business health

Is Your Business as Healthy as You Think?

In July, Patty Tomsky wrote a great post on the CBM website titled Three Questions to Determine “True” Business Health. I thought I would add to Patty’s comments and give you some additional qualitative and quantitative ideas on how to evaluate the current health of your business. To create the right atmosphere for success, you might want to set aside an hour or two and find a quiet place where you will not be interrupted.

  1. Do you have a business concept that is differentiated and compelling? This is a hugely important question to ask about your entire business and specific product and service lines. Businesses that have no clear points of differences are commodities that must compete on price. Generally, this is not a place you want to be.
  2. Do you understand your marketplace, not only in terms of competitors but also in regard to your target audience segments? Can you describe the persona of each of these audience segments in terms of the characteristics of specific individuals within the segment and what drives them to purchase? Can you quantify each of these segments to establish the size of the total prospect universe?
  3. Is your financial and funding model on track? Do you understand where your revenue is coming from as well as all the associated costs? Do you know your expected revenue amounts, your average sales price and the cost to acquire a new customer? Is the financial model based on actual data or speculation?
  4. Is your product and services roadmap sufficient to keep you ahead of the competition? Do you understand what your customers will be looking for in a year and five years? Have customers bought into the product/services roadmap?
  5. Can everyone on your team articulate your brand? Is your marketing and sales model effective, measurable and sustainable? Do you understand your key conversion ratios like leads-to-opportunities and opportunities-to-sales? Is your sales pipeline active and growing? Are your reps making quota?
  6. Are your operations and delivery processes optimized and documented? Can you deliver products and support in a manner that is both cost-efficient and customer-pleasing? Are your operational metrics improving? Do you have as much of your business automated as possible? Are you operating your business in a systemized manner that is scalable and predictable?
  7. Do you have the right team in place to grow your market share? Is your executive team strong and united in achieving your business goals? Are there any gaps in your personnel that leave you vulnerable to the competition? Is your employee training sufficient to meet the changing business environment? Is the staff turnover ratio favorable? Is there an effective retention program to motivate employees to stay?

The Gallup polling organization asks citizens one question that summarizes their general feelings about the state of the country: “In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?” Paraphrase this question and ask yourself (and your key management team): “In general, are you satisfied with the direction our company is headed at this time?” If you get anything less than a resounding yes answer to this question, start working on the seven issues identified above and get back on the right track.

business-risk-analysis

Simple But Effective Business Risk Analysis!

It is impossible that improbable will never happen.

Emil GumbelMathematician

Risk is part of every business endeavor. By analyzing your situation, you can determine the risks associated with a course of action and then reduce the risk to improve your chance of success.

I have spent a lot of time in risky situations and I have found that understanding the associated risks will improve your chance for success. As a military pilot, I accomplished an Operational Risk Management (ORM) evaluation before each mission. ORM allows you to quantify the risk you face and determine if a mission is worth the risk. I have used business risk analysis to determine if a startup business was worth the investment. I have also used risk analysis as an emergency manager and as an emergency management instructor; risk analysis allows the emergency manager to determine what mitigation steps should be taken or how to prepare for a possible disaster. I have diverse experience and I have found risk analysis improves the chance of success, saves lives, saves property and improves profitability.

What is risk? From Merriam-Webster: 1- possibility of loss or injury, 2- someone or something that creates a hazard. I have a simple definition; risk is the likelihood a hazard will occur. A hazard to a business is the loss of a large customer; a hazard to a combat mission is flying against an enemy with an SA-14 surface-to-air missile; and when a dam begins to crumble, that’s obviously a hazard for the emergency manager, or for anyone in the vicinity for that matter! What is the likelihood a hazard will cause damage? That tells you the risk.

In business risk analysis, we measure the likelihood of a hazard impacting your endeavor and the consequences it causes. There are complex risk analysis tools available and risk analysis consultants to evaluate your risks but I will present a simple method to capture your risks and rank them.

A Business Risk Analysis Example

During Business Risk Analysis, identify the hazards that directly impact your business, endeavor or operations’ processes. Obviously, there are many hazards in the world but we’re examining only those that directly affect you For example, a storm could affect the delivery of your products. The hazard to you is not the storm but the failure of your logistics operation to deliver products as scheduled.

  1. Brainstorm hazards: Which hazards affect your business?
  2. Determine the likelihood a hazard will affect you and assign a numerical value to the hazard: 1- low probability of a hazard will occur 5- a high likelihood that a hazard will occur.
  3. What is the consequence of a hazard’s impact on your business? Rank according to the problems associated with a hazard: 1- low to no effect on the business to 5- business operations may fail.
  4. Multiply likelihood by consequence to come up with a numeric representation of the risk to your business.
  5. Rank the hazards based on the risk value; highest risk rank highest.
  6. Consider methods to avoid, mitigate or prepare for the risk.

business-risk-analysis-example

From the above business risk analysis example, you can see that losing your top sales person has a highest risk. The good news is that this risk can be mitigated, perhaps by paying the salesperson more or assigning a backup salesperson early on.

Preparedness is always your fallback position. First, avoid risk if you can still accomplish your goals while doing so. Second, mitigate risk if the costs are affordable. Finally, be prepared to respond if the risk affects your operation.

What do you think? Will disaster strike? Lightning doesn’t strike twice?
Be prepared!

business-health-check

Three Questions to Determine “True” Business Health

When you get to the doctor, it’s basically a numbers game, isn’t it? They take your temperature (a number). Your blood pressure and pulse. Finally, they ask you the most important question: What’s going on?

Talk to people in small, medium, or even billion-dollar businesses and many of them will say that the health of their enterprise can be found strictly by the numbers. Inc Magazine has a great list of the top seven indicators of business health to do just that. Inc. includes the usual suspects like comparing operations cash flow vs. current liabilities; the correct ratio for assets vs. liabilities (which should be 2:1); and comparing average receivables with average sales to determine if you’ve got healthy liquidity. Good stuff for sure, but I’m here to tell you that most first-year business students could come up with these on a bet.

Let’s just pretend your company is sliding around on one of those flimsy paper things they put on a doctor’s examination table. You and the doctor will use the numbers first—like, if your temperature is 105 you’ll need to get some very specific attention for that right away. Same goes for the ratios and numbers we talked about above. But don’t you want to know “what’s going on”? Your balance sheet answers that question in the “dollars and cents” sense. But sometimes it’s time to get down to causes and conditions you might not see reflected there.

Here are a set of questions that can give you a second opinion, if you will, about what your company needs to thrive as a healthy, growing entity. If you’re a “by the numbers” guy or gal, this one might hurt. But take your medicine. You just might feel better.

  1. Do you get a lot of repeat customers? Do you track your repeat business appropriately? What about client referrals? General customer satisfaction?One way to tell if your company’s products or services are of high quality or if people enjoy doing business with you is to look at how many times your customers come back or refer you to others. An oversimplification, sure, and there are lots of specific things you can do to get some hard numbers on this. But figuring this one out will go a long way in ensuring long term business health.
  2. Do your employees stick around or take off the first chance they get? What is the average tenure of your employees in each department? Can you identify why certain departments have longer tenure and then replicate that environment?If you think healthcare costs are going through the roof you should see how much it costs the average company to hire and train a new employee. Your employee turnover should interest you just as much as inventory turnover, maybe more. Make a habit of looking at it often, with an eye to creating the best possible employee experience you can.
  3. If you are the owner, CEO or even the manager in charge of making sure a company department succeeds (a marketing-, finance-, or sales- manager, perhaps) ask yourself this: Is running this business fulfilling your professional goals and making you happy?Any measure of success that doesn’t include personal satisfaction on your part is doomed to fail. Remember what a dismal failure Willie Loman was in Arthur Miller’s seminal play, Death of a Salesman? That entire work is a meditation on the price of doing the same thing day after day without any meaningful return. Sure, you get a paycheck or a healthy balance sheet, but do you get any joy?Maybe you think we’ve stumbled into another kind of doctor’s office altogether with this last question. But I believe any measure of health that doesn’t include customer, employee and manager satisfaction is a short-sighted way to be well.