbers while viewing
them through the lens of stewardship?
Here’s what that might look like for the People bucket:
We can all have open ears and practice active
listening. Have you checked in with that coworker that may be homeschooling, juggling
project initiatives and who also has a parent in a long-term care facility that
is now severely isolated? Maybe they need to vent a bit, express fear, or just
tell you about the antics of their dogs during their last virtual meeting. Are
they sleeping? Remind them of self-care tactics. Text them. Better yet, call
them. Say hi.
We can all remind each other of the values and
guiding principles of the organization and facilitate decision making by
staying true to that north star. Speak up, if needed. Be that voice in the room
(the virtual room) to remind everyone to stay true to what matters. Sometimes
you need to be the contrarian to keep people headed in the right direction.
Is there a colleague that is burning it at both
ends in a critical company operation? Can someone spell them? Is this the right
time for a junior member to be allowed to take on more and integrate other
talent to a task? Ideally, HR takes this on, but they may need to be alerted to
an issue or concern.
Are you playing to individual strengths on teams?
Some people are built for crises, others are not. That’s ok and definitely something
you should know.
Don’t forget suppliers, vendors, customers,
partners. People. I talked with a CEO who, in the face of reduced demand,
decided he still needed to move ahead with a large supplier order because of
the ripple effect on the partnering company if he cancelled right now.
Ultimate stewardship question: How do I carefully and responsibly
manage the ecosystem of people entrusted to my care? Answer: Communicate, be
transparent, show you care, and look to values and guiding principles.
Processes Bucket:
Really understand the value drivers in a
business. Those operational functions that may be small but have an outsized
impact on outcomes. There are a lot of resources online demonstrating how to
create a Value Driver Tree. Super useful for focus and the exercise may also shine
a light on potential pivot areas. And, again, it doesn’t matter where you are
in an organization. There is something you do that ultimately touches a customer
(your customer may be internal). Think about how the pieces fit.
Use time/self-management tools like an Eisenhower
Matrix to think about the levels of urgency and importance in tasks. You may not
be in a position to delegate the non-important work, but maybe you can propose
an extension of time, or an alternative way to complete the task, or maybe the
task needs a rescope. Mostly, think about what is important to accomplish near
term and try to mitigate fire-fighting where you can.
Consider processes and flows (maybe in conjunction
with a value driver analysis) openly and allow team members’ thoughts and ideas
to surface on innovation or improvement. Particularly on those things that move
the needle. Once you put a call out, you may hear from that oh-so-quiet
Customer Success Associate on long-held thoughts about a handoff process from Sales
that isn’t serving anyone, least of all the customer. Identify bottlenecks for operations
that are capacity constrained – don’t bother with creating idle time for resources
that don’t have demand.
Get rid of vanity metrics. A vanity metric is
one that moves, but you don’t know if that movement means positive outcomes for
the business. For example, eyeballs and page views may have been tracked prior
to the pandemic, closed customers is the meaningful metric to track now. Remove
the noise. Active users and retention may matter more than new sign-ups for trials
that expire in 30 days (people at home, on the internet, hitting subscribe).
Ultimate stewardship question: How do I carefully and responsibly
manage the organizational processes entrusted to my care? Answer: Think about ways
to create value for customers (internal and external) through innovation and eliminating
waste in systems. Protect capacity constrained resources.
The Numbers Bucket:
Right now, someone in the organization is
thinking about cash flow. Just because you may not be in that function, it doesn’t
mean you don’t participate in cash inflow and outflow activities. Is there an operating
expense you can help the firm avoid because you have a better way of doing
something (maybe it’s combining/sharing platform tools amongst departments, or
reviewing software seats to reduce for changes in headcount)?
If you are in Finance and Accounting, create a
value driver tree similar to the one discussed above, but use it to track major
spend categories (for most companies wages, rent, and travel). Make those
expenses visible by including them on a dashboard. Again, focus on costs that
move the needle – this time impacting EBITDA and cash balance. If you are in a
department outside of F & A, try to provide as much updated budget and forward-looking
information as you can to this exercise.
Consider discretionary spend. Managing cash doesn’t
mean all discretionary expenses are eliminated (although there should be an
approach similar to Zero Based Budgeting to justify line items), but it does mean
thinking about runway (the cash needed to sustain) versus investment. An easy
response is to cut marketing spend. I’ve talked to CEOs who are doubling down
on investments in Sales and Marketing to accelerate out of the curve. These
will continue to be critical line items – perceived brand value, differentiation,
and closed customers lead to enterprise value. Know your cohorts and channels, reforecast
for runway, and invest when/if you can.
Manage working capital – Accounts Receivable, Inventory,
and Accounts Payable. It’s likely you will start to see some aging and/or
collections issues. Work as a team (F&A and Sales) to communicate each week
on accounts. Get creative – maybe a discount on a multi-year contract can be
added on the back end of the final year. Manage A/P – consider your responsibility
toward your suppliers (they need to collect cash, too), but communicate with
those that may be able to offer more favorable terms. Talk with your landlord about
abatements or concessions. Add working capital to the expense dashboard for visibility
and track weekly.
Work with Sales on customer discount options. If
the discount is less than your Customer Acquisition Cost, it will cost less to
offer than adding a new customer. If you can get it, look for ways to receive
pre-payments.
Scenarios: you can create many but, at a minimum,
worst case (100% expense, reduced sales) and most likely are needed.
Ultimate stewardship question: How
do I carefully and responsibly manage the numbers entrusted to my care? Answer:
Everyone can rally around the goal of extending the amount of time to sustain in
the current operating environment. Treat the firm’s money as if it is your own
and understand there is an ecosystem relying on you to make good judgment calls
on cash, customers, suppliers, and partners.
If the COVID-19 pandemic is a reset
and a time to pause, as many have expressed, I believe we can use this time to
integrate stewardship into our daily activities and decisions in ways we may
have overlooked before, depending on our place within a company. Take care of
the things placed in your hands. They matter.
Financial
statements are filled with opinions. GAAP aside, profit is an outcome of
managerial decisions, timing, and policies. The value of your assets can be impacted
by decisions related to what gets capitalized and methods of depreciation or
amortization. Performance can be smoothed through revenue recognition
manipulation. Accruals might make sense to accountants, but they don’t reflect transactional
reality. The only two numbers that are facts – verifiable and indisputable – on
your financial statements are cash and debt balances.
Cash is cash and
much has been written about it its importance in your business. You’ve heard it
– cash is king; a company cannot function without it, as humans cannot function
without oxygen; poor management can cause a downward spiral, while running out
of cash is the official cause of death. So, how do you move this critical component
of your business to top of mind awareness for your management team? How do you
create a culture of cash management and transparency? Here are three tips to
assure the cash conversation has a seat at the table:
Make sure your team knows about the Cash Conversion Cycle. The CCC measures the length of time it takes for a dollar spent on an expense or purchase to make its way back into the company in the form of a customer payment. Although leaders in departments outside of Finance and Accounting don’t need to know the formulas and calculations (DIO, DPO, DSO) for this metric, make sure they understand the fundamental idea behind this simple visual:
This flow means cash goes out the door on Day 30 to pay suppliers for inventory purchased and, depending on length of the sales cycle (days the finished goods are waiting to be sold) and the time it takes for customers to pay (days from invoicing to collection), there could be a significant funding gap (in the above example, that gap is over 3 months). Your team can influence this cycle: maybe Purchasing can negotiate more attractive terms with suppliers, Marketing should assist on differentiation and providing qualified leads to shorten the sales cycle, the Sales team can make sure they are selling to creditworthy customers, Finance and Accounting can work collections by providing early payment discounts or reducing errors on invoices that delay payments, etc.
2. Educate the team on the seven key financial levers. Teams can improve cash by working any of the following:
Price
– increase the price of your products
Volume
– sell more units at same price
Cost
of Goods Sold – reduce cost of direct inputs (materials and labor)
Operating
expense – reduce operating costs
Accounts
Receivable – faster collection from customers
Inventory
– reduce on-hand amounts
Accounts
Payable – slow down payments to suppliers/vendors
There
are strategies that can be implemented on any one (or all, although it’s not
recommended to tweak all at the same time) of these levers and your team can
share responsibility within their functional areas. For example, Sales and Accounting
can jointly monitor A/R and participate in collections, Marketing can assist with
appropriate price point discussions, Purchasing/Procurement can be accountable for
reducing the cost of raw materials, along with lead times.
Track metrics and make status reports part
of management meetings. Examples
of discussion topics include Profitability (Gross Margin, Operating Expense,
EBIT) and Working Capital (Accounts Receivable Days, Inventory Days, Accounts
Payable Days). Ideally, targets should
be set so the team has comparisons to measure performance.
A focus on cash management
within your culture increases the runway in a rapidly growing company and –
added bonus – provides a learning opportunity for your management team as they also
grow their general business acumen to complement their specific functional
expertise.
Did you hear about Ryan Reynold’s newest acquisition, Mint Mobile, spending $5 mm to buy a 30 second spot during the Superbowl? No? That’s because they bought an ad in the NY Times instead saying they weren’t buying a 30 second spot for $5 mm because that’s crazy money. Mint Mobile, via other, cheaper channels offered a free three-month subscription to their service valid only for signups during the actual game (still spending less than an ad, particularly when you consider what it would cost to produce an ad).
So, here’s the thing, the timing (after kickoff, before final whistle) makes it a Superbowl Ad and that makes Ryan Reynolds a Superbowl Ad Hacker. And he did this because Ryan Reynolds is the savviest marketing mind of a generation (ok, the generation thing may be hyperbole but, you’ve got to admit, he’s really, really great at it). This hack was a brilliant move and shows Ryan Reynolds may be better at marketing than choosing movie roles (full disclosure, I have not seen R.I.P.D. with its 13% Rotten Tomatoes score. I’m sure he’s fantastic in it, he is Ryan Reynolds after all).
All of that is great fodder for marketing professionals to think and talk about – strategy, channels, influencers, etc. What I think is interesting is this place Reynolds finds himself (has placed himself) as an entrepreneur making investments in companies and then becoming their most effective brand ambassador. It’s unique and I wonder why more celebs aren’t doing it. Ryan Reynolds is a charismatic person, as are many other famous people, and he’s got the personal brand thing dialed, as do many other celebs. I think the real differentiator for him is the strategic work he (and I don’t think its ‘his team’) has put into personal branding, and I believe there are lessons Those of Us Not Named Ryan Reynolds can learn from that difference.
Here’s a helpful set of definitions from the website personalbrand.com (wish I would have tied up this domain. Sigh.):
“Official Definition of Personal Brand:
A personal brand is a widely-recognized and largely-uniform perception or impression of an individual based on their experience, expertise, competencies, actions and/or achievements within a community, industry, or the marketplace at large.
Official Definition of Personal Branding:
The conscious and intentional effort to create and influence public perception of an individual by positioning them as an authority in their industry, elevating their credibility, and differentiating themselves from the competition, to ultimately advance their career, increase their circle of influence, and have a larger impact.
Put simply:
A personal brand is rooted in the minds of people in the market. Personal branding is the effort to communicate and present your value to the world.”
Let’s walk through a few elements of conscious and intentional effort in personal branding and see if there are useful takeaways for Those of Us Not Named Ryan Reynolds.
Differentiation. One of the unique selling propositions Reynolds brings to the table in an acquisition is this ability to fully become a brand ambassador. The entity he is investing in isn’t using his celeb status as a vanity metric for some buzz around their cap table, they put him to work. While many celebs have been known for providing funding to startups (look at the investing ecosystem around many of the Golden State Warriors, or Ashton Kutcher’s VC firm, for example), they aren’t as active in the marketing strategy of the products. This is a Blue Ocean strategy for Reynolds. He is uniquely qualified for this role. He has the following, and relatability, to shift buying behaviors around a product or service.
What does this mean for Those of Us Not Named Ryan Reynolds? Where is that uncrowded space where you can make a difference? Is there an intersection of skills you have that others in your industry don’t seem to have (or haven’t figured out how to tap)? I met a gentleman today who leads staff training functions at tech firms. He’s also a cartoonist. It took a bit of prodding on his part, but he wore the right person down to take a shot at hand-drawing safety posters in an easily recognizable, relatable way. Do you have interests, passions, or skills that can be combined to create an innovation?
2. Personal branding should consider a future state. I think it’s likely Reynolds understands that most movie careers have a limited shelf life. Viewers tastes change and I think we can all agree Hollywood is an ageist culture. It feels like he is setting himself up for an active business life when the movie scripts stop flowing. He’s making the mogul move.
What does this mean for Those of Us Not Named Ryan Reynolds? Do you have a dream job or an ideal professional environment you are reaching for? Maybe you aren’t there yet, but are there a few iterations of self and your skills that can move you in that direction? Picture that future and work backwards on the expertise and experiences that will help advance that. Then, find ways to get the word out about your newfound expertise and where you’d like to be.
3. Branding is about narrative. Ok, Reynolds is masterful at this. He’s an actor, every role he plays is the very embodiment of someone’s story. I bet he’s picked up a lot of tips from some very smart writers and directors along the way (R.I.P.D. aside. Why did I just say that? I haven’t seen it and have no basis for that judgment – that was just rude). Have you seen what he has done with Aviation Gin? I don’t even drink and a gin and tonic sounds good right now.
What does this mean for Those of Us Not Named Ryan Reynolds? Find ways to tell your story. Do you have an interesting origin? Is there something in your life that got you to this point – maybe something others can relate to? James Altucher uses his narrative around failure to make vulnerability ok; Brene Brown is super transparent around her own experience with shame; Scott Galloway has some odd thing around rabbit coats (don’t get him started). These are influencers, thought leaders, and teachers who understand the power of their own narrative. Everyone has a story, practice telling yours.
4. Authenticity and voice. If a brand is a “set of ideas and feelings about a product or entity, shaped by what that product says and does, recognized through a distinctive style”* then Reynolds has tapped into this formula by making me believe he’s a good guy (my ideas or feelings about him), through his witty posts on social network platforms or snappy commercials (what he says and does), with a self-deprecating and humorous tone (distinctive style). He’s consistent and he engages with his followers. Obviously, I don’t know Reynolds, but I feel like the gap between his character (important internal qualities) and his reputation (what we all say about him) is pretty close. See, his personal branding works!
What does this mean for Those of Us Not Named Ryan Reynolds? Be you. Lean into it. Find your voice and let it fly. I’ll leave you with two quotes to get you on your way to Being Ok with Not Being Named Ryan Reynolds:
Dr. Suess: “Today you are you, that is truer than true. There is no one alive who is you-er than you.”
Ralph Waldo Emerson: “Be yourself; no base imitator of another, but your best self. There is something which you can do better than another. Listen to the inward voice and bravely obey that. Do the things at which you are great, not what you were never made for.”
We are not Ryan Reynolds, and we did not hack the Superbowl Ads big money game, but that’s ok. We also weren’t the aimless wise guy in Two Guys, a Girl and a Pizza Place. What am I saying, he was hilarious in that, too.
* A Very Short Introduction: Branding, by Robert Jones
In out-of-the-way places of the heart, Where your thoughts never think to wander, This beginning has been quietly forming, Waiting until you were ready to emerge.
For a long time it has watched your desire, Feeling the emptiness growing inside you, Noticing how you willed yourself on, Still unable to leave what you had outgrown.
It watched you play with the seduction of safety And the gray promises that sameness whispered, Heard the waves of turmoil rise and relent, Wondered would you always live like this.
Then the delight, when your courage kindled, And out you stepped onto new ground, Your eyes young again with energy and dream, A path of plenitude opening before you.
Though your destination is not yet clear You can trust the promise of this opening; Unfurl yourself into the grace of beginning That is at one with your life’s desire.
Awaken your spirit to adventure; Hold nothing back, learn to find ease in risk; Soon you will be home in a new rhythm, For your soul senses the world that awaits you.
