Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs

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1 JULY 2011 Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs Table of Contents EXECUTIVE SUMMARY 1. Alignment Indicator Growth Matrix Method of Competition Position Profile Customer Survey Benchmarking... 5 Business owners face numerous challenges as they pursue businesses growth. What tools and techniques can CPAs provide to help overcome these challenges? This white paper presents six tools you can share with your commercial clients to help position them for ongoing success.

2 Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs 2 Business Owner Challenges Business owners face numerous challenges as they try to attain growth. Today s economic environment is one major challenge, but beyond that, business owners are also challenged with growing revenues, increasing profits, offsetting material price increases, defining goals and hiring and developing talent. In this white paper, we ll present the several tools that have proven to help business owners address many of these challenges. They include: 1. Alignment Indicator 2. Growth Matrix 3. Method of Competition 4. Position Profile 5. Customer Survey 6. Benchmarking 1. Alignment Indicator Within any organization, the most effective way to reach goals is to make sure the leadership team is clearly aligned on defining both the goals and how the organization will meet them. Although this may seem obvious, many organizations fail to follow this path. One way to gauge whether a management team is aligned is to conduct a simple survey called the alignment indicator. Simply ask the leadership team to answer two key questions: ywhat are the top three opportunities to grow your business? ywhat are the top three challenges to growing your business? Ideally, each team member will respond with the same answers, but this rarely happens. By using these responses to determine the level of alignment, it s easier to facilitate discussions to tighten management s focus on a unified set of responses. You can also change the questions to focus on goals, customers, products or services or other areas that require alignment. 2. Growth Matrix For an organization to grow, it needs to identify how that growth will be achieved. The growth matrix is a great tool to help companies quantitatively define growth. Aside from raising prices and merging with or acquiring another business, there are four ways a company can grow:

3 Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs 3 ysell more existing products or services to existing customers ysell existing products and services to new customers ysell new products and services to existing customers ysell new products or services to new customers In the matrix below, these four options are shown by the four quadrants as market penetration, market development, product development and diversification. The key point of this tool is to quantify how business growth will be achieved. In this example, a company has identified that it wants to grow by $500,000 with 55% ($275,000) attained by selling more existing products and services to existing customers. Market development will generate $175,000 in new growth, and product development will generate $50,000. Quantifying the targets makes it much easier to develop sales and marketing initiatives geared toward achieving the targets. Further work is needed to identify which customers and which products to focus on, but this is great first step. Exisitng Products/Services New Products/Services Existing Customers/ Markets 1 Market Penetration 55% 3 Product Penetration 10% $50,000 New Customers/ Markets 2 Market Development 35% 4 Diversification 0% 3. Method of Competition Defining how a company competes is one of the most important, yet least understood, management disciplines. Michael Treacy and Fred Wiersema, editors of Discipline of Market Leaders, identify three methods of competition and note that companies need to be great at one and good at the other two (which illustrates the saying you cannot be all things to all people ). The three disciplines outlined in the book are: yproduct Leadership: Consistently developing and introducing innovative products and services. Companies like BMW, Mont Blanc and Bose are the gold standard. yoperational Excellence: Providing lower cost products and services while being easy to do business with. Companies like Amazon, Dell and Walmart are great examples of this.

4 Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs 4 ycustomer Intimacy: Understanding your customers better than they understand themselves and providing tailored products and services to select market niches. Companies like Disney, Nordstrom and USAA do this very well. To apply this tool, the leadership team begins by defining how the company s goals align with these disciplines and prioritizing the order. If there is unanimous agreement on the priority, then it is time to build the strategy. However, it is often rare that all leadership team members agree. The business owner should facilitate the solutions so that everyone is on the same page. With the methods prioritized, the company can develop strategies and the action steps required to support them. 4. Position Profile Hiring and developing talent are often mentioned as top priorities for many companies. However, they are often difficult priorities to accomplish. One common error is the use of outdated job descriptions to define a person s role and review performance. Unfortunately, many job descriptions do not provide the detail required to adequately define a position, let alone conduct a meaningful review. A much better tool is the position profile. Using the position profile, a manager can better define a position s goals or measures of success. For example, telling sales reps that they need to increase sales or generate new customers does not provide enough specificity to quantify success. Instead, framing success in terms of increasing sales by $1.75M or generating new customer sales of $650,000 is much more specifically defined and clearly sets goals that can be measured. The next part of defining the position profile is weighting the importance of these activities, since all activities for a given job are not equal. In the example below, 70% of the position s success is based on selling $1.75M in revenue, adding one new customer per month and coaching the sales team to their goals. Twenty percent is based on achieving a defined task, with the remaining 10% identified as a personal development objective. Having defined the measures of success for each company position, the next step is using the same framework to identify how the position s time should be spent achieving set goals. Position Profile Sample Key Measurement Criteria 70% New customer sales dollars & sales management y1 new customer per month y$1.75m revenue ycoach and manage sales team to achieve each individual s goals 20% Development of strategic customer targets and sales process yupdate marketing material and website by Oct yimplement CRM tool by Jan. 31 yrefine sales pitch and value proposition by July yquantify pipeline math by Aug 10% Personal development objectives 5. Customer Survey Why do customers really buy from a given company? If you ask most people, they ll respond with speculation. If you ask about the last time they formally posed this question to their customers, they ll usually say at least a year.

5 Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs 5 A company cannot ascend to a position of market leadership without understanding why customers buy from them. Some companies try to gain customer intelligence by conducting paper or electronic surveys. The problem with this approach is that most customers don t complete surveys and the information received is typically very limited. The best way to gain meaningful insight into customer attitudes about products and services is to meet with customers individually in casual setting. Speaking with customers in a relaxed atmosphere such as lunch, dinner or a golf outing can result in the honest, detailed feedback that leads to valuable insight. Asking customers about the top three reasons they buy from your company can yield answers such as price, convenience, service quality and product quality. Next, ask about the importance of each of these factors based on a 10-point scale. The informal survey can continued using the following questions as guidelines: yhow important is (price, responsiveness, industry expertise ) in deciding which company to use? yon a scale of 1 to 10, how would you score us overall? ywhat do we need to do to become a 10? ywhat would give us a score of 12? ywhat product or service could we introduce to draw your interest? ywould you refer us to others? ydo you know someone who shares our values and would be interested in learning more about us? Companies often gain such detailed insight from the casual, one-on-one method that they stop sending paper surveys altogether. 6. Benchmarking Business owners usually want to know how they stack-up against the competition. The challenge is finding a group of like-sized companies in the same industry to generate a true apples-to-apples comparison. Thanks to the introduction of new online tools, CPAs can now leverage the financial information they collect from clients by benchmarking it to a set of comparable data from other companies. Fintel s business scorecard is very useful for this analysis. The first step of using this tool is to enter financial information such as revenues, expenses, assets and liabilities. Then, select the SIC or NAICS code that most closely matches the industry. From there, you can generate reports that compare your

6 Growth Strategies for Your Clients: Tools and Techniques for Advising Entrepreneurs 6 client s information to the benchmark company data, based on different quartile rankings. Sample reports are shown below. By showing this type of comparison, CPAs can move beyond a basic level of service and provide greater strategic value to clients. Business owners and CPAs can collaborate more closely to identify opportunities, challenges and areas for improvement. Summary As with all techniques for business analysis, success can be dependent on correctly applying the technique to the appropriate business situation. Using the tools described above regularly and in the right context can help business owners solve many challenges related to strategy, people, alignment of goals, business performance and satisfying customers. Christopher DiCenso is the Managing Partner of Growth Strategy Partners LLC, a research based management consulting firm which accelerates a company s revenue, profit and talent growth by implementing the 7 Keys to Growth. To learn move visit Christopher DiCenso is not affiliated with Bank of America Corporation and is solely responsible for the information presented here. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed Bank of America Corporation.