Tag Archives | strategy

Strategy for Managing Cash

managing cash

Does your company have a strategy for managing cash?  Many companies have established procedures for purchasing materials, collecting customer payments, and paying vendors. But often people either do not communicate these procedures or simply don’t follow them consistently. Even when everyone is aware of and follows the established protocol, your system may be flawed. Before we show an example, you need to know how to manage cash flow

Know How to Manage Cash Flow

We all know that cash is king – liquidity is essential for survival. Many entrepreneurs only know how much is in the bank, but they don’t understand how much cash they actually have. So, how does one manage cash flow? First, you need tools. Here are a few tools that can help a company manage cash flow:


Download eBook 28 Ways to Improve Your Business's Cash Flow


Manage and Work Your Operating Cycle

Then you need to manage and work your operating cycle. Your operating cycle is “how many days it takes to turn purchases of inventory into cash receipts from its eventual sale”. It indicates true liquidity – how quickly you can turn your assets into cash. Calculate how long your operating cycle is using the following formula:

Operating cycle = DIO + DSO – DPO

Watch Your Expenses

Watch your expenses carefully. If you do not have an eye on SG&A and procedures on what can be purchased, then you risk racking up unnecessary overhead. Think about too much inventory, unnecessary equipment replacements, extreme marketing budgets, etc. 

Use Cash Wisely

Use your cash wisely. Always be thinking about will this add value to my company? when spending your valuable cash. If you will not see a return on your investment, then consider spending the cash elsewhere. 

Collect Quicker

Another method to manage (and improve) cash flow is to collect quicker. This is a great method to use if you are in a cash crunch and can only make small improvements. For example, there is a $10 million company that collected their accounts receivable every 365 days. They had a lot of cash tied up. If they improved their DSO 5 days, that would be an extra $137,000 of free cash flow

Example of Strategy for Managing Cash

Let’s look at an example of a strategy for managing cash flow. Imagine that Company A has 120 days of inventory on hand. They collect receivables in 60 days. And they pay payables within 30 days.  Even assuming that this is their established cash management strategy and everyone follows it, Company A will still find itself in a cash crunch. This is because of the disparity of time that cash is tied up in inventory and receivables versus the speed with which it pays its payables.

So what can Company A do to free up cash?  Here’s a link to an article that talks about how to develop a strategy for managing cash and techniques to improve cash flow.

Strategy for Managing Cash, How to Manage Cash Flow


Originally posted by Lisa Knight on February 19, 2015. 

Strategy for Managing Cash, How to Manage Cash Flow

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Product Life Cycle Stages

See also:
Product Life Cycle
Company Life Cycle
Why You Need a New Pricing Strategy
Increasing Pricing on Products

What is the Product Life Cycle?

A product life cycle includes stages the product experiences throughout its lifetime – from conception of the idea to the decline and abandonment of the product. Some products experience longer life cycles than others; however, all products go through the product life cycle stages.

Product Life Cycle Stages

What are the product life cycle stages? They are introduction, growth, maturity, and decline. Some may add other stages in between the four listed, including research and development, abandonment, and revitalization.

Introduction

The introduction stage is often preceded by a research and development stage. For the purposes of the product life cycle stages, we will start from when the product is first introduced to the marketplace. This stage is by far the most expensive stage in a product’s life cycle. Sales are typically slow, so a company may be bleeding cash until the product hits the next stage.

Pricing and promotion are critical in this stage of a product’s life. If it is not priced profitably or promoted effectively, then the product will arrive at the decline stage much quicker than anticipated.


If you want to see if you have a pricing problem and learn how to fix it, then click the button to access our Pricing for Profit Inspection Guide.

Download The Pricing For Profit Inspection Guide


Growth

The next stage is the growth stage, where the company ramps up its sales and profits. The company will now be able to take advantage of economies of scale, profit margins, and increased profitability. Companies typically reinvest in this stage to grow the potential.

As the product gains more market share, increases distribution, etc., it will be ever important to scale the manufacturing and distribution effectively. A company needs to have an effective supply chain and logistics process to grow supply to the increasing demand. The worst thing that a company can experience in the growth stage is not being able to keep up with demand. Remember, growth impacts a company’s cash flow.

Maturity

In the maturity stage of the product life cycle, a company will start broadening the product’s audience, use, and availability. It is now able to maintain a consistent market share. A company will also continue to increase its production and logistics as demand continues to grow. The product becomes more popular during this stage. As a result, a company needs to be more careful in what marketing.

For example, when the iPhone was first released, many early-adopters acquired that technology. It took a few more years for it to become one of the most popular smart phone brands. As the product matures and continues to gain popularity, Apple continues to release newer, better, and greater models for a higher price.

Decline

Demand will eventually decline for a variety of reasons. Some of those reasons may include that there is a better product on the market or there is no need for that product anymore. This decline stage ends in total abandonment. A company usually has three options during this decline stage. Those include:

  1. Offer the product at a reduced price
  2. Add new feature or revamp the product
  3. Allow it to continue to decline, resulting in the elimination or abandonment of the product

If the company decides to take option 3, then the entire product line is discontinued. Furthermore, they will liquidate any remaining inventory for that product.

What Stage Your Product Is In

So, what stage is your product in? As a financial leader, it is important to know what stage your product is in because it impacts profitability and the company’s value. If you are in one of the first 3 stages, then it’s time to check your pricing for your products. Are you pricing them to result in profit every single time? If you are not sure, then download the free Pricing for Profit Inspection Guide to learn how to price profitably.

Product Life Cycle Stages

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Product Life Cycle Stages

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Budgeting 101: Creating Successful Budgets

We often discuss budgeting in our firm, and I often write about budgeting because it is such an important topic in any company. As a consulting firm, we deal with this issue at almost every client. Let’s rehash some basics… Why is budgeting important? As properly stated by Ron Real (the author of 13 ½ Strategies for Winning the Budget Wars), “To achieve success in anything, you need two ingredients: a target to aim for, and a way to measure your progress towards it” (more from Ron Real below). Before we go into creating successful budgets, let’s address the common problems with budgets.

Successful budgets, budgeting rules, common problems with budgetsCommon Problems with Budgets

We deal with clients all the time that either do not have a budgeting system in place, or they have the wrong budget system. The following are some of the most common problems we see with budgets at some companies:

  • Lack of accountability
  • Employees ignore the budget, don’t follow it, or find ways around it
  • Only applies to some groups/managers and not to others
  • Results in fights or power plays, or managers play games
  • Budget process takes too long and consumes too much of people’s time
  • Budget is wrong from the beginning
  • Established goals are either easy to reach or unachievable
  • Filed away when completed – lack of follow up
  • Built on faulty or unrealistic assumptions or not everyone agrees on the assumptions or principles
  • Budget performance and financial feedback is slow or nonexistent
Ready to start creating successful budgets? Become a SCFO Lab member and start the Budgeting 101 Execution Plan where we go in depth into common problems with budgeting, budgeting rules, and budgeting principles. Learn more about the SCFO Lab here.

Successful Budgets

Successful budgets are possible, but the TONE STARTS AT THE TOP. If the leadership or Board does not take the budget process seriously and does not hold others accountable, then you will have a problem with the budgeting process. You can build a budget and a budget process that is well conceived, creates a visionary plan, and shares resources. The budget process is very much a team effort, but it often needs to be taught to others in the organization.

The tone starts at the top, and your CEO needs an advisor they can trust. Click here to download our free How to be a Wingman Guide to start setting that tone.

4 Budgeting Rules

Successful budgets are created by following rules and principles developed over my 28-year career. You can find all these rules and principles in the Budgeting 101 Execution Plan inside the SCFO Lab. Let’s look at 4 budgeting rules that help create successful budgets.

Rule #1: Decision Making Tool

The budget is a tool for decision making. It is not a disconnected document that has little to do with the company’s actual business. Start by reframing your and your CEO’s perspective on the purpose of a budget in a business.

RULE #2: Management Tool

Budgeting is a very important management tool for achieving lasting success. Just like the CFO is the wingman to the CEO, the budget is the wingman to all management.

RULE #3: The Plan

A budget is establishing the discipline to set up a plan and then adhering to the plan. In fact, 94% of all ineffective budgets are the direct result of weaknesses in the organization’s corporate structure. Some of these weaknesses include the following:

  • Inadequate leadership
  • Poor communication
  • Conflicting goals
  • LACK OF ACCOUNTABILITY

Hint: Be disciplined and follow the plan!

RULE #4: Problems Exist

Issues that lead to a poor quality budget process mean that these problems already exist within the organization ALL THE TIME! If your company is experiencing budget problems, then it’s time to look at what the problem really is. Issues that are probably already part of the corporate culture, but many times ignored, include the lack of:

  • Vision
  • Accountability
  • Communication

“Without a yardstick, there is no measurement.  And, without measurement, there is no control”
– Pravin Shah

There are many other rules to budgeting and basic principles, but we can not cover all of these in this one blog; however, we do cover this topic at length in our Financial Leadership Workshop (Day 4) and our SCFO Lab’s Budgeting 101 Execution Plan.

Understanding how budgets really should work is critical. I recently had an executive tell me that he did NOT believe in budgeting because it just meant that people now had the authority to spend everything allocated to them at the end of the year. Unfortunately, this executive was thinking of budgeting like the government thinks about a budget. You have $1,000 for the year, so you must spend it by year end. That is NOT a corporate business budget or budget process. That is a very flawed interpretation of budgeting.

If I could use just one word that describes why it is important to have a good budget process, it would be “accountability”.  A budget will force your team to be held accountable. But, if that theme of accountability does not start with the Tone at the Top, then you are guaranteed to have a flawed budget process.

If you are ready to take your financial leadership development to the next level, then look no further than the Financial Leadership Workshop. Registration for the Gamma Series of the Financial Leadership Workshop is now open. Learn more about the program and how you can get started in October 2018.

Suggestions to Create a Successful Budget

Other quick suggestions to create a successful budget include the following:

  1. Set goals and objectives that push for growth and efficiency, but keep those goals and objectives realistic. There is nothing more demoralizing than to have a unachievable goal.
  2. Start your budget planning process early. For a calendar with year end at December, start no later than August of the current year.
  3. Measure your actual results every month versus budget, and hold people accountable.

Adhering the these budgeting rules and reframing budgeting to your CEO and leadership team is just one example of how you as the financial leader can act as a wingman. If you want to step up and be the trusted advisor your CEO needs, click here to download the How to be a Wingman Guide.

Successful budgets, budgeting rules, common problems with budgets

Strategic CFO Lab Member Extra

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Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Successful budgets, budgeting rules, common problems with budgets

 

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Turnover in Collections is Destroying Your DSO

One of our clients called us up because his DSO went from 34 days to over 72 days within a couple months. He couldn’t figure out what was causing his daily sales outstanding (DSO) to increase so dramatically in such a short time. When we came in the office to investigate, we found that there was significant turnover in the A/R and A/P staff. As a result, collections were not being consistently collected on. Turnover in collections is destroying your DSO. But how does turnover impact your DSO?

Turnover in Collections is Destroying Your DSO

What happens when there is high turnover in a company? Decreased productivity, bad communication, reduced training, lost processes, and so much more. When we started working with our client mentioned above, they were turning over A/R personnel very quickly. At first, the management didn’t think about their DSO. Sales were going great! But no cash was being collected. What they originally thought was a cash flow problem became more of a management issue.

How are you managing your cash? After 25+ years of working with clients in cash crunches, we designed the A/R Checklist AND you can access for free here. Enjoy!

maintaining accurate records

What Happens When Turnover Is High The Collections Departments

Think about what happens when turnover is high in the collections department. Communication is not clear on who has been contacted, what to charge, if an invoice has been sent out, etc. It can easily get out of hand if communication is not seamless during the transition. There simply is no continuation and follow up.

You also need to address why turnover is high. Are you firing your employees? Are many employees retiring? Is morale down due to an upcoming transition? Are you not compensating them enough to stay? There is typically a reason for high turnover. But it may take some investigating. Do you have a good idea for what is an acceptable turnover rate?

Consider calculating the transaction turnover per A/R employee. If your number is low, you need to start improving the collections process.

      Number of Transactions Processed      
Number of Accounts Receivable Employees

Collections Cannot Be Automated

There’s a lot of things you can automate, but collections are not one of them. You cannot automate human behavior and nothing can replace a live call or meeting between two parties. While we may see some sort of automation built into this process, we don’t foresee it taking the humans out of this role. For example, if a client needs to explain that they need to extend their payment another week, they need a speak to a person, someone authorized to extend payment terms. Furthermore, if their contact person in A/R keeps changing, then those receivables will not be collected timely.  Management often underestimates the importance of having someone in receivables developing a relationship with the customer.

[HINT: Turnover may be high for a myriad of reasons, but your company still needs cash. Consider offering a discount to the client for paying in a certain number of days. Read more about discounting receivables here.]

 

How to Save Your DSO When Turnover is High

Your DSO is a key indicator for management to look at. But like other indicators, you need to know what impacts those variables and why. Employee turnover in A/R can directly impact DSO as those employees are the people responsible for collecting. When turnover is high, communications and processes don’t always get passed down properly or effectively. Let’s learn how to save your DSO when turnover is high.

Know the Cycle

First, you need to know the cycle. Companies (and economies) going through cycles where cash is tight, turnover is high, and credit becomes tight. .  Look at the recent oil & gas crisis. Oil price hit record highs, companies began to spend more, they took on more debt. Then the price of oil drops, companies find themselves paying for debt service based on a bigger size and larger revenue, cash gets tight.  The bank and other creditors tighten up until things get better down the road.

But if you’re experiencing high turnover that doesn’t reflect what the macro economy is doing, then you need to look internally.

Start by tracking your DSO at regular intervals. Make this part of your normal monthly reporting process.  This will give you a basis to predict cash flow and indicates when things are going south. When you create a DSO trend, it is easier to spot irregularity.

Identify Areas With Low Turnover

What areas in your company have low turnover? Is it sales, operations, upper level management, etc.? Identify the areas with low turnover. Regardless of their role in the company, someone needs to collect the cash or the company will be in trouble. For example, you have 5 sales people that have been there for an average of 15 years. Your A/R department has turned over 5 employees in the last 2 years. Choose one of your sales persons to manage the transition between A/R employees. Your sales people often have the relationship with the customer.

Write Down Your DSO Improvement Strategies

This is probably the most important step to saving your DSO when turnover is high. Write it down! A strategy isn’t a good strategy if you don’t write it down. Have written processes for collections as well as notes of what has been done for the entire accounting department will help everyone know where you are at.

Write the collections process down with all your DSO improvement strategies.

Then, write down notes from client conversations, steps in the collections processes. Have frequent internal meetings about collections.  Assign tasks to individuals and write down the progress or lack of progress.  The CFO should be made aware of collections, DSO and trouble accounts.

Improve Your DSO

Whether you are experiencing high turnover in your A/R staff or not, it’s important to continually improve your DSO. For more ways to add value to your company, download your free A/R Checklist to see how simple changes in your A/R process can free up a significant amount of cash.

Turnover in Collections is Destroying Your DSO

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Turnover in Collections is Destroying Your DSO

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7 Ways Your Company Can Be More Like Amazon

As we transition into Quarter 3 of 2017, companies are already planning for what 2018 is going to look like. Over the past year, we have seen a lot of change in the business landscape. Amazon acquired Whole Foods and dramatically sliced prices. Apple released not just one, but two iPhones in the past month. President Trump took office at the beginning of the year. Great Britain voted to Brexit from the European Union. Alfred Angelo, a bridal store giant, filed for bankruptcy. There has been innovation, disruption, uncertainty, destruction, and so much more in the business landscape. One thing that we do know for 2018 is that to survive, you must be innovative. Fast Company has already named Amazon to be the most innovative company in 2017, so let’s learn how your company can be more like Amazon.

7 Ways Your Company Can Be More Like Amazon

Amazon has impacted how businesses must compete in today’s world. Instead of just competing in one market, Amazon now competes against retailers, grocery stores, logistics, technology providers (Apple, Google), and many more industries and markets. After researching how they have grown, especially over the past 5 years, we have created a list of 7 ways your company can be more like Amazon.

1. Experiment

NASA has been around for 59 years. In that time, they went through ample amounts of experiments to get people into space… They tested every aspect of the shuttle, the gear, the computers, the communication, etc. While there were thousands of failures, they were the first to walk on the moon. Likewise, Amazon has used the same theory to experiment in many different fields. Ever heard of Amazon Webstore, Amazon Destinations, WebPay, Askville, and Amazon Auction? These are just a few examples of products that Amazon either shut down completely or morphed them into a product more successful.

Obviously, you may not have the same cash flow as Amazon does. But that doesn’t mean you do not have the capabilities to conduct an experiment. The most important part of experimenting plenty is to change your perspective to innovate. Start by testing variations of your product through A/B testing. Then test everything! Your product, your processes, your departments, your services, your customers, your placement. Everything. Continue to test until you are pleased with the outcome, then test some more. As technology advances and society changes, things will change more rapidly than ever before. These experiments should never stop.

Amazon’s Advice About Experimenting

In Amazon’s 2015 Letter to the Shareholders, Jeff Bezos discuses this concept on experimenting frequently.

Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten.

We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

If you are looking to start experimenting, you need to know what external factors could impact the success of your experiment. Download our External Analysis whitepaper to learn more.

2. Expect to Fail

When you begin to experiment, you can expect to fail more than you succeed. Once your company has created a culture of encouraging failure, innovation will begin to happen. Thomas Edison, one of America’s greatest inventors and businessmen, once said, “I have not failed. I’ve just found 10,000 ways that won’t work.” Your company can be like Amazon if the leadership encourages each employee to fail. Although that sounds counterintuitive, this aspect has resulted in Amazon’s massive growth.

As the financial leader of your company, structure the company’s ability to fail. Because you need to protect the financial future, put in some guidelines for each experiment. Check that they are going to improve something that will move the needle. You don’t want your employees to be experimenting on senseless things – wasting both time and resources.

3. Innovate Everything

If your company wants to be more like Amazon, you should innovate everything in your company. Ask even the lowest employee why you do things a certain way. If your team responds, “that’s just the way we’ve always done it,” it is time to innovate. There must be a reason for everything you do, and if there isn’t, then you either need to cut that process out or innovate it.

Check out Amazon’s product listing that can be found at the bottom of their website. Notice how they cater to various customers, needs, and desires. From cloud storage to groceries to comics to videos and movies to publishing, every customer can find at least one product that they can use. When we say to innovate everything, we mean everything. Amazon is continually updating, improving and innovating their systems and products to better serve… Their customers!

your company can be more like amazon

Now, providing various products does not necessarily work for every company – and it shouldn’t. But Amazon has made the web their playground and has innovated everything related to the web. Find your playground and start innovating.

4. Be Customer Centric

One thing that has set apart Amazon from the rest is their customer centric, customer obsessed culture. In a Forbes interview with John Rossman, a previous executive at Amazon, he said that “there are 14 leadership principles at Amazon. They weren’t written down, they weren’t codified when I was there, but you saw them being used every day. The first one is ‘Obsess over the customer,’ and the 14th is ‘Deliver results,’ and there’s 12 in between those two.” To get results, you must start with the customer. A business can have all the best processes, accounting, logistics, etc., but if your company does not have a customer, it doesn’t exist.

Refocus every employee on the customer. What do they want? How quickly can you get what they want to them? What does your customer need? How can we better serve our customer? What needs do they not know aren’t being met? Every decision made in the company should be directed towards the customer. You company can be more like Amazon if you are customer centric. Jeff Bezos once said, “Focusing on the customer makes a company more resilient.”

5. Get Out Of Your Comfort Zone

Change for some can be uncomfortable. Even those that thrive on that adrenaline pumping adventure, some change can feel like walking on a tight rope across a canyon. Get out of your comfort zone when you are innovating. Just because you are in the financial leg of your company doesn’t mean you need to stay there all the time. For a company to be effective, every employee needs to be involved in every aspect of your company. For example, you should be concerned how marketing is spending their budget. Marketing, likewise, should be wary of how their decisions impact the bottom line.

6. Base Strategy on Reliable Facts

Your company can be more like Amazon if you base your strategy on reliable facts. While this seems like a simple task, many companies base their strategy on what they want to outcome to be… Not on fact.  At re:Invent 2012, Jeff Bezos elaborated on why you need to base strategy on reliable facts.

“I very frequently get the question: ‘what’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘what’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two – because you can build a business strategy around the things that are stable in time….in our retail business, we know that customers want low prices and I know that’s going to be true 10 years from now. They want fast delivery, they want vast selection.

It’s impossible to imagine a future 10 years from now where acompany comes up and says, ‘Jeff I love Amazon, I just wish the prices were a little higher [or] I love Amazon, I just wish you’d deliver a little more slowly.’ Impossible [to imagine that future]… When you have something that you know is true, even over the long-term, you can afford to put a lot of energy into it.

For your company to be successful, you need to start identifying what is going to be true ten years from now. They are going to want a better product or service. Your customers want to get that for a lower price. And they want value.  Once you write down the facts, you can strategize your company’s next move.

7. Remove Any Risks

Obviously, we are not going to recommend that you innovate or experiment without having thought it through. In fact, you need to prepare before you begin the experiment. Remove any known risks associated with that experiment and be aware of any potential risks that could come about. Create an External Analysis to overcome any obstacles that come your way and be prepared to react to those external factors. Although you may not be able to prevent those obstacles from occurring, you can prepare how you are going to react to them. Download our free External Analysis whitepaper to gear up your business for change and your company can be more like Amazon.

your company can be more like amazon

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Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

your company can be more like amazon

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The Key to Having a Unique Business? Unique People!

Over the years of teaching in an entrepreneurship program, I realized a pattern. As expected, every entrepreneur thinks his business is unique. But in having a unique business, who works for you? What value do they bring to the table? Do they make your business “unique”? To some extent, they probably do! These are questions we will explore, but for now, let’s talk about what really makes a business unique.

Is your business really unique?

having a unique business

Every business or industry has nuances that are peculiar to that market. But is it necessary to restrict your hiring to employees with industry experience?

Business is business is business. Yes it’s different, but you don’t want to make decisions based on pride and skills you don’t have. They don’t make MBAs for each industry, after all. If all businesses were unique, they would make specific MBAs per skill per industry. That’s the beauty of the hiring process… seeing who has the talents and skills, and who doesn’t.

A few tips on having a unique business…

1. DiversifyEver thought about pivoting? Or changing your business model? When we say “diversify”, we really mean looking for something in your company that can be improved. How can you best optimize the assets you already have?

2. Innovate. This includes solving new problems, creating a new product, finding new business partners, and many other factors that go into making new plans for your business. But be careful not to introduce too many things at one time!

3. Hire unique people! Who else is going to implement these changes? Building a better team will help solve new problems that your company might not have seen before. You just have decide from there… will you hire based on degree or drive?

How do you build that unique team? Download our free whitepaper to learn how to recruit the perfect team for your business!

Degree vs. Drive

The term “degree” in this blog is a loose term. It generally means the typical employee who has gone to college, and worked 5-10 years in a job to acquire skills. If you think about it, who knows the nuances of the business better than anybody? It is the entrepreneur and his core team!

In the Strategic CFO, we work primarily with established companies rather than solely start-up companies. Although we don’t always work directly with the entrepreneur, we still see the patterns of pride within the company. Pride, in this context, means more than believing your company is the best and undeniably different than any other company.

Recently, I visited a client that wanted to recruit a CFO. They told me they wanted to hire someone with “industry experience.” How would you interpret this? “Industry experience” can mean one of two things: 1) years of experience in any given industry, 2) knowledge of the industry, or 3) both. Notice that I never mentioned talent or drive in this analysis.

Hiring for Degree

Advantages

having a unique businessNow don’t get me wrong, hiring for experience has its perks. Those with experience are familiar with the industry jargon, and understand the processes. If you’re lucky, you won’t have to train them for longer than a few weeks! Having a more tenured employee also appeals to customers and other partners, because not everyone trusts a young, fresh new hire.

Disadvantages

Experience is often short-sided. If hiring for experience was the main criteria for hiring new graduates, then there might be a lot of holes in the skill set of your company. Take the MBA, for example. You hire this person based on experience and their years of study in the industry. But what if there was a new skill set that not a lot of people have studied in? You’ll be paying a lot more to receive a lot less. Experienced employees tend to go by the book, and generally don’t go outside of what they know. After a while, tenured employees are less innovative, which is an essential part of diversifying your business and solving new problems.

Hiring for Drive

Advantages

Harvard says, “hire for talent, train for skills.” When you have someone that’s talented, you can get that person up to speed in any industry. For example, the marketing specialists in The Strategic CFO staff weren’t always tech-savvy when I first hired them. However, I chose them from a pool of talented people with drive. Within months, they became digital marketing specialists. People with drive are also innovative. They won’t stop until they’ve finished a project or solved a problem. Finally, they’re affordable. If you think about it, they’re usually young hires. Young hires are cheap!

Disadvantages

Although young hires are cheap, they might take longer to train and familiarize with industry jargon. Additionally, you can’t always send millennials out on cold calls or familiarize them with regular clients.

“Teaching tall:” more on hiring for talent

In my opinion, I think hiring for talent is more valuable than hiring for experience. It’s an investment. John Wooden, the famous head basketball coach at UCLA and creator of the “Pyramid for Success,” had this saying… “I can teach anybody how to play basketball. I can’t teach tall.” Basketball players are known to be tall, muscular, and fast. John Wooden showed us that anyone can do something if they have the drive for it. The same can be applied to business and building your company.

Conclusion

So we explored the idea of having a unique business by having a unique team, what other things you can do to make your company unique, and the advantages/disadvantages of hiring for degree and drive. The key to having a unique business: hiring unique people! You can accomplish anything for your business if you have the right resources and make productive decisions. You can get there, it’s just a matter of how soon you and your team are willing to do it. Your business can be unique… and you definitely can’t do it alone.

Don’t do it alone. Download our free 5 Guiding Principles for Recruiting a Star-Quality team today!

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Managing the Banking Relationship in a Growing Market

extending lineBusiness is rarely easy.  Even in a growth market, there are still challenges.  They are just different challenges than in a recession.

Managing the Banking Relationship in a Growing Market

In Houston, we are seeing companies who are continuing to grow and generate cash. As they seek to expand their operations and invest in infrastructure, they are running up against the debt limits set by their bank. Right now, banks want to lend money!  That is how they earn a profit.  Unfortunately, a lot of companies are not making it easy on them.

Pursuing an aggressive tax-minimization strategy may generate cash to a point, but makes it difficult for banks to lend the company money once the tax savings aren’t enough to fuel growth.

Companies who violate the concept of sustainable growth, by borrowing more than the company’s internal growth rate can sustain, tie their banker’s hands and often make it necessary to seek sources of funding outside their bank.

Another obstacle for the bank loaning more money is the regulators.  Since the financial meltdown, bank regulation has increase dramatically and the banks have to keep the regulators happy.  We’re finding that in order to get more leverage, companies often just need to address the bank’s issues in a manner that makes sense.

Bankers hate surprises. Consequently, the key to a successful banking relationship is communication. Openly communicating your plans with your banker not only gives them confidence that you know where you are going, but gives them the opportunity to help you get there.

Learn how you can be the best wingman with our free How to be a Wingman guide! Be the trusted advisor your CEO needs.

managing the banking relationship

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