The purpose of this blog is to address important topics related to starting, growing, managing, and selling a young (and not so young) business. I will cover what you should definitely do and definitely avoid with respect to business plans, products and production, sales & marketing, staff and HR, legal, accounting, and of course finance and funding.
Keeping disparate versions of your product to a minimum allows for streamlined operations, consistent customer experience, and enhanced product development. OK, so I am a bit of an Apple bigot (although I am using a Windows laptop to type this), but one can't understate the importance of version management when combined with the seemless integration of hardware and software and highly intuitive design.
Apple took a lot of
potshots at Android and Google today. This one
is probably the most damaging.
Scott Forstall, the head
of Apple's mobile software flashed the graphic below on the screen and said,
"More than 80% of our customers are running the latest version of iOS, iOS 5. Now if you
compare that to the competition, they released a dairy product, 4.0, about the
same time that we released iOS 5. And about 7% of Android customers are running
the latest version."
Yes, this is an Apple talking point, but it's
important. Over 80% of Apple's users have the best possible OS Apple can make.
Only 7% have the best possible OS Google can make.
Apple's Incredible Performance Brought Into Context:
Another one from Business Insider - It is not just Apple's ability to evolve, launch new products, and grow revenues. Apple has been able to drive unprecedented margin growth and cash generation. Some bullet points (detailed more HEREa link to the Business Insider Article - Thanks BI)
- Apple has generated $29 billion in cash over the last 6 months - that is $7mm of cash per hour, 24 hours a day, 7 days a week
- In Q1 2012, Apple's PROFIT ($11.6 billion) was LARGER than Google's REVENUE ($10.7 billion)
- Apple's iPhone business, which did not exist 5 yrs ago, is now $100 billion in revenues - there are only 53 companies in the world larger than that.
- Together the iPhone and the iPad businesses, again which did not exist 5 yrs ago, alone generate $130 billion in revenue....that is twice the size of Microsoft.
(Click the "HERE" above to get those and more bullet points)
Finally - here is a chart that shows how innovation and the integration of software and hardware has allowed Apple to more than double margins when Micrsoft and Google have seen margins flat to down. (The full article HERE)
Today's Business Insider "Chart of the Day" clearly highlights how a very successful company and leader in an industry can very quickly become irrelevant if they do not evolve.
Up until late 2010, Nokia was the undisputed King of the mobile phone. Nokia's slip into the abyss began when they ignored the Smartphone and the way it would disrupt the entire mobile telecom / computing ecosphere. Additionally, they did not appreciate the importance of the seemless integration of hardware and software, design and function. The list is long of companies that failed to change and then failed.
The truly successful company is the one that continues to be visionary and evolve, particularly when they think they have it all figured out.
Bob Pinkerton, CFO of contact center solutions provider Alpine Access of Denver, discusses streamlining the deal-review process and running sensitivities around working capital for cash flow forecasts.
What was the biggest challenge your company faced over the last 12 months and how were you able to overcome it with financial leadership? We managed a frenetic pace of 50 percent revenue growth and, at the same time, built business systems that allow us to drive operating leverage and scale. Fortunately, our senior management team is versed in handling growth, and building scale and repeatability into daily operations. From a finance perspective, we have streamlined our new business deal review process and implemented weekly P&L meetings with our biggest account teams, among other things. This has helped standardize deals, ensure that we are looking at deals from a holistic company perspective, and has kept operations focused on profitability as the company breaks revenue records.
What has made your company stand out and be successful financially? Alpine Access has led the industry in revenue and profit growth over the last four to five years because our customers understand that the virtual @Home customer service representative provides the best quality customer interaction and is infinitely more flexible than any other representative – onshore or offshore. We use a 100 percent virtual @home agent workforce and we have always been virtual – it is our DNA. We can hire the best people wherever they live. We give employees the freedom to live where they want, along with the flexibility to work at times that best meet their unique needs. Finally, we are experts in recruiting, training and managing a truly virtual workforce. We recruit and train 100 percent online, and our employees work 100 percent online. That expertise shows up in the quality of service, our flexibility and the value we deliver to our clients.
What is the most important thing you’ve learned in your position? Having been CFO for several companies, I believe it is the responsibility of the senior finance executive to be an expert at both analytics and communication. The CFO must be able to take a massive amount of financial, operational, and market data, lift from it the most important facts, trends, and insights, and communicate the message and conclusions in a clear and concise way for non-financial people. It is the CFO’s job to “get to the heart of the matter” and make a recommendation. A CFO is a combination of Sherlock Holmes and Ronald Reagan.
How do you prepare for board meetings and what information is most important for you to present? I first spend time as Sherlock Holmes – looking at spot data, trends, relationships, industry dynamics, account performance, cost structure, etc., and arrive at half a dozen conclusions. Once the most important insights and conclusions are teased out, I determine the best way to communicate what is going on, my interpretation of it, and how best to act on the conclusions – this is where Ronald Reagan takes over. I spend as much time getting the slides, graphics, and words right as I do doing the analytics. I believe in three to four “money slides” that tell the story so well that if the board only remembered those slides, they would have the entire picture. I DO NOT BELIEVE in huge 30- page decks with pages after pages of numbers and graphs. Less than a dozen slides with the most critical information highlighted and, most importantly, interpreted is the best. That does not mean the board doesn’t get all the detail. I send out the full board packages at least a week in advance of a meeting. That way, they have ample time to review all of the highly detailed financial and business information and can be ready to engage on the most important messages.
What’s a common error in cash flow forecasting, and what advice do you have? A common error for middle market companies is not running sensitivity analyses around working capital. In the budgeting and forecasting process, so much work goes into the detailed revenue and expense/CapEx forecasting that often, not enough time and energy is applied to working capital. Many companies assume that their customers will continue paying them generally in the same manner as in the past. Given the recent challenges in the economy, those assumptions are not necessarily holding up. Additionally, many vendors are often having cash flow challenges themselves, making stretching payables a risk/reward balance. If you stretch them too much, they might break, leaving you with very few near-term options. The obvious way to address this is to run the budget/forecast with different working capital sensitivities so that you can gauge how sensitive your business is to 2%-5%-10% swings in AR, how you might address that, and the implications to your cash flow.
What do you do to retain your strategic vision despite the crush of day-to-day operations? The best ways to maintain a view toward strategy when the team is caught up in tactics is by (1) hiring the right team – one that understands the importance of staying on strategy even when near-term benefits might suggest otherwise, (2) driving structured processes in managing the day-to-day business so you aren’t running the business with your hair on fire, and (3) forcing yourself and your team to take several hours a week to discuss/review where the company is going long term and how what you are doing every day helps or hinders that journey.
What’s your favorite book? (For business or escape) Favorite business book: “The Five Dysfunctions of a Team,” by Patrick Lencioni. In my view, every leader should be required to read the Lencioni Series. Favorite escape book: “Touching the Void,” by Joe Simpson. There is no better book on mountain climbing.
Alpine Access, based in Denver, provides virtual contact center solutions and services, and workforce solutions, including SaaS-based talent management platforms, security solutions in the cloud, and consulting services. CFO Bob Pinkerton began his career as an investment banker, and is the former corporate treasurer and CFO of CSG Systems International Inc.’s global software division. He has also served on the board and as transitional CEO of mix1 Beverage Company. He has an MBA from the University of Chicago and a bachelor’s degree from the University of Rochester. He is also a member of the board and executive committee for the Epilepsy Foundation of America in Washington, D.C.
About Sageworks: Sageworks develops financial analysis solutions and provides private company
financial information. By doing so, we hope to help people make better financial
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We are committed to helping the world realize the benefits of Information
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today is the idea that an increase in the availability of information is equal
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The best ideas in business and life are most often the simplest ones. I believe it is the job of the finance professional to take very complex data and analysis and communicate its essence in a way that non technical / non financial people can understand easily. The highest form of art in business is taking complex ideas, functions, and needs and addressing them in the most basic and intuitive way.
Here is a great example of how two large and successful companies approach products and consumers very differently.
The budget. Not much more needs to be said. For most people there is no glamour in budgeting or financial planning. There are no warmly lit dinners with interesting clients that just got back from Safaris in Kenya. No box seats behind third base with the Founder musing about his days playing college ball. No company sponsored weekend of skiing at Bachelor’s Gulch with interesting gifts greeting you on your return to the hotel room.
While never does the CFO get presented fancy hardware for building the financial plan that maps how the company will meet its goals, the budget and its sibling – the multi-year plan, when built correctly are key tools in a company achieving greatness.
Greatness does not just mean reaching sales or profit goals, or getting the best valuation based upon impressive financial forecasts. It also means providing the entire management team with specific goals around which to rally. These plans are the roadmap of how to get from where you are now to where you want to be. They lay the framework of weekly meetings for the staff to measure progress, they create interim opportunities to “ring the success bell”, and they help build a winning corporate culture - one where all members of the team buy-in to the corporate goal and understand how their performance contributes to everyone’s success. That is the difference between a financial plan for bankers (revenue and profit) and a financial plan that you use to run a business (driving a team to a common goal).
I am not going to get into the raw detail of building a budget, because the formal process – while similar for all companies, can vary based upon the business, its sector, its customers, the accounting systems, etc. That said every budget has some basic requirements in common. Forecast revenues, expense, headcount, capital investments, how long it will take your customers to pay you and how long you have to pay your vendors, etc. Some of the work is done in excel, much of it in the financial accounting systems – customer by customer, cost center by cost center, line item by line item.
The most effective budgeting though isn’t just done by having each business unit leader fill in next year’s Jan-Dec revenue and expense estimates alongside the actual Jan-Dec of the prior year and then having Finance come back with “cut 15%”. It should be part of a strategic review of the company’s industry, customers, product set, peer group, and staff. Where is the industry going? Which sectors, customers, products, and geographies have experienced the greatest growth and have the greatest growth potential? Which sectors, customers, products, and geographies are the most profitable and why? What parts of the company are the most productive – not just in terms of sales or profit, but in terms of just getting things done? Realistically what can the company do this year and how does that set it up for bigger success in the years to come?
This strategic view outlines the long term plan and addresses long term opportunities and challenges for the business. That “big goal” should then be translated into a multi-year plan which sets forth the major achievements necessary to hit that goal. The budget then is not an isolated annual project – it is the detailed roadmap for the next 12 months as part of the longer 5+ yr journey toward a company’s long term strategic goal and vision.
With that in mind, here is a suggestion for the optimal financial planning hierarchy:
A) Set the strategic vision for the company: Where are we going? What is our vision? What are the core products and services we provide and why are we better than the rest? Where is our industry going and why is it a great place to be? Why would high energy people want to be part of this industry and company?....
B) Build a multi-year business and financial plan that supports that strategic vision: In order for us to achieve our vision, what is the year by year plan that we must meet to achieve our goal? What customers should we strive for and how do we meet their needs? How should our products evolve? What are the resources we need and when must we have them? What should we build and what should we buy? What are our year by year revenue goals and what financial and staff resources are required each year to hit those goals? What capital will be required?.... This is the multi-year roadmap.
C) The budget then becomes the 12 month tactical plan: With the multi-year plan as the long term roadmap, what are the specific goals we need to meet every month and quarter this year? What customer accounts must we close? What product investments must we make? What partnerships / acquisitions must we enter into? What staff changes must we put into effect? How should we compensate our employees to hit this year’s goal? Do we have sufficient capital to meet this year’s goals? How will we track our performance on a weekly, monthly, quarterly basis?....
Most effective companies understand these, with particular attention to A (vision) and do C (budget) on an annual basis with varying levels of success and effort. B (multi-year planning) tends only to get attention in the formation stages of the company and when necessary for financing or other corporate change events (M&A, major industry or customer changes). I contend that B is a critical component that should be more of a “living” plan rather than something that gets completed on a periodic basis when an investment banker needs a multi-year forecast. It is unrealistic for most companies to maintain a fully detailed multi-year plan that is updated every month, etc. (I have done that and it is a ton of work.) That said, if a company builds and maintains a 6 quarter rolling forecast (by effectively extending its current 4 quarter budget 2 quarters and updating the forecast quarterly), it is not terribly difficult to maintain a high level multi-year forecast with some basic assumptions.
So what are the take-aways?
Make sure you have a clear strategic vision for the company relative to the “end game” and the markets and customers you want to serve. Communicate that vision with abandon.
Layout a multi-year plan (even if it is high level) that breaks the company’s big goal into the key milestones you believe you need to hit to achieve that goal.
Be specific in that multi-year plan and build it from the ground up as much as possible – “These are markets we need to activate each year”, “These are the products we will need”, “These are the key customers we need to land”, “This is what the organization needs to look like”, etc.
Be flexible - while the strategic vision for the company will likely not change, the specific path the company takes rarely follows the path originally laid out.
Build a current year budget that details the things that need to happen on a month by month basis by business unit as part of the multi-year plan.
The month by month plan needs to be detailed such that the reports and dashboards that each business unit use to measure performance on a daily / weekly basis track the performance implied in the budget.
Make sure each business unit is having weekly meetings to track progress and allocate resources to critical projects.
Extend the 4 quarter budget an additional 2 months and build a regular quarterly forecasting process such that the company always has a living rolling 6 quarter forecast.
Tie that 6 quarter forecast into the multi-year plan creating a direct link from the monthly performance to the company’s 5+ year plan.
Build individual compensation plans and performance review processes such that each person understands how they get paid to meet the monthly, quarterly, yearly goals.
Make people accountable for their performance – even top management - and create many opportunities to ring the success bell.
Budgeting and building financial plans, when part of mapping the journey toward an ultimate goal, should energize the troops rather than put them to sleep. Any goal oriented employee wants to know how they can make a difference and strongly desires specific targets to meet and exceed. If communicated effectively, the strategic vision, the multi-year plan, and the budget will provide those targets and motivate the team to climb the mountain. Without that roadmap and those goals, the team may work hard for a while, but a high performance goal oriented team which craves direction and records to break, will soon look elsewhere to stretch their talents.
Situation: It is early December and the Board of Directors has approved the final 2011 budget that took 3 months for the senior team to pull together. As the new CFO, while you are anxious that “the number” for 2011 is aggressive compared to what the company did in 2010, you feel pretty good that the team was highly engaged in building the plan and laying out the major milestones required. The senior team knows what it has to do and feels sufficiently uncomfortable, but is not screaming in pain with what will be required.
One day, while you are refining the management reports and tracking tools that the team will use to measure performance and forecast resource investment, you decide to walk into the CEO’s office to discuss what changes the company should make in its employee goal setting and evaluation process to accommodate the 2011 company goals. Jim the CEO, while a big fan of company events and building employee morale, has never been an advocate of investing in formal individual employee goal setting, evaluation and feedback processes. “It is our job to communicate the revenue and expense goals to the employees and tell them what they have to do. If they do it, they get rewarded, if they don’t they should be worried about their jobs. Big formal employee quarterly or annual evaluation processes just add administrative burden and take up time better spent out with customers closing deals. Remember we are not IBM, we are a $50mm company.” You respond “Jim, you are right that it takes time for each employee and his / her manager to sit down and talk about individual goals, how they are linked to company goals, and then follow-up with written reports on performance. If we don’t do that though, how will Jenny the new hire in marketing understand how what she does every day contributes to the bigger goal of growing revenue 100% for the year? It also makes it clear to her what she has to do to shine, get promoted and make more money.”
How strongly should you push?
Setting and achieving big goals requires detailed planning, team buy-in, broad communication and clear connection of individual performance to the goal.
All of us have goals and dreams, small and large. Except for a gifted few that are born with IQs of 180, have music flowing out of their fingers at age 4, or are lucky enough to have unlimited access to resources, most of us are forced to set and achieve little goals on the path to reaching our dreams.
For an organization, the effectiveness of that goal setting, the planning involved, and the techniques used to direct and motivate a workforce will determine whether a company will achieve great things and have ecstatic stakeholders or be mired in mediocrity or worse – out of business. Will it climb the mountain or stand in the meadow wondering what it is like to hang on the side of El Capitan.
Goal setting is a basic function of a successful organization. Set a long term vision / plan, detail the milestones necessary to meet that vision / plan, then drive the team to hit the milestones. Pretty simple, pretty basic. Planning and tracking progress whether it is long term forecasting, yearly budgeting, monthly goals, or weekly staff meetings is an essential part of the DNA of an organization and the only way to get a group of people working together toward a mutual goal.
The senior management team and the Board understand clearly how setting business and financial goals, planning, reporting / tracking, accountability, etc. directly relate to creating value (financial and otherwise) for the business and themselves personally. The challenge for senior management and the Board is institutionalizing “buy-in” of those goals throughout the organization.
While employees get satisfaction when an organization is successful and achieves great things, I believe most people look at goal achievement in generally three ways:
(1) the financial and other personal benefits of achieving their near term individual targets (hitting sales goals, new client / product goals, cost reduction goals, closing that deal, etc.);
(2) the feeling of pride and accomplishment of being a part of a winning team / an industry success story / being a game changer; and
(3) a general knowledge that if the company does well and they have a stake in the success - at some point in the future when the company goes public, is sold, or gives capital back to the shareholders, they will get something.
In order to align personal success with organizational success, the company must create “buy-in” throughout the organization and directly connect individual employee goals with corporate goals and the long term vision. How do you do that?
• At the top of the organization set a long term vision for the company and communicate that vision often – “This is our long term goal”.
• Set reasonable intermediate and annual stretch goals with the Board and investors that layout the path to reach that long term goal.
• Get input and buy-in from the team on the intermediate and annual goals, adjust as necessary and layout the major milestones to hit those goals.
• Drive the company to build team and individual action plans that set forth what has to happen on a day-to-day, month-to-month basis to hit those goals.
• Build individual and team incentive plans that reward goal achievement and over reward over achievement.
• Institute individual and team employee performance evaluation systems and tools to measure performance against those goals.
• CREATE MANY OPPORTUNITIES TO “RING THE BELL”. Success breeds success, strong and excited employees attract more strong and excited employees, achieving small goals will lead to achieving big ones and result in many reasons to celebrate individual and group performance. This last point is the critical connection point between the corporate goal and the employee. If done properly, it lays the foundation for a great corporate culture.
Organizational success is directly tied to goal setting and achievement. If you set a long term goal people believe in, reasonable short and medium term goals that create many opportunities to “Ring the Success Bell” and reward performance then you will be building a “winning” corporate culture that will attract the best and the brightest and maximize the chance for success. If you set unrealistic goals that lack buy-in and rarely allow you to celebrate “wins”, then corporate culture will suffer, people will become unmotivated, the best will leave, and achieving the organization’s long term goals will become very difficult. In business, as in climbing El Capitan, the cost of failure of setting unrealistic goals can be devastating.
-Bob
For those of you interested in knowing what it is like to hang on the side of El Capitan in Yosemite Valley, this clip will show you what it is like.
Bob Pinkerton, CFO of contact center solutions provider 
