Four Reasons Why a Business Planning Consultant Can Help Your Organization!

Given the drastic changes in technology as well as the market place, businesses are changing and progressing really fast. The only way to match this pace is to have a strategically oriented plan in place that will help you create a direction for this change. You may not be able to control the pace but you can at least chalk out the road on which it progresses!

Hiring a business consultant can prove to be extremely helpful in such situations. While most of us assume that hiring business consultants is just an additional expenditure that business owners must avoid, this is a misconception. Business consultants are seasoned experts who are familiar with the several situations pertaining to an organization and its growth. Their experience and expertise can come in extremely handy especially in the present day recessionary scenario.

Here are four reasons why hiring a business planning consultant can be a great move for your organization.

Fill in for full time staff

As part of your expansion process, you may have handed out pink slips to several employees whose services are not needed full time. You can easily ask business consultants to step in and fill in for them on occasions where you need their services. This way you can save money and avoid hiring staff on a full time basis. Also, hiring consultants ensures that you are investing in quality and expertise that will lead to the welfare of your business.

Hiring and firing

Your business is not doing so well and you need to downsize but the challenge lies in figuring out who to keep and who to get rid of. As the business owner, you may be accused of having a biased opinion and not be able to look at the multiple aspects surrounding the issue. However, hiring a business consultant can help you avoid such problems. Being outside the organization, the business consultant will be able to analyse the utility of every staff member more accurately and therefore take better decisions.

Better equipped to understand better

You are handling your own business but a consultant has the rare privilege of handling multiple clients. In simple terms, you are figuring out the solution to one problem but a consultant may be battling the same situation in different businesses across categories. This gives him or her, a stronger ability to identify the solution and several other impacts of the problem that may be hidden from your eye.

Fresh perspective

There are situations when the solution to the problem is just round the corner but we are so obsessed with the impact that we rarely notice the simple details. However, bringing a consultant on board will infuse a fresh perspective to the entire issue making it easier for the solution to be identified.

Strategic Planning News. Find breaking news, commentary, and archival information about Strategic Planning From The Economic Times.

Strategic Planning News. Find breaking news, commentary, and archival information about Strategic Planning From The Economic Times.

You Have to Give to Get, Part II

In Part I of this article, I introduced a very effective concept that most marketers don't often use when selling information products: the idea of giving away some of your very best information for free in order to entice your prospects into buying. It works like a charm. This time, I'll offer two strategies you can use to quickly put this idea into action.

The first is this: if you're selling a print, audio, or CD product, one of the most powerful things you can do is give prospects a free chapter or excerpt from that product. One of my colleagues once very successfully sold a book online called The 12 Month Millionaire. On his website, he gave away the first chapter absolutely free. One of the things he asked was that those people who requested the chapter included their name and email address; when they did, he would go ahead and email them the first chapter, word for word.

Now why would he do that? Because my colleague knew that after his prospects finished reading that first chapter, which is filled with a lot of information, they were going to want to read the second, the third, the fourth, and so on... every chapter of that book. So he wasn't afraid to give away one chapter, because he knew by giving them that valuable information -- an actual part of that product -- they were going to want to purchase the rest of that product. It worked very well, too! So if you've got an information product, try giving away the some quality portion of the product, and then make sure the prospects have some way to go back and purchase the rest of it.

A second strategy has to do with email. Most people are so overwhelmed with spam that many of the emails we marketers send out are going right into the trash. Well, here's a secret, using the method I just gave, that can not only make people open up your email, but make them look forward to it. Just give them valuable information in every email. The colleague I mentioned earlier, for example, always includes a useful strategy with every single email he sends out to his mailing list. He gives them information they can actually use -- a technique, a trick, something that will actually benefit them, something they can use to actually get results and solve a problem.

Why does he do that? Because his subscribers know that he does it in every single email -- and, of course, at the end of those emails, he includes marketing information about his product. But because they know they're going to get valuable information, when they see an email from him, they open it up. All the other marketers who are just pitching their product get their emails pitched into junk mail and spam boxes, whereas my colleague's get separated out because he's delivering real value every time he emails his list. As a result, the response rate for the product he's offering in that email has risen dramatically.

As is so often true, it's all about separating yourself from the competition. My mentor tells a great story about a sandwich shop whose owners came to him years ago, saying, "Our business is going down the drain. Although we make the best sandwiches in San Diego, the neighborhood our little sandwich shop is in has turned seedy." The whole neighborhood had gone to hell, but this guy owned his real estate and didn't want to be forced out.

And yet within a couple blocks from his sandwich shop, there were all these high-rise office buildings. So after he sampled their sandwiches, my mentor told the owner, "Here's what you have to do... " He told the sandwich shop owners to hire nice, attractive young women, very clean, professional, and well-dressed, to go to these office buildings every single day to deliver free samples along with a little menu card, and to answer any questions people had about the daily specials and whatnot.

In the end, the sandwich shop gave away hundreds of dollars worth of free food every week-but they got back thousands of dollars worth of repeat business from people who sampled the sandwiches, loved them, and were willing to go through a neighborhood they otherwise might have avoided if there hadn't been something delicious waiting for them at the other end. Eventually the sandwich shop developed a delivery system where they took the sandwiches right to the offices, so the customers didn't even have to do that much.

Unfortunately, some people don't catch on to that story because they think, "Well, I don't run a sandwich shop. I can't pass out sandwiches." But that's the great thing about the information business! We have the ability to get information out to people very inexpensively. It's the same for any business. If you were a realtor, you could offer a report on the ten things to definitely not do when selling your home, or ten things to understand before you buy a new home. It's the same with carpet cleaners, or plumbers, or booksellers. You can give away useful information to your prospects before they actually purchase from you.

By doing that, you're able to make that connection, set yourself apart, and pull prospects in-versus your competitors, who are just showing them the advertising. This isn't a technique that works only in one business or another. This works for every type of business. If you're running the same old ads that everyone else is, you can do yourself a huge service just by having someone who knows marketing re-write your ad and focus on providing an immediate benefit -- offering a free report, some kind of giveaway, something you can do to draw attention to your ad and make it look different from the ones are running right next to it.

But most people don't even think that way. They get bound into their particular market. They forget that they have to do something strong to differentiate themselves from the competition. Everybody's running with the herd, doing the exact same thing -- and wondering why they're not getting good results.

Get away from the herd. Do something differently than everybody else, and you'll really stand out above and beyond your competition.

Product Differentiation Types - Horizontal Vs Vertical

Economic theory tells us that companies who sell the same product to the market will ultimately end up in "perfect competition" and each make zero profits. Thankfully, this particular theory (like most others) offers us the starting point so that we can better understand the reality.

Using two ice cream vendors on the beach as our example, and sticking to economic theory, the vendors would be physically located right next to each other in the middle of the beach and they would sell the same ice cream at the same price. Neither one dare try to sell his product at a higher price than his competitor, and a "gentleman's agreement" to both keep prices high but equal will be short-lived. Temptation for landing greater market share takes over and, sure enough, one of the vendors begins the race to the bottom by lowering his price just a little. We know how that ends!

The reality, of course, is that companies DO make profits, and one of the ways they do it is through Product Differentiation.

The assumptions that are set as a part of the theoretical scenario give way and the market opens up. For example, the vendors wouldn't sell the same ice cream because different consumers have different tastes. Also, imperfect market transparency exists, meaning that some consumers would only know the prices of one of the vendors. Other assumptions are removed as well, and each plays a role in how the market reacts.

Product Differentiation is beneficial if consumer preferences are heterogeneous. Factors such as technical features (cell phones), durability (shoes), resale value (real estate), taste/image (cars), location (gasoline stations or ice cream vendors!), and time (flights) all help consumers decide which choice is best for them. Customers, after all, determine the value of YOUR products. Not sometime. All the time.

Product can be differentiated along two lines:

Horizontal Differentiation - given equal prices, some consumers would choose product "A", whereas others would choose product "B"

Vertical Differentiation - given equal prices, EVERY consumer would choose product "A" over product "B"

Back on the beach (and who doesn't like the way THAT sounds!), we may find one ice cream vendor moving away from the middle. This allows him to increase his price because he is more conveniently located for people at one end. Seeing this, the second ice cream vendor follows suit and moves a little further away from the middle also, only in the opposite direction. This example of "Horizontal Differentiation" allows him to raise his prices as well. Each vendor, now selling their products at a higher price than before, is making more of a profit. The supporting factors that are positively influencing prices and profits in this Horizontal Differentiation example are:

the distance of the vendors from each other

the magnitude of the consumer's discomfort from having to walk a certain distance

the number of consumers on the beach

Applying a Vertical Differentiation element, let's assume that one vendor is selling a premium ice cream while the other is selling an inferior product. If the prices were the same, all consumers would choose the vendor with the premium brand. Knowing this, the vendor with the inferior ice cream lowers his price. Assuming his costs are also lower, he is still able to make a profit, even at lower prices. The first vendor can increase his prices, considering his target market will pay more for the superior product. And so it goes, the lower end can decrease their product quality (and costs) even further and the higher end can increase as much as their customer base will allow them to. The supporting factors that are positively influencing prices and profits in this Vertical Differentiation example are:

the difference in the quality of the products

the degree of heterogeneity in terms of the consumers' willingness to pay

The end result, and we see it all the time, is that companies offering lower quality products can realize strong profits, just as firms offering higher quality products.

A healthy exercise is for manufacturers to understand if they can be more profitable through the implementation of Horizontal Product Differentiation or Vertical Product Differentiation. There is very real potential for even greater profits to be realized.

If you would like to discuss this further to understand how this approach will benefit YOUR Company, please contact Brand Performance today!

Brand Performance is a company designed to offer Affordable Business Coaching to companies in the US and International Markets. We help companies increase their sales by strengthening their commercial presence, implementing cost savings practices, and taking market share.

Stuck In The Middle? You're Doing Too Much

To maximize your profits, your company needs to be focused on one of three strategies. Any of them will result in a defendable position in the marketplace and you will outperform your competitors. Companies that fail to develop their strategy in at least one of these directions are in a poor strategic position. Companies that try to combine any of these strategies without a high degree of organization, though, find themselves stuck in the middle.

Porter's Generic Strategies are:

1) Overall Cost Leadership - as the name implies, your strategic theme is that you will become a low-cost company relative to your competitors. The central elements of this strategy are: efficient operations, aggressive cost reductions, the avoidance of marginal customers, and minimal spend on elements such as R&D, sales, service, and advertising. Despite the lack of commercial spend, market share and profits are strong because of aggressive pricing.

2) Differentiation - when your strategy is to offer a product or service that is perceived industry-wide as being unique. Examples include: design or brand image, technology, exceptional customer service, or a strong distribution network. This strategy requires an investment in R&D or a focus on service. Costs are higher, but so are sell prices. Market share is strong due to exclusivity.

3) Focus (aka Segmentation) - this strategy includes elements of both Overall Cost Leadership and Differentiation, BUT limiting your focus to a specific market segment (industry or geographical). The rationale for the Focus strategy is that it allows your company to serve a narrow target group more effectively and efficiently than your competitors. If you decide to pursue this strategy, you will apply both low costs and differentiation to a niche market. Your market share and profits in this niche are high because you have chosen to forego other markets.

All of this sounds simple enough - pick a strategy and enjoy strong profits. So why do so many companies struggle to find their identities? The most common answer is that they have chosen their strategy but they have not committed to every aspect of it. Unfortunately, many companies lack the focus to create either Differentiation or a Cost Leadership position. Others try to pursue multiple strategies, and while this has proven successful in some cases, it must be executed with a high degree of discipline and organizational alignment. Tensions within organizations often derail the combined strategy effort. For example, I've seen companies where the Production and Sales departments are so misaligned that you would think they were two different companies, seemingly competing with each other. It's a shame, but it's not difficult to correct.

Brand Performance is a company designed to offer Affordable Business Coaching to companies in the US and International Markets. We help companies increase their sales by strengthening their commercial presence, implementing cost savings practices, and taking market share.

The Risks of Business Growth

Most owners want their business to grow. In fact many defend their desire by quoting the "grow or die" myth; the belief that a business has to grow in order to stay relevant. It's not true. In fact, the opposite might be the case as the truth is, there are risks to business growth.

If you have a successful company - one that is consistently profitable - an aggressive growth strategy can kill it. By stating this, I'm not denying the benefits of smart business growth including increased profits, greater stability, improved value and more opportunities for employees. I'm saying that without careful planning the pursuit of growth can hurt a business in four key areas.

Customers: Can you still serve them as well as before?

A growing company makes mistakes. In fact during periods of growth the overall quality of service and products goes down before it improves. And in the day of 99.9% internet reliability, your customers will notice. Recently I was engaged as the Interim-CEO of a large service business. In eighteen months we increased sales by 50% while maintaining our better-than-industry-average net profit margins. During this period we also stretched our production and customer service personnel.

More customers meant more touches, more experiences, more opportunities to "shine or s _ _ _," as I told our managers. Since today the customer is no longer "king" (able to set the rules) but "tyrant" (able to swiftly punish those who fail to meet their expectations) we reviewed our service standards, created reporting systems and determined how to quickly follow-up when we "missed" our high standards before we committed to grow. As a result, the advances we experienced in the first year carried over to the second.

Culture: Will you enjoy what your business will become?

A large company is different than a small one. Not better. Not worse. Just different. And when a company grows, its culture can change.

Several years ago I was engaged as the Chief Operating Officer (Interim) for a large independent financial firm. Despite its success, the practice had stopped growing, due largely to its structure and operations. During this period we re-assigned employees, developed new job descriptions, created new levels of accountability, improved performance standards; all the things you would expect. Because of our comprehensive approach we worked closely with the human resource director and found her to be both capable and caring.

It was that latter quality that kept getting in her way. In her mind, the relaxed "family feel" was being sacrificed at the altar of performance. She was right. Sort of. Although we set higher standards we continued to support employees, have fun and give personal touches. Still, the culture changed and she soon found another job. At a smaller company.

That's a price - a risk - of growth. Fortunately, in this case, the cultural changes helped support a long, sustained period of growth.

Cash: Can you afford to grow?

It costs money to grow. In fact, before deciding whether or not your company is ready to grow you should first determine whether or not it can handle the financial strain growth can produce.

At times, I will bring in an outside accounting manager (CFO) to take control of the finances during the growth engagement. Working together we can manage cash, project revenues and expenses, improve the balance sheet and create forecasting tools that support the initiative. The right person and systems can help create the discipline needed to improve equipment, property, wages; everything needed to initiate and continue a strategy for growth.

With the right person in place as the CFO, we were able to move ahead with growth,

Competition: Are you ready for more?

When I was in high school (just after the one-room school houses) I played football. Since I lived in a small town, we played in a small town conference which meant that my small body was large enough to play offensive and defensive tackle. Back then I was skinny; enough so that in my uniform I looked a bit like Barney Fife (look him up... he was skinny) in pads. Had I been in college, I would have been a statistic.

Competing at the next level required more skill, more speed, more desire, more talent and more weight. It's the same in business. As you grow the competition changes. Larger companies have more resources and if they see you as a threat they will use those resources against you. If you aren't ready, you'll get crushed.

Should I go ahead and decide to grow? That's the question every owner should ask before committing to growing their company. It's possible that by staying the size you are now you will continue to enjoy the lifestyle you've created and the profits you've come to expect. But if you choose to move ahead, to expand your business or practice, then be mindful of the risks to business growth.

Lessons From the Beginning of America's Economic Independence

Twenty years after America's political independence from England, its transportation network connecting the country's towns and cities remained inadequate for the needs of its own commerce. At the turn of the 18th century, information traveled at the same speed as people whether by messenger, the mail, or the newspaper. The news that George Washington died on December 14, 1799 took seven days to travel the 240 miles from northern Virginia to New York. Under these conditions, few institutions operated across long distances, even as Americans began to move west over the Appalachian mountains by the thousands.

At that time, New York's aristocrats were classic landed gentry, owners of vast manorial estates along the Hudson River. They felt that people of their class were the rightful owners of business monopolies, and unsurprisingly, this attitude gave the ruling class a windfall of profits which they used to maintain their social control. Cornelius Vanderbilt became very wealthy by breaking the transportation monopoly and he did it by challenging the laws in court and he competed for customers by offering more consistent and faster service at lower prices.

Vanderbilt grew up on Staten Island, off the coast of New York when New York City was smaller and less important than Philadelphia. He got into the family business young, ferrying people to and from the island. One of his first insights was to run his ferries according to a set schedule instead of the common practice of holding the boats at the pier for a threshold of passengers before setting sail. Vanderbilt gave the customer more control of their time, and he became known for regular, consistent service.

He took an active interest in the technical design of his boats to gain tactical advantages. For instance, because of a particular shallow channel at Raritan, all ferries needed to shuttle passengers by scow to the New Brunswick pier. The ferries ran aground if they tried to dock. To solve this key problem, Vanderbilt lengthened his boat to reduce its draft, enabling it to dock at the pier regardless of the tide's height. His competitors followed, as he knew they would, but a pattern of-leadership began and Vanderbilt became known as being one step ahead of the rest.

Vanderbilt grew his business by investing in partners who had access to technology that he did not. He bought shares of other boats and managed his partners' boats when it was beneficial to him. For instance, he learned the intricacies of steam by running Thomas Gibbons' boat, the first steamboat in America. As he kept his sailing boats operating, he expanded into steam building his technical knowledge as he went along. In addition, his partnership with Gibbons, who was a very good attorney, gave Vanderbilt the winning legal strategy in Washington to break the monopoly.

What Is Your Company Really Worth?

There are several paths a business owner can take when it comes to transitioning ownership. For example, an owner may sell to a strategic buyer (competitor), to a financial buyer (private equity firm or employee stock ownership plan) or to the company's management team (management buyout). The owner may also decide that a full or partial sale is several years in the future, but is interested in exploring gift and estate tax planning strategies or buying out another owner.

Whether a business owner is selling all or a portion of the company or engaging in a transaction that requires a valuation, knowing what the company is worth is critical. Obtaining a business valuation, or appraisal of the company's worth, will give the owner a competitive edge. This is because valuation is the heart of business transactions and corporate decisions. By going through the valuation process, an owner will come to understand the drivers that positively and negatively impact value. Armed with a valuation, an owner can make intelligent business decisions.

Key Value Drivers

Business owners should know the value of their business and what factors drive value. Most business owners understand that private businesses are typically priced as a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA"). EBITDA serves as a proxy for cash flow, the lifeblood of any business. Companies with higher growth potential and greater free cash flow (discretionary cash flow available to owners) typically command higher multiples of EBITDA.

Generally, multiples increase as the company's size increases. In other words, a company with $20 million in revenue and $2 million in EBITDA will likely be valued at a greater multiple than a company with $10 million in revenue and $1 million in EBITDA.

In addition to a company's size, there are internal and external factors that affect value. External drivers include market conditions such as the range of multiples that publicly-traded companies in the same or similar line of business command. Lending conditions, industry specific factors and government regulation are also examples of external market conditions that may positively or negatively impact value. A business owner typically has little to no control over the market conditions that affect value, but does have control over the internal value drivers.

Internal value drivers include the company's margins, management team depth and experience, customer concentration, business plans and growth strategies. Generally,

companies with experienced and deep management teams and solid growth command higher valuations.

The aforementioned key value drivers are a few of the factors that impact valuations. It has often been said that valuation is an art and a science, and business owners should, at the very least, have a basic understanding of the theory and application of business valuation.

The Valuation Process

The first step in the valuation process is scoping the engagement. This critical first step outlines various administrative issues such as identifying the goals and objectives of the business owner, the valuation process and the standard of value to be employed in the valuation. Business owners should recognize that like beauty, value is in the eye of the beholder. That is, the same business interest may have a materially different value depending on the standard of value assumed in the valuation. Just a few of the various standards of value are listed below:

Fair Market Value

Fair Value

Investment Value

Use Value

Book Value

The most common standards of value are fair market, fair value and investment value. The standard of value applied in the valuation is specific to the goals and objectives of the business owner and should be discussed at the outset of the engagement process, prior to conducting any valuation analysis. In certain circumstances such as selling to an ESOP or for gift and estate tax reporting, the standard of value is mandated by law. In those instances, if the business owner desires to sell shares to the ESOP or gift shares to family members, trusts or to charity, the appropriate standard of value is fair market value, which is the price between a willing buyer and seller, with each having reasonable knowledge of all relevant facts and neither under compulsion to buy or sell.

Once the valuation assignment is scoped out, the valuator will begin the second step which is the collection of data. During this phase, the valuator will conduct initial due diligence which includes, among other things, the collection of financial data, background and history of the enterprise, budgets, customer lists, business plans, and other important documents.

Step three is a continuation of the second step, with the difference being that step three is far more detailed as the valuator actively engages in detailed discussions with the business owner and dives deep into the inner workings of the business. This step usually includes an on-site due diligence meeting with the business owner and/or key members of the management team.

After the valuation analyst conducts in-depth due diligence, he or she begins step four, building the valuation models. In conducting the valuation portion of the analysis and developing the concluded work product, the valuation analyst typically considers various valuation approaches deemed to be appropriate in estimating the value of the company. The generally accepted approaches and methods may include:

Income Approach - Discounted Cash Flow Method - Analyzes the company's forecasted cash flow stream, estimates its future economic returns and "converts" those returns into a value estimate.

Market Approach - Guideline Publicly Traded Company Method - The guideline publicly traded company method looks to the market pricing multiples of comparable companies in the industry that are adjusted against the earnings of the subject company.

Step five in the valuation process entails reviewing preliminary schedules with the business owner. Depending on the valuation assignment and the terms and conditions outlined in the engagement letter, the preliminary schedules may or may not communicate all of the assumptions and value conclusions. This may be to protect independence, but in all cases this serves as a quality-control measure.

Step six is when the valuation analyst formally prepares the report and ultimate deliverables to the client. Step seven is the formal presentation to the client, which typically includes an oral presentation of the report and detailed explanation of the conclusions reached.

Parting Thoughts

It is never too early to start planning the transition of a business. Ideally, business owners should discuss their goals and options with their financial advisors years before any ownership transition transaction. There are usually complex issues to address, such as tax implications, management succession and owner's legacy. Business owners should understand the key value drivers and engage in active discussions with their financial advisors to implement a strategy to meet their goals.