A few weeks ago I reviewed The Levity Effect and wrote a series of posts about levity to go with all the stuff I’ve written about the necessity of fun in the workplace, especially when it comes to innovation.
And just as fun/levity/happy juice a culture of innovation, they have the ability to affect what people do and increase desired actions.
I love reading Steve, besides his undoubted smarts, he often leads me to stuff I wouldn’t find on my own—like thefuntheory.com “an initiative of Volkswagen.”
This site is dedicated to the thought that something as simple as fun is the easiest way to change people’s behavior for the better. Be it for yourself, for the environment, or for something entirely different, the only thing that matters is that it’s change for the better.
Best it’s a contest that you can enter.
Find your own evidence for the theory that fun is best way to change behavior for the better. For yourself, for the environment or something entirely different.
The site offers 3 examples of how fun got people to pick up trash, recycle more and even take the stairs instead of an escalator (as shown here).
Check out the site, get some friends together, brainstorm and submit ideas by December 15, then come back and tell us what you did.
You have as much chance of winning as anyone else!
A few weeks ago I told you about my client who “acquires houses out of foreclosure, rehabs and rents the properties, then sells the properties to investors” and the consequences of the unintended craziness involved in the auctions in Texas.
Unintended consequences sometimes seem to be the primary result of human actions. It is safe to assume that no one planned to cause global warming or the current economic meltdown.
These are just unintended consequences, but each one is much, much larger than the sequence of intentional human actions which led up to it. Given that we do not have perfect foresight, unintended consequences appear to be truly unavoidable. But they don’t have to be tragic.
Goals, Judgment, Flexibility, and Transparency
We can reduce the negative effects of unavoidable consequences.
Consider a sailor navigating a sailboat into a harbor marked by a lighthouse. Unfortunately, this sailor does not have GPS or an electronic autopilot, so he has to steer the boat manually, using the tiller. He sets the boat on a course to the harbor, using the lighthouse as the marker. Almost immediately the wind, waves, and tide push the boat off course. The sailor constantly corrects the boat’s heading to keep it on course for the harbor. Sometimes the boat has to change course to avoid larger ships heading into port. Most of the time the boat is off course, but due to the sailor’s constant corrections it makes progress toward the goal.
Passengers on the boat may not know how to sail, but they can see the lighthouse and can use the radar screen to track the progress of the boat amidst other ships. They can tell, for themselves, that the boat is on track and making progress.
The sailor has a clear goal and uses his judgment and flexibility to keep the boat heading to port. The analogy to our economic situation is obvious—while the sailor is guiding the boat to a safe harbor; our economy feels like it is careening out of control, heading toward the rocks.
Things to Think About
Given that most of us cannot significantly influence the government or the national economy we need to look closer to home.
How do you guide your business?
How does your team set goals?
How do you encourage transparency?
How much freedom do you allow your employees to use their own judgment?
Do your policies look like the US Constitution (only 4,440 words) or like the US Tax Code (over 400 volumes)?
One More Consequence
Recently I have found a new opportunity, much too interesting to pass up. To pursue this new opportunity with the attention it deserves, one unintended consequence is that I must let go of this blog. With great appreciation for you readers and with many thanks to Miki Saxon, who gave me this opportunity to speak directly with you.
I close with the heartfelt wish that you follow your dreams all your life; that you may fulfill your dreams and that they may fulfill you.
Richard is still in Houston, but he thought that this case study detailing the unique problem facing a company with no competition and a radically new product would be of interest to you.
A Case Study of Customer Mapping
With the massive shifts in the economy, your customers are moving. Your sales and distribution channels are moving. Do you know where your customers and channels are now; where they are going tomorrow? Do you have a new product that is so that it is not just a matter of competing, but of evangelizing?
Giftventures, Inc. was facing many of these problems. Recently I worked with them to map their customers and channels.
Challenge—Find the Customers
The target market for Giftventure is parents with children in the 4-12 age range. The product is clearly a discretionary consumer product, a significant sales challenge in this environment. In addition, Giftventure is a new concept, which requires some explanation and investigation by the parent before making a purchase. How can an emerging company, with little cash to invest, gain recognition and traction with a discretionary product in a crowded consumer market?
Giftventure needed a compelling, proven go-to-market strategy in order to complete its initial fundraising, so this exploration had to be thorough, fast, and low-cost.
The results had to be conclusive and compelling, so Giftventure could focus its scarce resources in the channel that would produce large results, quickly.
To do that they needed to identify a channel that would produce large results, quickly.
The three keys:
In starting a new product or service line, and especially in starting a new venture, you do not know where your “sweet spot” lies in the market. Don’t rely on opinions–embrace your ignorance. You must test.
Be thorough. It can also be fast. Plan a comprehensive market exploration to test many possible channels, even in spite of your internal biases.
Only actual market results, supported by wide outreach and in-depth contact with potential customers, can direct you to the sweet spot for your product.
The winning combination is always to
Test many market channels.
Test wide and deep.
Let actual results lead you to your sweet spot.
To read a detailed explanation of Giftventure’s customer mapping download the PDF.
I’m traveling today, so I’d like you to welcome Miles Mochizuki.
Miles is a certified public accountant and principal at M. Mochizuki & Co. He is a CPA and MBA with more than 25 years of experience as a finance executive, auditor and consultant. He is the former CFO of several technology companies in Silicon Valley and a financing specialist who has arranged financing ranging from venture capital, bank and lease financing to multi-million dollar debt and equity offerings on Wall Street. His consulting clients include pre-IPO start-ups and established public companies. You can reach Miles at (925) 413-9198 and miles@mmochizuki.com
Summary
The recession and credit crunch have made cash a strategic asset. While debt and equity financing is still available, these sources of cash have become unreliable and difficult to tap, increasing the importance of operating cash flow.
Optimizing cash flow requires the close scrutiny of incoming and outgoing cash transactions and the implementation of credit, purchasing and strategic decisions that impact cash.
Simply put, maximize cash by spending wisely.
Reduce and Control Expenses
Headcount is a main driver of operating expenses. In good times as well as bad, organizational rightsizing is essential to effective cash management and controlling the company’s “expense burn.” Operating expenses are also strongly influenced by the company’s business model and strategic focus.
Here, the aim should be to reduce complexity by eliminating unprofitable products, markets and customers.
Reducing complexity will also simplify the purchasing process and reduce the required investment in inventory. Operating expenses such as travel and supplies should be examined and nonessential expenses eliminated. The feasibility of a negotiated rent reduction and other contract restructurings should also be considered.
The company should adhere to a regularly scheduled check run, typically once a week as a means of instilling discipline in the disbursements process. During this process, cash disbursements should be prioritized in order of importance to ongoing operations.
This usually means that payroll and essential vendor payments will have a high priority and will take precedence over other disbursements in the event that expected cash inflows do not materialize.
To the extent possible, disbursements should be timed to coincide with cash inflows so as to not unnecessarily deplete the company’s cash reserves.
Overall, the goal of managing cash inflows and outflows is to preserve and, optimally, increase the company’s cash balances so as to provide a financial buffer for operations. This conservative fiscal management will also result in presenting the company in its financial best light for the purposes of bank credit lines and other outside financing.
Weekly Monitoring of Cash Flow
Another component of effective cash management is the preparation and review of a weekly cash flow statement. This report should show in sufficient detail the items comprising cash receipts (cash sales, A/R collections, etc.) and cash disbursements (payroll, benefits, inventory purchases, etc.) for the current week and projected for the next 4 – 8 weeks.
This report should be prepared by accounting with input from sales and purchasing. It should be reviewed by the CFO or Controller, along with the current week’s A/R and A/P agings and check run. Follow-up items from this review should be discussed, as appropriate, with sales, operations and management.
Cash as a Strategic Asset
There is no question that in these uncertain times, cash and ready access to cash are strategically important and may make the difference between winning and losing. A company that manages its cash well will be in a strong position to weather the downturn and take advantage of the opportunities to strengthen its market share.
Conversely, in this economic environment poor cash management can quickly lead to insolvency and bankruptcy.
Yes, it’s another post about my favorite company. Why do I write so much about Zappos?
Because, according to CEO Tony Hsieh, “Our No. 1 priority is the company culture. Our whole belief is that if we get the culture right, then everything else, including the customer service, will fall into place.”
Zappos embodies everything I believe about culture being the bedrock of corporate success.
Not bad for a dot com startup that was given exactly one week’s worth of additional funds in which to turn itself around or be shut down.
But heaping more kudos on CEO Tony Hsieh isn’t the purpose of this post. Rather, I’d like your opinion of why cultures such as this are so rare.
Hsieh is a Gen Xer running a truly multi-generational company (I confirmed this by calling and chatting with a customre support person, not HR or an official source, just a worker) that hires based on cultural fit and skills—they carry equal weight.
The focus on culture is one reason that Zappos doesn’t have the generational management problems besetting so many companies.
The Zappos culture is a long way from rocket science and Hsieh isn’t shy about explaining how to duplicate it, so you tell me.
Recipes have changed over the years, with the biggest change being the elimination of fat. Ingredients for business success have similarly changed—no fat. Now it’s content and communities—not capital
Recessions have traditionally been good times to start new ventures and to expand SMBs (small and mid-size businesses). Larger competitors retrench, leaving some market niches exposed and unprotected. Workers are available, often at reduced rates.
Recessions loosen long-time business relationships and create brand-new opportunities. Recessions are Joseph Schumpeter’s “creative destruction” on steroids.
This recession is exceeding all expectations for creative destruction; but with a few substantial differences.
First, while risk capital was available for emerging ventures in previous recessions, it has simply vanished in this recession.
Second, the need for risk capital has dropped dramatically for certain types of businesses, particularly those focused on information services.
The New “New Business Model”—Everything You Need is Free.
OK, “free” is a little bit of an exaggeration. But the cost of business expansion is dramatically lower than in the past. For instance:
You don’t need an extensive network of offices. Most knowledge workers already have home offices. They work at a customer site, at home, or with co-workers at a coffee shop.
You don’t need a sophisticated telecommunications system. Virtual PBX’s, portable telephone numbers, internet-based telephone service, and conference call services are inexpensive and readily available.
You don’t need a big advertising budget. With Google Ad Words, you can pay only for results. Better yet, create your own promotion with social networks, blogs and email communication.
You don’t need production equipment, raw materials, or inventory. The data is the business.
You don’t need a computer facility to host your information database. Google, Amazon, Microsoft, Salesforce and others offer cloud computing for free.
You don’t need any back office. You can outsource accounting, HR, IT, CRM, and almost every other internal business function.
You don’t even need employees. You do need a team, but new business models use clusters of associates.
If everything is free, then what do you need to build your business?
You need content and communities.
You don’t need capital!
This is an over-simplification, but allow me to make the point.
You Need Content
Your business needs something of value to provide to customers.
In the information age, this is content—not just entertainment content, but a cluster of information, typically housed in a set of inter-connected databases. In previous posts we discussed Google, Jigsaw, and Alexa.
Another example is deCODE Genetics. For only $195 and a sample of your DNA, deCODE will map your genes, identify a collection of your genetic risk factors, and map your genetic ancestors. This business model combines a proprietary database with a physical connection to each customer.
Granted, the actual consumer service is a “nice to have,” but the business model is powerful. Your business generates a continuous stream of data. Package it and build a data business.
You Need Communities
Communities are more than just a collection of customers, suppliers or employees. Communities have common interests.
Your business is only the conduit, or the meeting place for your communities. The most effective communities have some structure. Online games are excellent models for your communities. Provide enough structure and rewards to stimulate the community, but then let it grow.
You Don’t Need Capital—You Do Need a Cash Business Model
This may be one of the biggest surprises of the new century. The internet, low-cost communications, and the availability of low-cost support services have dramatically leveled the playing field for new businesses competing with established organizations. You don’t need huge capital investment to build an information business.
With no investment capital, you need a business model that generates cash quickly.
Here again, technology and the internet have conspired to meet your needs. Credit card payment systems eliminate the collection hassle. Internet delivery and prepayment terms shorten the cash cycle.
All you have to do is provide compelling value for your customers.
In short, this legislation would eliminate a secret ballot for union representation, replacing it with a public “card check,” one key difference of opinion is how the card check would give employees a free choice.
But, regardless of your opinion on the legislation, Pat Lynch believes it should be called the “Employer Free Choice Act” because it gives employers a free choice – either take care of their employees or the unions will.
Pat Lynch, Ph.D., university professor and CEO of Business Alignment Strategies has studied unions extensively, focusing on their impact on the American economy. I interviewed her recently to learn more about the EFCA.
She started with a long-term perspective of unions. Union membership has declined as a percentage of the workforce, roughly corresponding to the decline in the manufacturing sector of the economy, to a low of 7.6% of the private workforce as of 2008. Even though union membership in the public sector has climbed to 36.8% in 2008, total union membership is still only 12% of the entire US workforce.
In Pat’s opinion, unions believe EFCA will provide a significant opportunity to organize the newer businesses starting up in green industries. Especially with three key provisions in the proposed legislation:
No lower limit on company size. EFCA will apply to every company in the United States, whether 10,000 employees or 10 employees.
EFCA expands the definition of a union worker to include supervisors, in addition to line workers; with this expansion, unions can cover a much larger percent of a company’s workforce.
EFCA gives unions the right to access the company’s email directory for union communications.
Pat works with companies to improve employee relations. In her opinion, employees rate their job satisfaction on four primary issues:
Employee satisfaction with immediate supervisor
Employee voice – do employees feel safe in challenging the status quo, do employees believe their ideas will be considered
Employee perceptions of procedural fairness
Rewards and recognition – these go far beyond compensation, which is not a significant element of satisfaction. Recognition is extremely important.
Employers need to improve the actuality, as well as the perceptions, but it takes time. Pat recommends that employers start now—before the EFCA becomes law.
Start by offering an online satisfaction survey to your employees to learn how your employees perceive your team.
Then act on the results.
And come back Thursday to hear Miki’s take on keeping employees happy.
Possibly the most difficult question for any is business:
“Is it time to pull the plug?”
Business Bankruptcies up over 100% since 2006
In this difficult economic environment, many businesses are answering that question simply, “yes.” As the chart below shows, business bankruptcy filings grew dramatically in 2008, up over 100% from 19,695 in 2006 to 43,546 in 2008.
This chart is deceptive, because the average annual number of business bankruptcy filings for the 28 years 1980-2008 is 52,667 and the number of filings in 2005 was 39,201. So the 43,000 filings in 2008 are 20% below the long-term average and just a little above the number in 2005. But, regardless of the long-term average, the short-term trend is up over 200%.
Time to Pull the Plug on My Business?
Setting aside statistics, the question at hand is real, personal, and immediate for many small business owners. As a professional business consultant, I work with several clients struggling with this question.
One of my clients generates approximately $3,000,000 in revenue and supports 25 employees. For the past two years, this company’s revenue has remained flat, with annual losses of $250,000 or so. This year revenues have declined and the owner has kept the monthly losses to $20,000 by reducing expenses. So far, so good, right?
Will the situation improve in the near future? Is a turn-around in sight with just a little more patience and persistence? When does persistence become stubbornness? When is it time to pull the plug? How do you know? Forgive this barrage of questions—this is an extremely difficult, emotional question for a business owner.
What Are Your Choices?
As a business unit manager, you have the opportunity and responsibility to make major changes in your business. 2% solutions don’t count.
What few significant changes can you make to improve the problems facing your business?
Eliminating People Means Eliminating Work. You simply cannot eliminate people and leave the workload unchanged. How can you reorganize your business to reduce the work? Can you automate or outsource back-office services or sales? Can you move more functions online? Can you move your customers to self-service online? Can you use online order / payment to simplify the sales and collection processes?
Don’t Eliminate Products. Eliminate Production Costs. Can you shift inventory and fulfillment services to suppliers or third parties?
Don’t Eliminate Value. Eliminate Overhead. Do you need all the office space, telephones, equipment, and software? Eliminate, reduce, or find it for free.
Grow Revenues. Be careful here, as increasing revenue is extremely difficult, especially in this recession economy. It’s easy to forecast big growth, only to be surprised three months later when the growth has not appeared on schedule. First, find a few customers for your services, and then forecast the growth based on their orders.
You Already Know the Answer
Three business aphorisms provide some insights into this question:
The universe rewards action.
Ready, fire, aim.
Follow the money.
Taken as a set, they offer a road map to making this difficult decision.
If your business is struggling, then do something! The business (universe) will respond to your actions.
If the business situation is getting worse, you have limited time and budget to make meaningful changes. This is not the time to be shy. Take some dramatic action. That’s the “ready, fire” advice. Observe the result. Based on the result, quickly adjust your actions to improve the outcome (aim).
Finally, follow the money to your desired outcome. You know your budget for time and money. When either one runs out, you lose your freedom of action. Take action now, while you still have freedom to choose.
The biggest obstacles to meaningful business change are usually not intellectual understanding of the problem, or a lack of options, but emotion and fear.
For instance, most business owners truly care for their employees so layoffs are difficult. “What will my employees do without this job? How will they survive?” If you are considering major changes in business direction, fear raises similar questions about you; “How will my company survive if I make this change? What will I do with my life if my company fails, or if I have to shut it down?”
Together, emotional attachment and fear of the future create a paralysis, even in the face of clear impending disaster. When you wake up at 2 AM, what is on your mind? If you can get past the emotion and fear, I believe you already know the answer. “Don’t go wobbly,” as Margaret Thatcher famously advised George Bush senior when he was preparing for the first Iraq war. “I just don’t know,” is a cop-out.
What is Your Biggest Fear?
If your company is losing money each month, you must make changes. In this economy, your business will not get better by itself. What is the single change you fear the most?
Turn off the computer, put down the cell phone. Be still for a few moments, sitting with your fears and emotions. What is your biggest fear? Go there. Do it.
Wishing you the courage to make the difficult decisions,
In previous posts I shared my views regarding the shape of the recovery and shape of employment in the future.
The President and Congress have told us, this recovery will also cost a few trillion, so the open question is: how the value of the dollar will change in the months and years ahead? Deflation, inflation, or both?
The following is what I think may happen.
First, the Fed Rebuilds the Banks
According to the Fed, total mortgage debt exceeded $14 Trillion as of Dec. 31, 2007.The best estimate is that 10-20% of that debt must be written off due to the drop in house values. That’s $1.4-$2.8 Trillion. Assuming US banks hold only 50% of that debt, that’s $700 Billion to $1.4 Trillion that needs to be removed from their balance sheets for mortgage debt alone. That does not include credit card debt, auto loan debt, student loans, or business debt. The Fed will have to print enough funds to cover the debt, lending to the chosen banks. Those funds will not provide any stimulus, as the dollars will simply re-establish the reserve levels that banks are legally required to carry.
Second, Consumers Start Saving—Near Term Deflation
Of the US $14 Trillion GDP, 70% ($10 Trillion) is driven by consumer spending. If consumers increase their savings rate from -2% to +5%, another $700 Billion (7% of $10 Trillion) will be removed from the economy, creating an additional 5% drop in the GDP. In the short term we will have deflation, driven by declining demand. Sure enough, that’s just what has happened in the past four quarters.
Third, the World Redeems Dollars—Long Term Inflation
With over $7 Trillion dollars flowing internationally as global reserves outside the US ($2 in China, $2 in Japan, $2 in OPEC, and $1 in Europe), plus the $7 Trillion the Fed has already printed in the past year, over $14 Trillion (1x GDP) in cash is beyond the control of the US.
Sometime in 2010-2011, the US may see currency deflation as other countries spend their dollar reserves to dig out of their own recessions. Remember that we produce very little of our own hard goods, They come from China, Japan, Korea and other countries. We buy energy from OPEC. If the dollar drops vis-à-vis Korea, Japan, China, and OPEC, then the US may see an increase in the price of hard goods and energy.
Granted, any price rise will be moderated by the domestic drop in consumption, but the US no longer controls the price of global goods, services, and energy. The US share of global commerce is 23%, and declining. Global consumption will increase, regardless of the US. Prices will rise, and the dollar will likely decline against other currencies—a one-two punch for the US.
What Do You Think?
What is your forecast for GDP and deflation/inflation? How does it affect your business planning?
Unintended consequences sometimes seem to be the primary result of human actions. It is safe to assume that no one planned to cause global warming or the current economic meltdown.
Recessions have traditionally been good times to start new ventures and to expand SMBs (small and mid-size businesses). Larger competitors retrench, leaving some market niches exposed and unprotected. Workers are available, often at reduced rates.
Because opinions run hot and strong on this proposed legislation, you should read both the 
The following is what I think may happen.
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