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Identifying Profitable Customers

identifying profitable customersIdentifying profitable customers is essential to a business’s success. Often I hear from financial leaders… “I don’t need to worry about the customers; that’s the marketing and sales team’s job.” WRONG. Everyone in your company should be concerned with your customers because without them, there is no business.

If it turns out that most of your customers are unprofitable, you have a problem. The two most effective ways to address unprofitable customers is by either cutting costs or raising prices.

There’s an easy way to do both, but you can only find the detailed plan in our Pricing for Profit Inspection Guide. Download this guide for free by clicking here.

Why Identify Your Most Profitable Customers?

So why should you focus on identifying profitable customers? If you are in charge of managing profits and cash flow, you must know your customers. Truth is, not all customers are created equal.

identifying profitable customersEver heard of the 80/20 rule? Typically, it is used in reference to productivity. But the reason why you need to identify your most profitable customers is because often, 20% of your customer base makes up 80% of your profit.

There are several things that you need to ask yourself when identifying profitable customers…

  • What is your customer segmentation by channel?
  • Who are your least profitable customers?
  • What products are being bought by most profitable customers?
  • What product most often purchased?
  • Which are your most profitable products?
  • What services are utilized by profitable customers?
  • What are the costs (tangible and intangible) associated with profitable customers? Unprofitable customers?

What do you do with the unprofitable customers?

Some indicators that a particular customer is likely unprofitable are abusive behavior to your sales and support team, general aggravation, seeking undeserved credits, requiring more time than the typical customer, and not completing tasks to move along project. Although there are more indicators, this list gives you an idea of what to look for to identify your unprofitable customers.

How to Identify Profitable Customers

An example… in working with one of our clients, we discovered that people ages 45-65 were their most profitable customers based upon the length of time they subscribed to their product. On average, those in that age category subscribed for 14 months. Whereas, those under the age of 45 only subscribed for 3 months. When we worked with our client to calculate cost to acquire each customer and the lifetime value, we were able to make an educated decision to invest in those ages 45-65.

Now that we have identified our client’s most profitable customers, our client puts a large portion of marketing funds to the ages 45-65. A customer outside of that target market is still a viable customer, they just don’t get as much marketing attention the since they are not their primary and most profitable customer segment.

Service Companies

For example, in the service side of our company, we monitor the costs associated with that particular client. If we find that we are spending more than we are making, there are two things that we need to do: figure out why the costs are so high and calculate whether we need to charge more. By knowing our unit economics, we are able to quickly judge whether a client is profitable or not.

If your costs are too high for what you are charging, it’s time to price for profit. Download our free Pricing for Profit Inspection Guide to easily discover if your company has a pricing problem and fix it!

Product Companies

Typically, a product is sold at one price point. Because of that, some companies may fail to look at the profitability of their customers. As we have worked in multiple industries, we have found that there are several areas to look at to improve profitability:

  • Customer Base
  • # of Products Purchased
  • Demographics
  • Lifetime Value of Customers
  • Channels

By using these areas, our clients have been able to shift their focus on their profitable customer base (and lookalike audiences) and consequently increase the number of products purchased per customer, decrease refunds, and increase the lifetime value of a customer. Sounds a little bit like marketing, right? But as a financial leader, you must operate in sales, marketing and operations to effectively lead the company forward financially.

identifying profitable customersNurture Profitable Customers

If you’re identifying profitable customers, you might see how the company can nurture its most profitable customers. What does your support department do differently with the favorite customers versus those that ruin their day? Partner with your sales and support teams to address how to better nurture them.

How to Deal With Unprofitable Customers

Because there is a limited amount of time in the day, you have to deal with your unprofitable customers and set up procedures to address them to ensure economic success.

Don’t Focus On Them

If you keep giving five star service to those that abuse it and continue to demand or expect excellence, you are going to experience increased costs (and frustration from your service team) associated with servicing that customer. Remove the focus from them.

How would you go about doing this? Encourage your front line employees to provide limited attention. Sure, some customers will leave. But in all reality, you don’t want to keep those customers AND it’s easier than you having to fire them.

Set Boundaries

In the case that you have a client who abuses the kindness of your front line employees, you need to call a meeting to address those behaviors AND set boundaries between the customer and the company. If you’ve been in business long enough, you may be thinking of a client who demanded too much time, didn’t do what they were told, and expected more than they were willing to pay for.

How is this a financial leader’s role? Employees need to feel like it’s okay to do so, and they won’t be punished for impacting the financial success of a company. Show your team the economics, and give them the power to push back against those unprofitable customers.

Increase the Price for a Service

Price is often one of the largest deciding factors for a prospective customer when deciding which firm they want to work with. It would only make sense that to make up for the hassle factor of unprofitable customers, you need to increase the price you are charging for your service. Chances are, if you find them difficult to deal with, your competitors do too and have adjusted their prices accordingly.  To learn how to price for profit, download our Pricing for Profit Inspection Guide.

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identifying profitable customers

How do you tell an entrepreneur that their business sucks?

business sucksYour business sucks…
How does that make you feel? Probably upset, maybe a little defensive. But what if it’s the truth? Many entrepreneurs generate new ideas as if it were a bodily function. As you have likely seen, not all ideas result in a multimillion dollar venture. Some of those ideas will fail to even bring a penny in!
In the business world, no one will outright tell you idea or business sucks because of business etiquette. However, that doesn’t mean that people don’t think it. After working with CFOs and Controllers for the past 25 years, I have learned that the majority of financial leaders will not tell their entrepreneur (or boss) that their business sucks, even when it does. Unfortunately, the truth needs to be told.
Before we go into how to give them the bad news, it’s critical to identify if there really is bad news to give.
As the financial leader of your company, it’s your duty to vet new ideas. This is part of the responsibility of being a wingman to your CEO. If you’re interested in learning how you can elevate your status, download the free How to be a Wingman guide by clicking here.  

How To Identify If Your Business Sucks

Have you ever seen an ugly baby? Most of us have, yet no one thinks that their baby is ugly. In much the same way, entrepreneurs think that all of their ideas are home runs and most people won’t tell them that their idea baby is ugly.

Unfortunately, all entrepreneurs are going to make at least one wrong call. Because you are their wingman, you should be guiding your entrepreneur to take financially sound risks. But before you tell your entrepreneur their business sucks, there are a couple things to look at when identifying whether an idea or business is worth investing in.

business sucks

Is it profitable?

If the idea or business is not profitable, you should not pursue it. This is the easiest way for a financial leader to identify that the business is not going to be successful. As the financial leader, you should be able to steer your executive team to a more successful and profitable road.

Are customers leaving?

Churn. If your customers are leaving quicker than you are bringing new ones in, your business probably sucks. Churn is one of the KPIs that we use to indicate the success of our business. If you are not able to reduce that number in your business, then your business will likely fail. A business cannot survive without its customers, so this is a telltale sign that your business sucks.

If customers are leaving quicker than they are coming in, look at your current strategy and pivot. This may mean that your entire business strategy is not working or just a small sliver of it. The product may not match your audience. As a financial leader, it is important for you to understand both the sales and operational legs of your company. Finance doesn’t have to be simply a cost center. You can only cut so many costs in the business before you need to turn your focus on how to improve the business itself.

No Buy-In From the Team

If you, the entrepreneur, or the person who came up with this new idea or business strategy is left all alone without any support from the team, that’s a problem. An idea cannot successfully come to fruition without buy-in from the team. Why? Because the team’s support and belief that this idea will be a winner is critical to its success.

Have you ever been told to do something that you truly didn’t believe in or want to do? Most likely, you didn’t put your best effort into that task. Other tasks took priority in your book so that you would not have to bring that idea to life. You may have spread your negative attitude towards “it” to other employees, essentially building a coalition against “it”.

I have been there. My clients have been there. You have probably been there (either on the ideation side or the fulfillment side). That is why it is essential to have a strong buy-in from the team when deciding to pursue a new business venture, idea, or strategy.

business sucksThe Numbers Don’t Add Up

Oftentimes when someone isn’t in the day-to-day financials and doesn’t understand how an idea impacts the company, it’s easy to punch a few numbers in the calculator. This habit is what leads to people being calculator rich. Even if the person operating the calculator knows their economics, it’s easy to be blind to the bigger picture when you have a shiny idea sitting on your desk.

But after the dust has settled, it is important to nail the numbers down out to see if it is really viable to pursue. In my business, I consistently have to reevaluate whether the numbers actually add up after I have had a couple hours or days to sit on it.

How To Let the Entrepreneur Down Easy

Naturally, entrepreneurs are bold, risk takers. If you outright tell them that their idea isn’t the best thing since sliced bread, it’s going to hurt their ego (and potentially more). They are all excited about this new idea, and they are great at convincing you and making it incredibly difficult to disagree with them. You want to let the captain of your ship down easy, but how do you do that when the truth is… Their baby is just plain ugly.
HINT: You have to be a trusted advisor to your entrepreneur. (Download the How to be a Wingman guide to start letting your entrepreneur down easily, while still moving forward.)

Your Baby is Ugly

Several years ago, I had a client who wanted to get out of a lengthy banking relationship. Red flag #1. This client had broken several debt covenants and were out of compliance. The bank was telling my client that their baby was ugly. They were put into a work out group, where it was the bank’s decision to either work them back into compliance or kick them out of the bank. Why was my client’s business so ugly? It started with their financials.

Instead of going through the process of fixing the ugliness of the financials, my client wanted to break up a long-standing and generally successful relationship. The owner was hurt and felt defeated. When I started working with the owner, I explained that there was an opportunity to fix the financials, get back into compliance, and grow like crazy. It wasn’t like they had severely strayed off of the pathway to success, but they were riding on the backroads. My job was to let the entrepreneur down easy.

“If it were my company…”

The way to do this is to go back to your pre-marital counseling. One of my team members just recently got married, and we were joking about some of the things she learned in pre-marital counseling were the same things I heard 30+ years ago. To prevent any blaming or hard feelings, it’s important to fight with feelings. No one can argue with your feelings. “I felt _____ when you did ______.”
The same methodology happens in business. Start by saying, “if it were my company, I would do this…” A) No one can argue with how you feel you would do something differently. B) You’re not telling them their business sucks but rather having a conversation. C) There are no hard feelings.
For example, if one of my team members suggests ideas to better my business, I’m going to be more open to those suggestions. However, if she starts telling me that I’ve screwed up and my business sucks, I’m going to get defensive. Create a dialogue, rather than an argument. An idea is just an idea in the beginning. Even if the idea becomes a reality in the end, I, as the entrepreneur of my company, have the final say so.
Guide your CEO or entrepreneur effectively as their wingman. This ability to be the trusted advisor your CEO needs will elevate your status, increase the amount of trust, and steer your company to success. Download our free How to be a Wingman guide today!

business sucks

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Irrational Exuberance & My Calculator

Irrational ExuberanceWhen I first started my career, I had a business partner. As an entrepreneur, I would come up with all of these great ideas and run them past my partner. Every time I had a new idea, he’d bring out his 10-key calculator and say “Okay, walk me through it.” He wanted me to run the numbers to check if it was actually a viable idea. The thing is… It’s really easy to be rich on the calculator. Enter the concept of irrational exuberance.

What is Irrational Exuberance?

The term irrational exuberance, originally coined by Alan Greenspan, is defined as “unsustainable investor enthusiasm that drives asset prices up to levels that aren’t supported by fundamentals” (Investopedia). This term stemmed from the dotcom bubble of the 1990s. The market was overvalued and disaster seemed imminent, and it was.

Irrational exuberance was meant to be a warning sign. Wikipedia quoted Greenspan during his “The Challenge of Central Banking in a Democratic Society” talk on December 5, 1996 (see below). Because of these statements, companies around the world decreased the values of their products or services to accurately predict and forecast the future.

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

In very simple terms, irrational exuberance is the essentially when you value a product/service much greater than its actual worth. This is a direct result of being calculator rich.

Irrational exuberance can destroy your company’s value. Good new for you! Click here to download the Top 10 Destroyers of Value whitepaper where we go in depth why it’s a destroyer and how to avoid it (and improve the value).

What is Calculator Rich?

Let’s start with a question to define “calculator rich”… Have you ever came up with a brilliant idea that you thought would be a million dollar deal? You start with 1,000 widgets and sell them for $10 each. Great! That’s $10,000! But what if you sold it for $25? That’s $25,000. After 20 minutes of running the numbers, you’ve grown 1,000 widgets into $1B business based upon a price that the market likely won’t bear.

Have you ever been “calculator rich”? If you’re shaking your head no, then you are most likely lying to yourself. It’s incredibly easy to punch figures that seem normal into the calculator, but when you put those figures into the bigger picture, your forecasts are dramatically skewed and irrationally exuberant. I will be the first one to admit that I have to consistently train myself not to be calculator rich. We’re all guilty of it at some times.  It’s so darn easy to dream with a calculator.

Irrational Exuberance & Calculator Rich

Being irrationally exuberant and calculator rich can go hand in hand. If you already have unrealistically optimistic expectations, it’s not hard to justify those expectations with calculations.  A calculator rich mentality is often the direct result of an irrationally exuberant environment.  The extent of that exuberance or richness is dependent on the numbers used.

How to Fight “Calculator Rich” Tendencies

Having unrealistic expectations can be a huge destroyer of value. If you have a bias to be calculator rich, there is a strong chance you are also irrationally exuberant. There are four major actions that you, as the financial leader of your company, can take to correct this normal but potentially destructive behavior.

Recognize the Bias

Being irrationally exuberant has caused hyperinflation and/or bubbles in the general market. Just like we saw in the mid 1990s, Greenspan expanded on how this type of behavior impacts spheres as large as the stock market. Recognize the bias to overvalue, overestimate, over project and correct accordingly.

This bias is not necessarily wrong, but it can be destructive if you fail to recognize it and solely rely on it.

For example, one of my team members has a business idea that she is investigating to determine whether or not it is a viable opportunity. I advised her to be realistic when measuring the opportunity, to consider all costs and benefits and to avoid being calculator rich.

Lean Start Up

As an adjunct professor for the Wolff Center for Entrepreneurship, I consistently tell my students to do things in a small way first. This allows you to fail fast and pivot into a better direction.

Do not let your excitement carry you away. Whether you are the entrepreneur, the CFO, or an aspiring CFO in your company, it is critical for your success to all be on the same page. Dysfunction (and loss of value) occurs when members of the management team do not see the company in the same light. Shave off some of the fat of the company and further develop your “lean, mean, entrepreneurial machine“.

Bring Objectivity

Particularly if you are the financial person in your company, it is essential that you guide your entrepreneur without putting out the creative fire. What do I mean by that? Sometimes, entrepreneurs have wild ideas that from the first hearing may seem outlandish. Instead of splashing water all over their idea’s spark, bring objectivity to the conversation.
The first way you can do that is to simply take away the calculator. Don’t let the person who is more prone to being overly optimistic calculate the potential upside. Your job is to help identify and mitigate the risks of this new idea, not to quash it. Put together projections, then explain how objectively the idea works or does not work.

Understand an Outside Investor’s Viewpoint

One of the Top 10 Destroyers of Value is simply not understanding an outside investor’s viewpoint. Why does this matter or relate? If you overvalue your product or service when seeking capital from outside investors, the truth will be discovered and your credibility can be called into question.
The investor pool is a small world, just like the business world. It is essential to your success that you try to remain as realistic as possible when dealing with those investors. Otherwise, you may risk being “blacklisted” from the investor pool. This happens all the time. Start by understanding how investors look at your company, and build value accurately and truthfully.

How calculator rich are YOU?

Feel like you may have overvalued your product or service? Or pursued that million dollar idea that is really only worth $10,000?Identify how calculator rich you are. Then, start fighting those habits to go from being calculator rich to actually rich. If you’re looking to sell your company in the near future, download the free Top 10 Destroyers of Value whitepaper to learn how to maximize your real value.

Irrational Exuberance

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Key Elements When Seeking Financing

key elements when seeking financing

This past week, one of my clients met with a banker to develop a new banking relationship. He hands the banker the company’s financial statements, expecting the banker to look at the income statement. Instead, the banker flips to the back of the financial statements to look over the balance sheet. As the coach, I asked my client, “See what he just did?” Most financial leaders (and the owners of their businesses) are consumed with their income statement but the banks want to know are more interested in how leveraged their banking client is. Not surprisingly, there are a few key elements when seeking financing for companies to follow.

Key Elements When Seeking Financing

Every company cycles through good and bad times. Depending on what part of the cycle your company is currently in, your banking relationship may be influenced. There are some key elements when seeking financing that will keep you on the good side of your banker.
Identifying your KPIs is a critical piece of the process when seeking financing. Want to find your KPIs and learn how to track them? Access your free KPI Discovery Cheatsheet today!

Leverage

What is leverage? Financial leverage is the use of borrowing from the bank to offset the cost of sales. Many companies hope to borrow just enough to increase their capabilities to sell more. But if banks see that you are too highly-leveraged, it’s bad news!

As a key element when seeking financing, leverage is important to have as it provides credibility to your borrowing experience. A banker will see that you have maximized the potential of previous capital to increase sales. The “kicker” here is if you have failed to optimize the borrowed capital potential, then the bank is going to be more prone to backing out of (or not starting in the first place) a banking relationship with you.

Cash Flow

We say it often and we say it loud… Cash is king. Without cash and/or liquid assets in your company, the bank is going to turn its nose up at you. Be sure to communicate the availability of cash in your company. For example, if a friend asked you for $250,000 but had no way of paying you back, you would be wary and decline the ask. This is because there is no hope that you will get the money back that you loaned. The bank acts in its best interest.

Make it easy for the bank to make a decision. Communicate through the financial statements (especially the balance sheet) the availability of cash.

Not About Price

Oftentimes, business leaders think that the bank cares about the price of your product. They don’t. To the bank, price is the least important factor in their assessment of your company because money is a commodity to them. Price is immaterial.

When meeting with a banker, communicate the bottom line and what’s on the financial statements NOT how you price your product. The bank is not your business consultant. They have to make money off of you.

Creating a Banking Relationship

When seeking financing, it is essential to create a banking relationship. You wouldn’t get married to the person you passed by on the sidewalk, so why would you get into a banking relationship with someone you have zero connection with. There are a few things that you need to look for to have a successful banking relationship.

What to Look For

If you are just starting out in a new city or have no relationships with any bankers, one of the first things that you can do is connect with people that do! For example, as a consultant, I have multiple relationships with various banks. When one of my clients needs a banker, I make the connection. People love feeling like they have it all, so give them the benefit and ask for help.
key elements when seeking financingLook at the bank for their philosophy and how they take care for their customers. In addition to philosophy, look at their morals.
Some questions to ask your banker in the “dating” stage include:
  • How long is a typical relationship with your customers?
  • What are the communication boundaries?
  • What is the bank’s view of breaking debt covenants?

Relationship or Transaction

Another important question you need to ask yourself is: “is this bank looking for a relationship or a transaction?” If you answer the latter, then you are just commission to them. When times are rough, you’re going to get cut. But if the answer is a relationship, then you’re looking at a long healthy marriage.

Relationships are absolutely critical in business. Value these relationships and take care of people. It will reflect in your business.

How does the bank deal in times of crisis?

A few years ago, I had a client that went through a period of stress. In the last quarter of their fiscal year, the business was growing and was doing well. They had 4 quarters of decline, but had tracked their KPIs. Although they had broken a few debt covenants, they were tracking their progress carefully with the bank. This client had a strong relationship with their bank. Without that relationship, the bank would have taken my client to the “workout” group.
Don’t have KPIs to help your banking relationship? Learn how to identify your KPIs and how to track them with our free KPI Discovery Cheatsheet. Click here to download your cheatsheet!
When you stub your toe, how does your bank react? Are they willing to let you slide on debt covenants for a few quarters as long as you have a plan to get out of the downturn? Often, people don’t see the importance of knowing how your bank is going to react in times of crisis. The economy continually ebbs and flows, changing for good or for bad.
Also, how does the bank deal with growth? You need more financing, but you are breaking covenants. Are they willing to provide financing with the knowledge that things won’t pick up immediately?

 The Workout Group

Several years ago, the bank wanted to meet with another of my clients because they had broken their debt covenants. The client calls me after meeting with “great news”! He said that the Bank had offered to work out his problems in the workout group. This “workout” group isn’t to work out your problems and put you back on track. It’s to work you out of the bank. This is not a good thing.
You don’t think your house will ever burn down, but what happens if your house does burn down? You don’t think you need a bank to weather the storm, but what happens when you need the bank to weather the storm with you? Assess whether or not your current banking relationship will be your insurance in the case of a fire or storm.
One way to do this is to look at the bank’s philosophy of business and their internal culture. How tight are they with the rules? Are they willing to stretch a little on their debt covenants and step up to help in times of distress? My client’s bank was unwilling to stretch its debt covenants. Instead the bank just wanted to wipe their hands clean of my client and move on to the next sale.
This willingness to be flexible all boils down to relationships. I have to warn you though, not every bank is similar in their goals.

key elements when seeking financingGet in Line

To prevent being put into the “workout” group, it’s crucial to start out on the same page. Get an alignment of interests, philosophies, culture, and anything else that would impact your company.

Interest and Philosophies

If the bank is only interested in their bottom line, then it may not be a good fit. If the bank is truly invested in your company and is willing to help you out in any reasonable way, then it’s a perfect match.

As I’ve built The Strategic CFO, it’s been a priority of mine to create relationships with bankers as they are going to reap the benefits of my clients doing business with them and I value their expertise. As a result of our mutual interests, the bankers in my network continually push potential clients towards my consulting practice. Those bankers and I have a strong relationship where we understand each others’ needs and desires as well as feed each other.
Of course though, I have had bankers tried to take advantage of my generosity and not return the favor. As a result, those relationships did not last long. It’s all about getting ones’ interests and philosophies in line.

KPIs That Influence Debt Covenants

Banks monitor your debt covenants. To help them (and you) out, identify KPIs that influence debt covenants to help track where you are and where you’re going. Picture this, your significant other or spouse comes home and lets you know that they’ve purchased a house, car, and boat without ever discussing it with you before. If you’re like me, I’d be surprised and would want to control the situation. If your significant other continues to make extravagant purchases or decisions without your prior knowledge, you would have trust issues and may want to cut up their credit card while they’re sleeping.
People see banking relationships as far-off and a different type of relationship. But the truth is, it’s all the same. Relationships are relationships. If you or your company or your significant other continues to create negative surprises, it’s not going to help with the relationship.
First, fix the problem before it becomes an issue. As soon as you see a yellow flag, jump on it!
Then after you fix it, let your bank know what has happened and how it has been resolved. This not only comforts the bank but builds trust. If the yellow flag starts turning red, alert the bank and outline the consequences. This helps you prepare and for the bank to prepare. Procrastinating this step can result in devastating consequences. The bank may be able to help you if you give them enough time.
Start identifying and tracking those KPIs that influence your debt covenants. For help and tips on how we measure KPIs, download our KPI Discovery Cheatsheet today! Know your numbers and where your company is the weakest so that you can start turning around your future.

key elements when seeking financing

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New Graduates: What Employers Are Looking For

what employers are looking for

Last week, we discussed the importance of having creativity in the workplace. Watching my Wolff Center for Entrepreneurship students walk across the stage was a bittersweet moment. However, I remembered something important. Most of those students will be fine because they have what potential employers are looking for.

2017’s Highest-Demanded Jobs

I’m sure there are a lot of highly-demanded positions in other industries such as the medical field and education. In conjunction with Indeed and Glassdoor, I’ve found that these occupations are also some of the most demanded in business for 2017:

Data Scientist

For those of you who don’t know what a data scientist is, a data scientist is an analytical data expert that gathers data and assists with business decisions. According to Indeed, the data scientist salary averages from $110,000 to $130,000, depending on the region you work in. This occupation continues to grow, and is projected to reach a 15% growth rate next year.

Office Manager

Long-gone are the days where office managers only handled administrative tasks. Recently I was talking with my associates, and they all told me similar things. “If it wasn’t for my office manager, I wouldn’t have come up with the idea for XYZ!” Office managers contribute to more than simple tasks, and as a result, they earn more as well.

Web Development and Design

Even though the digital age was introduced over 30 years ago (doesn’t that make you feel old!), one of the most interesting parts of the internet is how it evolves. As we discussed last week, the algorithms within major websites like Google is ever-changing. This means that jobs are also changing, growing, and expanding.

Designers are also getting more advanced. I used to think photoshop was a big deal, but now there are occupations such as UX (user experience) designers. In Houston alone, the median base pay is around $75,000. That’s not bad for a starting salary.

Internet Security

This also goes into web development, but may be more company-centric than website development-centric. The internet is not the only thing growing in intelligence. More people are finding ways to steal important pieces of information such as credit cards, passwords, and addresses. It’s a constant battle with the hackers versus security – the bad versus the good. At least one good thing comes from the many hackers in the world… jobs!

What are your Strengths?

From a graduate’s point of view, you have to reflect upon your own strengths and how to apply them in your new company. What makes you stand out from the rest? What can you bring to the table?

Conversely, as a business, what are your strengths? What makes you stand out in a crowd?

Teaching Skills versus Teaching Talent

what employers are looking for

In teaching at The Wolff Center for Entrepreneurship, I learned a few things myself. One of those things is that you can teach skills, but not talent.

The difference between talent and skills is this – a skill is the ability to do something well; an expertise. A talent is a natural aptitude or skill. If someone is learning how to write blogs, or draft up email campaigns, that person is learning a skill. However, how that person adapts, grows, and the aptitude at which the skill is being learned determines the talent that the person has.

How do you know what to look for in a new hire? Download our free Star Quality whitepaper to find out!

Can everyone have the same talent?

Unfortunately, not. In fact, they shouldn’t. Imagine having an office where everyone has the same talent in one skill set but not the rest. That would hurt productivity and make things in the office kind of boring, don’t you think?

To sum it all up, having multiple talents – a star-quality team – is ideal for your company. That’s what the hiring process is for.

What to Watch Out For

To all of the employers out there, there are some common issues that everyone should watch for when dealing with those new employees

Starting off with a Weak Hire

All of these problems can be avoided with a simple solution – find the right hire for your company by investing time looking for that person. If you rush to find someone to fill a slot, chances are you won’t have that person for very long (or maybe you’ll wish they were gone). And if that’s how you’ve been hiring your employees, chances are the last person left or was let go because of that same reason.

Don’t Lose your Temper!

So you’ve got a new hire, and your trainer comes into your office complaining about his lack of drive. First of all, don’t worry! Don’t lose your patience when dealing with a new hire. Like I mentioned earlier, that person can learn the skills you need to get the job done. Help them harness their natural talents and productivity will follow.

Employee Turnover

According to Compensation Force, employee turnover rate in the United States was 17.8% in 2016 and is expected to grow to 18-20% in 2017. Hopefully, you’re investing time and thinking long-term when it comes to your new hires. Again, this can all be solved by having a sound hiring process.

Hiring the Perfect Team

what employers are looking forHow do you know if someone has the “star quality” for your star quality team? It’s all in the process. If you find yourself constantly hiring and firing, it may be time to re-evaluate your hiring practices.

These are a few questions I tell my clients to ask themselves, beginning with does your potential hire…

  • Have the desire to solve problems?
  • Make wise decisions?
  • Have the ability to juggle multiple priorities?
  • Prove that he/she has good written and oral communication skills?

If you answered all of these questions “yes”, then you’re halfway there. Now you have to ask yourself the most important question… “Will this person thrive in this company for years to come?” Hiring is more than filling a spot. It’s providing opportunities with the intention to grow your employees.

What kind of boss will you be – a manager or a leader?

Conclusion

In conclusion, getting hired for a new job has a process, and hiring a new person is also a process. Why waste time (and money) hiring and firing people? With enough patience, you might just find that perfect person (if you’re hiring), or job (if you’re looking) that fits the talents and skillset you need.

Are you wasting time hiring and firing people? That’s a lot of paperwork! Check out our free 5 guiding principals for recruiting a star-quality team now!

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Creatives in the Workplace: Are you the Machine or the Inventor?

creatives in the workplaceHere in Texas, graduation is approaching. It makes you wonder… How do those potential candidates stand out in a crowd if thousands of them are competing for the same job position? Believe it or not, you were in that same situation once. If you identify with the older generation, how did you land the job you have now?

Simple Answer: You were most likely one of the creatives in the workplace.

2017’s Most Wanted Creative Skills

One of the major problems with school is that they teach material from five, maybe even ten (sometimes even more) years ago. However, it’s partially not their fault. New skills are being explored, developed, and desired every day. Some textbooks just can’t keep up.

Here are a couple of my personal favorite creative skills that some businesses are looking for:

Design

By “design,” I don’t mean the typical architect who draws with a bow compass and ruler and submits by the end of the week. Adobe Illustrator, Lightroom, and Photoshop are no longer highly paid skills because there are so many businesses who use them, and people who have the skill. Since 2015, development with User Experience/User Interface (UX/UI) has become more precise. Who knows, maybe that will be the next Adobe suite in terms of conventional skills…

Designers are also faster than before. If we compare a web page from ten years ago to the ones we see today, designing a web page used to take months. Now, it only takes a few hours. This increase in productivity opened the door for other improvements with technology and design, and will continue to do so with more improvements in the industry.

Writing

Demand is increasing for digital marketers, search engine optimization (SEO), and copywriting for company websites – I’m guilty of this myself! Like many skills, writing is considered a constant demand and ever-evolving skill. Employees don’t often have the time or patience to write 1,000+ words a day.

Writing has become so evolved that there is an algorithm, maybe even a customizable process. Writers put thoughts and feelings out there for users and customers, which is something no artificial intelligence will ever be designed to do.

Everyone has their own special skill… how do you know which is the best system for your company? Download our free guide, How to be a Wingman, to be the best wingman to your CEO.

Benefits of Having Creatives in the Workplace

These are all attractive skills to have in 2017, but the demand is high and the skills are constantly creatives in the workplacechanging. Additionally, creativity doesn’t always translate to advanced skills like coding and UX/UI. According to dictionary.com, Creativity is “the ability to transcend traditional ideas, rules, patterns, relationships, or the like, and to create meaningful new ideas.” Creativity can and should be in every team member, and here’s why…

Creativity = Flexibility

It is common to have a standard procedure and policy when implementing new ideas for a company. One of the benefits of having creatives in the workplace is that they figure out new ways to do a project, but still maintain the company policy. Doing the same tasks the same way becomes discouraging and mundane, and having a fresh opinion can keep even routine tasks interesting.

Flexibility = Growth

Having employees to provide a “fresh” opinion not only keeps tasks interesting, but helps the company grow. It is often difficult to see what needs to be improved when you’ve worked somewhere for a long time. Bending the company norms, but just enough to stay within company procedures, effects change within a company. Depending on your company culture, this is great news. However, not every company sees it that way…

Disadvantages of Having Creatives in the Workplace

When you’ve established a company culture for more than 10 years, having a young mind spouting change might rub the “old factory” workers the wrong way. If creatives and millennials are both seeking creative job positions, you’d assume it’s a good thing that millennials are inclining more towards creativity and innovation. In most ways, it is. In others, well… Here are a couple of reasons why having creatives in the workplace might actually slow your progress down:

Creatives don’t always enjoy Repetition

creatives in the workplaceAs a professor in an Entrepreneurship Program, I hear the same thing. “Corporate is bad,” and “I refuse to be a cog in a machine!” are only a couple of phrases I’ve heard. Young creatives are less attracted to a traditional company culture because of the repetitive and mundane tasks that these businesses often have. Toeing the company line seems restrictive for the creative thinker, which is why having creatives in the workplace is becoming rarer, and more creative people tend to quit their jobs within two years. The best cure for this is to allow those creative minds to bend the policy a little, (and maybe show us Baby Boomers and Gen X-ers a thing or two).

Squirrels are More Common

Another disadvantage to having creative people in the workplace is that they are often strongly opinionated and visionary. Consider our recent blog: “That Squirrel will Kill You!”. Having new opinions and visions for a company should always be accepted and heard, no matter how crazy or different they may be. However, creative people have a lot of ideas, and often move on to the next idea too quickly to make them reality. The downside is, some projects need to be completed before your company can afford another one. Constantly creating can be detrimental if no one is actually productive in a project, and everyone always works on something new.

Conclusion

Having creative people in the workplace can be tricky – there is definitely a gray area and many contradictions. In my opinion, having a creative mind definitely separates someone in a crowd of applicants. The difficult part is how to incorporate those creative thinkers in an environment that isn’t very creative. Let’s face it – companies need those creative people just as much, if not more, than they need the status quo. So ask yourself, are you the cog in the machine that conducts the same processes every time, or the inventor? It’s up to you to decide.

Don’t forget… the CFO is the CEO’s wingman, and it’s not a mundane job. Learn how to think like a creative with this free tool!

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Don’t get caught swimming naked!

Has anyone ever warned you, “don’t get caught swimming naked”? It may sound strange, but it’s a reference to Warren Buffet’s famous quote “Only when the tide goes out do you discover who’s been swimming naked”. As a financial leader, it is your responsibility to know when the tide is going out so that you can prepare not to be caught swimming naked. Here’s your warning..

The tide is getting ready to go out and may reveal some troubling things in your business as a result of the Fed (the Federal Reserve System – the United States’ central banking system) adjusting its interest rates. This has huge consequences for not only businesses in America but also companies that do business with America.

Background on US Interest Rates

don't get caught swimming nakedTo protect the US from falling into another Great Depression after the 08-09 housing market crash, interest rates were lowered to encourage borrowing for both companies and individuals. This has resulted in interest rates being at an all time low AND a flood of money in the marketplace.

The Fed lowered the short term interest rates from 0.25pt from 3-4pt in the wake of the housing market crash. They issued money through bonds to the marketplace for mortgages. Consequentially, this dropped the long-term interest rate.

The Fed: Interest Rates are Going Up

The Federal Reserve has given notice as of March 15, 2017, that the interest rates will be increasing over the next few years (estimated 5 years). There’s already been some movement over the past couple of months. Janet L. Yellen, the Fed’s Chairman, plans to slowly adjust the interest rates so that it will have the time to react to President Trump’s infrastructure spending and tax cuts.

The goal of the Fed is to raise the short-term rate without exceeding the long term rate. This act of leveling the interest rates is to essentially balance their financial statements and get it back to a normal level.

The Financial Times released an analysis on what is happening and how it’s going to impact us. One of the things noted is that the interest rates will increase slowly and cautiously. This may seem like a great idea, and it is, especially when considering any fiscal policy that President Trump rolls out in the next 3.5 years.

But what exactly does the incremental increase of interest rates mean for your company?

What does that mean for your company?

This slow increase of interest rates could be catastrophic for companies that neglect to prepare now. The tide is going out – meaning in a couple of years, there won’t be any cushion to break your fall.

One of the biggest responsibilities I have as the leader of The Strategic CFO is to network with business leaders around the city of Houston. When I discover events or adjustments that will impact the financial leader’s role, I start asking questions. As of late, my question has been… How is the increase of interest rates going to impact your company?

That’s a loaded question. What I’m finding out is even more interesting: nobody is really paying attention to what’s going on. They have their nose so close to their business that they aren’t really looking at the bigger issue in the room. Don’t get caught swimming naked!

Private Equity Firms

 

Over the past few years, the oil and gas industry has been hurting (especially in Houston). Thankfully, this crisis hasn’t been nearly as bad as the oil and gas crisis in the 1980s overall. However, the reason why companies that would have gone under 40 years ago have survived is because of the substantial amount of private equity money being pumped into these companies. With low interest rates, there’s naturally more money in the economy that can be invested into companies in troubled times.

Barrel of Water

Picture the economy as a barrel of water where money is the water. Right now, the barrel is full of water sloshing around. This is a really unique position. However, the Fed is going to start draining the water incrementally. People aren’t really focused on it because all they see is that there is still water in the barrel.

BUT what happens when people look up in 5 years to find that the interest rates have increased from 2% to more normal levels of 7-8%? Right now, the economy is in a period where if you can fog a mirror, you can get money. But not for long…

How does that change the role of a financial leader?

Over the past 15 years, corporations of all sizes have taken advantage of these low interest rates and have potentially even changed their business model entirely. I have to warn you… Money is getting tighter.

Money is Getting Tighter

For those later in their careers, this is just another cycle. But as a professor for the Wolff Center for Entrepreneurship, money getting tighter has a real impact on my students who are just starting their careers. With money increasing its value and decreasing its quantity, the time to start preparing is NOW.

How to Prepare for Increased Interest Rates

First, identify if you rely on low interest rates as well as the areas of your business that rely on low interest rates.

Once you identify those areas in your business, it time to start assessing and anticipating the worst-case scenario for your company. Download our External Analysis whitepaper to start charting the external factors that impact your company. When you’ve made a list of those potential outcomes with your current business model, it’s time to start prioritizing what needs to be adjusted.

I can’t say for certain how high the interest rates are going to go or how it’s going to impact your company, but I do know that the tide is going out. Soon, we’ll find out who is too over-leveraged, had business models predicated on low interest rates. Have you started preparing for this?

Should you pay down debt?

YES. The reason why is that when interest rates increase, payments increase. Pay your debt down as quickly as possible before you feel the pinch.

Should you raise your prices?

It depends… A better question might be: can you raise your prices? If you are in a competitive industry where there is no option to raise prices, then that’s not possible. You’ll have to find cash elsewhere to respond to increased interest rates.

Frog in a Boiling Pot

Ever try to cook a frog?  If you throw it in a pot of boiling water, it will just jump out.  But if you put it in the pot and slowly increase the temperature of the water, the frog won’t notice the temperature change until it’s too late. We’ve become accustomed to cheap money, but we can’t afford not to react to the slow increase in temperature that the Fed is planning with interest rates. The result could be disastrous.

Conclusion – Don’t Get Caught Swimming Naked

There’s change in the wind. If you haven’t reacted yet, this is your warning. The tide is going out and you don’t want to get caught swimming naked. Download the External Analysis whitepaper to gain an advantage over competitors starting your preparation to respond to the increase of interest rates.

Don't get caught swimming naked

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