Recently I heard a business owner bragging that his 15 year old company still serves their first client. That sounds pretty good. That statement implies that the business has high levels of customer satisfaction, repeat business, and referrals.
For some reason I started to reflect on my early years in business. Frankly, I wouldn’t want to still have the first client we were able to attract when my first business started out. If memory serves correctly, we made two cents an hour on that project! When I share that story in speeches for owners of startup companies, they laugh. But then it is interesting to watch their faces as I ask if they even know how much money they make (or lose) on each account. At least we knew we only made two cents an hour so we could change what we were doing!
That reflection caused me to have another conversation with that owner of the 15 year old business. Just out of curiosity I wondered if they had some magic sauce and had generated a solid profit from their first client’s first project and if subsequent requests from that client have worked out well too.
It turned out that, like the majority of owners of startup companies, they hadn’t analyzed how much money they had gained/lost from their first client 15 years ago. And unbelievably, they still didn’t know. Until 2008, their overall net profit seemed strong enough so they hadn’t drilled deeper to really look at client-specific or service-specific gross profit. Yikes! Talk about a ticking time bomb!
I heard from this guy again. Keeping the initial client hadn’t resulted in the many referrals he had hoped that it would. Plus it turns out that the client is rather unappreciative and takes his company for granted. But the worst part (readers may find this very hard to believe) is that the average gross profit generated from this client is – 300%!
That means that for every $1 this particular client pays, the company spends $4 to provide the service and then has to cover all of the operating costs without the benefit of gross profit to cover it and has to make up the difference from higher prices charged to other clients.
Your situation may be less dramatic, but if you are not changing the terms and expectations of long term clients that generate below a minimally acceptable gross profit level, you too could be bragging about retaining clients that no one in their right mind would want.
Who can help drive the growth in your company? Many fail to realize the key roles that Account Managers, Project Managers and Department Heads play in this goal. These are the people who keep the wheels running and making sure things get done. Take the below examples to help understand these roles in your own company.
A content management company with major corporate clients with competent marketing & sales people and sufficient programmers working on websites can grow for a while. But the plateau will be fairly stubborn if they don’t have great project managers. There are so many moving parts when it comes to content management for major websites. The left hand needs to know what the right hand is doing. Promised tasks must be completed correctly and in the right sequence. Requested changes must be acknowledged, addressed, and recorded. Without great project managers, the probability of uncontrolled scope creep increases by the minute and the company’s gross profit evaporates.
The growth of a global mobility services company can be driven by great account managers because the account managers stay in touch with several influential people and decision makers in their international corporate clientele. The company can be better prepared to prevent problems and propose new solutions because the account managers know where things are headed, learn about shifts in client priorities, hear about possible mergers and acquisitions earlier than competitors, and aren’t surprised when an executive is replaced.
An association management firm can handle multi-million dollar accounts if great department heads understand the factors behind gross profit and customer retention. They know that they serve both the internal and external customer
It pays to invest in these key people. More and more, we are being asked to review the compensation plans and performance metrics for project managers, account managers and department heads. That’s good. That means that more executives are recognizing who really drives the growth of their businesses.
Personally, I prefer compensation formulas that involve a set salary for the position which is paid if the person shows up, does the basic work, participates in meetings, provides reports, and isn’t a bottleneck. Increments (raises) can be based on increased cost of living, increased responsibility or span of control. And the lion’s share of variable compensation is performance based on key metrics like capacity optimization and gross profit for department heads, reduced surprises/prevented errors and account growth for account managers, and customer satisfaction, timely execution and project profitability for project managers.
Many factors affect the pace of a company’s growth and operations. Often times executives within a company differ on what they believe determines this pace. One side will believe that the market drives the pace, while on the other hand the ability and staffing of operations will make that determination. Below I will show how this decision can vary from one department to another and how they can all get on one page.
The Exec VP Sales, argues that their company should “at least match the pace of growth of the market.”
The COO, is equally forceful when he says that the company’s pace is “strictly a matter of how quickly the business can produce quality products and services.”
The CMO asks “why shouldn’t we try to outpace all competitors if we have the potential to do so?”
The VP HR values corporate culture and thinks that their pace of growth should be “fast enough to provide career advancement and learning opportunities for employees but not work them so hard that they feel taken for granted or consider leaving.”
The company’s CFO gets annoyed about what is perceived as personal preferences about pacing. “Our capacity to attract financing is the optimizing and the limiting factor,” he says flatly.
The R&D Director feels proud of their track record and reputation. “Our customers expect to see innovative new products from us. If they don’t see it, they’ll go elsewhere.”
Then the outsourced market researcher presents findings and recommends that the company should pick up its pace “to catch up” and observes that there is a window of opportunity.”
One of the most fascinating elements of a CEO’s role is facilitating the process among these participants to articulate the logic behind optimum pacing. What and who will lead? What and who will follow?
If “at least matching the pace of growth of the market or industry” is the premise or strategic driver, then the COO might have to find new ways to speed up the production of quality products and services…like acquisitions or joint ventures. If your competitive advantage is largely about the attraction and retention of top talent or innovation, the CFO may need to find new sources of financing to fuel an increased pace. And if hitting a defined window of opportunity is the defining principle, the deadline becomes the focus for everyone.
What determines the pace of your business? Is everyone on the same page with this view?
Big changes in a corporation can offer up many opportunities to gain a little more ROI out of the business. Below are some examples of how three companies in different industries accomplished this goal by asking themselves some simple questions:
A client in the IT industry just relocated to a larger headquarters. They used the relocation as an opportunity to dramatically reduce remaining paper files. Not only did they create an additional 10% of available square footage, they are proud to role model current backup and storage methodologies.
Another client in professional services dramatically increased efficiency when they acquired a smaller more specialized firm to become a new revenue stream and serve clients better. Some of their increased efficiency was accomplished through their approach to integrating the newly acquired firm. Recorded training sessions were posted on their Intranet. Standard operating procedures (SOPs) were updated based on the orientation and Q&A sessions.
An electrical distributor went for ISO certifications before its competitors. As our readers know, the application process can be tedious. They used a participative process to improve processes, update training programs, and change job descriptions and performance reviews. They went even further and used the ISO certifications to increase the visibility of their company, be the basis for customer guarantees, and attract prospective acquisitions.
Even coping with uncertainty or changing regulations can become an opportunity to revisit purpose/mission. The Affordable Care Act (OBama Care) has cued more than one healthcare organization to consider increased specialization, collaboration or merger.
When you start a significant change project, try to pay special attention to NOT inadvertently PROTRACT A KNOWN PROBLEM. Could your relocation cue you to hire a real CFO and not continue to tolerate incomplete analysis provided by a staff accountant who is over his/her head? Could you leverage an acquisition to establish a real board of directors? Could you leverage being nominated for a major award (“Best Places to Work”, “Entrepreneur of the Year”, INC 500, etc.) to improve your measurement of employee or customer satisfaction?
Why would a blog about growth strategies for mid-sized companies include an entry about couples?
… because as business leaders, our personal relationships can have a profound impact on our outlook, confidence, and judgment.
More and more bright ambitious business leaders are married to other bright ambitious leaders. A CEO of a fast rising technology company is married to a University Provost. The President of a multi-location distribution company is married to a Psychiatrist who is on a book signing tour. Two STARS living together.
Knowing what works and does not work for TWO STAR couples is particularly important if you and your mate are in the same or similar fields.
First, it is important to separate the businesses, careers, and support teams for each spouse. If the Psychiatrist needs an editor for his/her books, that editor should NOT also be asked to do editing for the President of the distribution company. Sharing vendors may seem time and cost efficient, but it invites meddling, criticism, and loss of boundaries. Don’t put a vendor “in the middle.”
Second, most TWO STAR couples need three personal budgets and accounts. The University Provost has one and the Tech CEO has another. They can have a third combined account and/or household budget. This reduces jealousy, competition, and arguments over money.
Third, most TWO STAR couples respect one another and actually do want advice from his/her bright ambitious mate; but receiving advice in dribs and drabs is not helpful. Providing a structured time and sufficient information to receive informed advice can help.
I guess I have just seen too many instances where stunted business growth can be traced back to input from critical or competitive spouses.