Avoiding The Danger Zone: How to Survive and Thrive in Business Randy Walther Partner, B2B CFO RandyWaltherCFO.com Who Am I? 34 Years in Operations, Finance, Administration VP Finance, CFO Telecommunications, Global Health, Non-Profit M&A experience (seller, buyer) BS Business Admin (North Dakota), MBA (Denver) What is it? How to Avoid it. Traditional Organization Chart Source: The Danger Zone by Jerry L. Mills, 2011, p. 18 Hidden Organization Chart Creative, innovator, visionary, dreamer Idea generator Risk taker Act quickly Catalyst for change Confident in their convictions Relationship creator/builder, especially with customers Characteristics of Finders Deep expertise in one area: Finance, HR, IT, Marketing, etc. Like structure and process More risk averse than Finders Like to follow Finders who are good leaders Relationships are primarily with suppliers Characteristics of Minders Focused on the task at hand Do not like to delegate Like doing one thing at a time Distrust Finders and Minders Will do as instructed, but rarely generate new ideas Characteristics of Grinders Finders : Entrepreneurs, Business Owners Minders : CFO, VP of HR, CIO, VP of Marketing Grinders : Workers, Salespeople, Recruiters Some individuals may have a mix of characteristics Whos Who Finders : 2 years from now Minders : Next month, last month Grinders : Today Timeframes Source : The Danger Zone by Jerry L. Mills, 2011, p. 64 Stages of Business Growth What is Infrastructure Employees Vendors Subcontractors IT systems Operating procedures Machinery Buildings/office space Contracts Policies Websites Advertising Bankers Accountants Attorneys Consultants Contracts Policies Advertising/Websites Bankers Accountants Attorneys Consultants Most Finders do not spend a lot of time methodically planning their business infrastructure Source : The Danger Zone by Jerry L. Mills, 2011, p. 66 B2B CFO Truism Source : The Danger Zone by Jerry L. Mills, 2011, p. 64 Infrastructure Creation Stage Obtaining financing for working capital Refining products and services Ensuring quality delivery Spending time with current customers Finding new customers Giving direction on the fly to the Minders and Grinders Working long hours, but enjoying it The Finders Activities During Early Days of the Business Source: The Danger Zone by Jerry L. Mills, 2011, p. 69 Infrastructure Peak Stage The Honeymoon Period continues Plenty of cash Can give a false sense of security about the companys future Business is Booming High customer service Short cash collection cycles Few customer complaints Low overhead Personal sacrifice by the Founder Company runs lean and mean Characteristics of the First Two Stages The Finders Perspective Shifts Maybe I should raise employee pay We need more people so we can take time off We need a better building I need a new car/house/vacation We should buy more equipment or inventory The result of running lean is Burn-out of owner and employees who have been doing the 100-yard dash for 100 miles Extra cash leads to thoughts like: Realizes that the current infrastructure is too thin to support a larger company Focuses on infrastructure investment needed, BUT Less thought is given to the needs of customers More thought is given to the needs of the company More resources begin to be spent on things that do not lead to increased sales and better customer service Finder spends less time Finding What Happens to the Finder? Source: The Danger Zone by Jerry L. Mills, 2011, p. 19 The Finder Becomes a Minder and Grinder Source: The Danger Zone by Jerry L. Mills, 2011, p. 74 Infrastructure Outgrowth Phase Customers complaints increase, customers dispute charges, time spent on customer problems rather than customers sales Productivity quality decreases, inaccurate information, more meetings, equipment downtime Employees higher turnover, increased theft of time, money and inventory Cash receivables increases, increased dead inventory, owner lends money to cover overhead Vendors delay deliveries, relationships decline, time is spent finding new vendors Overhead legal fees increase, government fines increase Lenders complaints about delays, accuracy of accounting information, borrowing costs increase Consequences of Inadequate Infrastructure Source: The Danger Zone by Jerry L. Mills, 2011, p. 71 Infrastructure Outgrowth Phase Most Finders do not spend a lot of time methodically planning their business infrastructure Source: The Danger Zone by Jerry L. Mills, 2011, p. 66 Remember Someone is spending time with your current and future customers. If not you, it will be your competition. Source: The Danger Zone by Jerry L. Mills, 2011, p. 125 Whos Doing the Finding? Source: The Danger Zone by Jerry L. Mills, 2011, p. 74 Infrastructure Outgrowth Phase The Danger Zone is created when the cash needs of your business far exceed the cash available to meet those needs Result? The Danger Zone Endless meetings with staff, bankers and lenders, attorneys, accountants... Analyzing cash flow Deciding which bills can be paid Hiring or firing staff Writing checks Finders Activities During Infrastructure Outgrowth and Danger Zone Stages The Finder hates these activities Minding is typically not the Finders skill set no good at it Finder needs complementary skills that can handle the Minding and Grinding So the Finder can get back to Finding! But Loss of current and future customers Damaged business relationships Damaged relationships with family members and friends Less enthusiasm for the company Death of the Finders dreams Death of the company Consequences of The Danger Zone for the Finder Avoiding The Danger Zone How to Survive & Thrive The Finder Must Return to Finding! Stop trying to solve all the problems personally Rely on others for Minding Refocus on finding new customers Refocus on product and market factors Source : The Danger Zone by Jerry L. Mills, 2011, p. 19 The all-purpose Office Manager, or your cousin, may be good enough But the companys needs will likely outstrip their abilities as the business grows When The Business is Small Understanding the market and thinking strategically and long-term Creating great products and services Finding, retaining, and growing customers Managing financial performance Finding, motivating, and retaining talented staff Managing risk Target Skills Mix Across the Management Team Good at tactical and operational planning (based on strategic goals set by the Finder) Have the experience youll need 2-3 years from now, not just today Consider adding part-time supervisory/mentoring from experts to help them Have the discipline to write down processes and procedures Hire people youll feel comfortable giving authority, not just responsibility Youll also need to give them sufficient money to build the infrastructure needed for growth Look for Minders with these Characteristics Make sure they understand the business (i.e., product/service delivery) Articulate your goals and dreams to them Set clear priorities, and communicate when they change Make sure your Minders do what youve asked them If not, fire them and replace with better people Educate and Monitor Your Minders Determine Key Performance Indicators (KPIs) Examples: sales, inventory changes, employee turnover, staff utilization, cash balances Have daily, weekly, monthly dashboards Color-coded for easy scanning Attend periodic business reviews, run by the Minders and key operational managers Get clean and timely financial statements #1 Rule for all growing businesses: CASH IS KING Efficient Business Monitoring for Finders Let the Finders find the sales Let the Minders find the cash Prescription for Escaping The Danger Zone If you delegate responsibility without the authority, you will after a period of time, be given back the responsibility Source : The Danger Zone by Jerry L. Mills, 2011, p. 16 A Final B2B CFO Truism ANY FINAL QUESTIONS? 42 Remember to Complete the Speaker Survey: nsh16.bfbootcamp.net / click on speakers / select your speaker Randy Walther Partner, B2B CFO RandyWaltherCFO.com