Oh Dear! Are You a Micromanager?

If you own and manage a one person business, you are, de facto, a micromanager. You have no choice; you make every decision and you manage every process. If, on the other hand, you are CEO of a FTSE100 Company, you can’t be a micromanager because you can’t possibly make every decision and can only manage a very small number of processes, albeit they are likely to be major ones.

In the case of the one person business, if you don’t micromanage, your business won’t function; so it won’t survive. In the case of the CEO of the FTSE100 Company, any attempt to micromanage will cause chaos and undermine your corporate structure. So in one set of circumstances, micromanagement is very positive and very necessary, whilst in the other it is very negative and seriously damaging.

So, at what point does the positive turn negative?

Before answering that question let’s just look at what we mean by micromanagement. You can no doubt find many different definitions but essentially it means: –

• Allocating tasks, monitoring them in minute detail, intervening with the processes and making all the associated decisions. As opposed to
• Delegating responsibilities, within defined parameters, to subordinates, who make their own decisions and are accountable for the outcomes.

As soon as a business involves more than one person, tasks start to be shared. If the people involved are of equal status – directors, partners etc. – agreement is reached about the sharing of both tasks and responsibilities. However, if staff are employed, they tend to be engaged to undertake tasks under close supervision. They are probably given very little responsibility and are unlikely to make many decisions without reference to the boss.

Initially this may work ok. However, as the business grows and the number of employees increases, the boss inevitably spends more and more time making decisions for his/her employees and monitoring their activities. That means spending less and less time driving the business forward. As a consequence, the momentum of the business starts to slow down and the boss becomes increasingly stressed, as he/she becomes the main constraint on progress.

To address this problem, most businesses start to develop some form of organisation structure, with departmental demarcations and key staff taking supervisory/managerial roles. To start with, this invariably relieves the pressure. However, the extent to which this continues to happen depends on whether the boss is still just delegating tasks or whether he/she starts to delegate real responsibilities in a meaningful way. When the boss is able to delegate responsibilities enabling him/her to focus on the more important aspects of the business, the business itself has a much better chance of developing, growing and building its net worth. But where the boss still wants to micromanage, the business is much more likely to struggle and stagnate.

There can’t be a precise answer to my earlier question of, “At what point does the positive become negative?” because no two businesses are exactly the same. However, most people’s ability to micromanage everything that goes on, within a business, and still perform their own essential duties is quite limited; and once the business employs more than a handful of people, micromanagement invariably becomes negative.

Despite this, many owners and directors of SMEs don’t delegate responsibilities effectively and become increasingly frustrated with the lack of progress that their businesses make, often blaming everyone except themselves for that lack of progress. So why can’t they delegate and why do they continue to be micromanagers?

The four favourite answers seem to be: –

• I can’t get the calibre of staff I need
• My staff can’t do things the way I do them
• My staff can’t do things as well as I do them
• I can’t trust my staff

So let me deal with each of these objections in turn.

I can’t get the calibre of staff I need. If that’s true, then it’s likely that you’re not paying enough to attract the right quality staff. But in my experience, that’s not usually the problem. More often than not, the key people, within the business, are more than capable of taking on much more responsibility and are eager to do so. With very few exceptions, where I’ve been able to persuade the boss to stand back and empower his key people, the positive effect on the business has been substantial. However, when key members of staff are not empowered there is a tendency for them to become demotivated and cynical; and once this happens you really do have a problem.

My staff can’t do things the way I do them. Frankly that tends to be good not bad. A business needs a diversity of ideas. If the key staff are all clones of the boss, the business will go nowhere. The boss may be the key driver but he/she doesn’t have a monopoly on ideas, doesn’t know all the answers, doesn’t always have the best approach to problem solving and is often wrong. If key employees are empowered, bosses are much better able to develop their own strengths, whilst ensuring that their weaknesses are offset by the skills and experience of their key people. Running a successful business is about teamwork; it’s not a solo act.

My staff can’t do things as well as I do. In some cases this may be right. The boss will have skills that his/her key staff don’t have. But there will be areas where key members of staff have more skill and experience or perhaps greater aptitude or perseverance than the boss. It’s important to recognise this and exploit it. Again, it’s back to the principle of diversity of skills and ideas being the basis of a successful team. Where there are shortcomings in skill sets, you need to develop them through structured training programmes.

I can’t trust my staff. In many respects this is the real objection. The other three are often excuses for what is, in reality, lack of trust. And to be fair, all too frequently I hear stories of small businesses that have been ripped off by a rogue employee or damaged in some other way, by an incompetent one. But this opens up the much bigger question of how you actually manage and control your business.

The trust issue may be about not trusting people to complete tasks properly or take decisions appropriately; equally, it may be about the honesty and integrity of employees. In practice, most people are reasonably honest; but, unfortunately, a small minority is not. However, regardless of honesty and integrity, it’s important that no one, within the team, behaves as a lone wolf, acts outside their jurisdiction, covers up mistakes, works within a self-constructed silo or behaves dishonestly in any way. So how do you reconcile all of this with delegating responsibilities and losing detailed control of what your staff do and how they spend their time?

The answer is that you manage your business in a completely different way. And to do this, you need good management information that tells you, on a regular basis, how each significant element of your business is performing. In conjunction with that, you need to set targets, so you can see how each part of the business is performing against expectations. The type and level of information will differ depending on the type of business, its size and complexity and the markets served; but it’s likely to include data about sales, production and/or service output, productivity, costs, inventories, cash and all other key activities within the business. Some of this data will come through the production of monthly management accounts, some will require your IT systems to be set up to produce it. Some information will be most useful on a monthly basis, some weekly and some daily. When you have this data, you can identify areas of over and under performance, trends in both the right and wrong directions and aberrations that don’t, on the face of it, make sense. Whenever you identify anything that appears to be going in the wrong direction or otherwise out of the ordinary, you dig deeper until you have answers. If necessary you then take remedial action; but its remedial action based on facts not on gut feel or guesswork. You’ll soon find that you’re learning far more about what’s going on in your business than you ever did before.

This management information shouldn’t be treated as just yours and available to no one else. Headline data needs to be available to all your key players and each key player should have more detailed information about their own individual areas of responsibility. You can then meet regularly with your key players, both on a one to one and as a group, to set new objectives, report back on current issues, agree solutions to problems and establish strategies to exploit opportunities. This ensures that everyone is clear about strategies and objectives in general; and clear about their individual responsibilities and how these interface with the responsibilities of their colleagues.

As a result of this, you’ll start to build a real team that co-ordinates effectively, buys in to the core values and direction of the business and works with much greater enthusiasm and commitment. Under performance and lack of integrity then become a much smaller issues; but also much easier to identify because they’re much more difficult to hide.

Small businesses that make this leap are much more likely to grow and prosper than those that don’t. Sadly, many small businesses fail to reach their potential for no other reason than the boss remains a frustrated and stressed micro-manager. Some owners of small businesses do find it incredibly difficult to let go. If you’re one of these and you want to try and change, don’t try and do it on your own. In most industries, there are specialist business consultants, business coaches and mentors that understand this problem only too well and will be able to take you through a difficult learning curve far more quickly and effectively than you would otherwise achieve.

If you’d like to discuss any of the issues raised in this article, in more detail, please feel free to contact me.

The Importance of Having Good Management Accounts

In this day and age, most small and medium sized businesses (SMEs) use computerised accounting systems; and suppliers of accounting software, such as Sage, have made the bookkeeping process very straightforward, irrespective of whether your annual sales are £100k or £50m. As a result most SMEs now maintain a reasonable quality of bookkeeping that accurately records their financial transactions. However, many limit the regular use of their accounts systems to the processing and control of sales and purchase invoices, debtors & creditors, wages & salaries, the bank, VAT etc. And this means that they are missing out on one of the most important tools that is available to help them manage their businesses more effectively and more profitably. I’m talking about the production of monthly management accounts.

From the work that I do with SMEs, there seem to be two distinct issues. The first is businesses that don’t produce monthly management accounts at all. The second is businesses that do produce monthly management accounts but structure them in such a way that, at best, they are not particularly helpful and, at worst, are seriously misleading.

Let’s look, firstly, at those businesses that don’t produce monthly management accounts at all. Generally these are at the smaller end of the SME scale. They often don’t see management accounts as a priority; perhaps have some difficulty understanding and interpreting them; and may struggle to produce them. Realistically, if yours is a one person business with no employees and a very small number of transactions, monthly management accounts are probably not going to add much value because they won’t really tell you anything, you don’t already know or can’t work out in five minutes with a calculator or spreadsheet.

However, the business doesn’t have to grow too much, before the number of transactions increases to the point, where you lose track of them. At this point, many businesses then keep a close eye on the bank account and assume that, if there’s cash in it, they’re OK. And that’s the first big mistake because cash is not profit. A business can be making losses, whilst still having a healthy cash flow. It can also be making healthy profits, whilst having a cash flow problem (I’ve written another article about this, which you can access at Cash v Profit). You need a profit and loss account at the end of each month to tell you whether you’re making money or not and you need a balance sheet to show you whether you’re solvent and whether you have a liquidity problem or not.

Your management accounts should give you an accurate picture of where all your costs are and whether your margins are where they need to be. You can monitor where all your cash is tied up (stock, debtors etc.) and whether there is enough in the business to pay your wages and creditors. As the months go by, you begin to identify trends that may be developing; rising or falling costs; deteriorating or improving margins; increases or decreases in stocks, debtors and creditors; improving or deteriorating cash position etc. So you start to identify problems at an early stage and are able to take remedial action before those problems become acute. Similarly, you can see where you’re having increasing success; so you can then start developing strategies to build on that success. Finally, where you have a business plan with a detailed financial budget, you can compare your performance against the budget and take actions to get things back on track, when you’re falling behind plan; or build on your success, when you’re pulling ahead of plan.

Unless you have some form of accounting/bookkeeping experience, you may struggle to produce monthly management accounts yourself. Apart from ensuring that everything has been posted to the correct nominal account, a number of procedures such as stock adjustments, work in progress adjustments, dealing with prepayments and accruals are required. So you’re probably going to need someone to make all of these adjustments and to then produce the profit and loss account, balance sheet and any other reports that you may require. Obviously, some SMEs are big enough to employ a full time or part time bookkeeper and if so, the bookkeeper should be able to undertake all of these tasks. Some larger businesses will have accounts departments with a number of dedicated staff. These are likely to be producing monthly management accounts as a matter of routine. However, if your business is not producing management accounts each month, you’ll need to consider whether it’s possible to produce them, using existing resources or whether you need additional support. If you do need additional support, you may be able to employ a bookkeeper on a part time basis for a few hours a week; or there are many self-employed people and small companies offering bookkeeping services. Either way this doesn’t need to be a hugely expensive commitment and the benefits to your business are likely to be substantial.

The fact that you personally may struggle with accounts and may not have a very good understanding of them, doesn’t mean you shouldn’t have management accounts as part of your business processes. They’re just too important to ignore. In these circumstances, just be honest with yourself and your bookkeeper or prospective bookkeeper; admit it’s not your thing and ask your bookkeeper to go through the figures with you, line by line, explaining what each line is and what it’s telling you. You’ll need to invest some time in this; but, if you do, you’ll soon learn; and you’ll quickly discover it’s not rocket science.

I now want to move on to the second problem, I see all too frequently, and that is management accounts that are not appropriately structured and, as a result, don’t provide information that is helpful for the business.

Generally speaking, this problem comes about because the business owner/CEO doesn’t tell the person, responsible for producing the management accounts, what information is actually required. It’s just left to the accountant/bookkeeper, who may well understand the numbers but who, invariably, doesn’t understand the business.

The two most common problems are: –

1. A lack of sufficient breakdown between key business activities and/or product groups.
2. Classifying as overheads, entries that should be shown as direct costs.

Let’s look firstly at the breakdown between business activities or product groups.

If your business has more than one business activity, you need to understand the performance of each one. For example, let’s say you fabricate PVCu windows and doors; but you have two different market channels. The first is selling an installed service to homeowners; and the second is selling, on a supply only basis, to the trade.

Your production costs are likely to be more or less the same irrespective of the channel. However, the cost structures of the two channels are likely to be considerably different, as are the selling prices. Selling an installed service to homeowners is likely to involve sales commissions, advertising, survey costs, sub-contract installation costs, installation material costs and finance/credit card charges. Selling to a trade customer, is likely to involve different sales and advertising costs and may involve delivery or possibly trade counter costs; but it’s unlikely to involve survey and installation costs. Your management accounts need to pick all this up and provide a margin analysis for both market channels. If everything is lumped together, you just don’t know where you’re making money and where you’re not. So how do you know what strategies to apply to each channel? The answer is, “you don’t”!

A similar issue arises between different product groups. Let’s now say that you’re still a PVCu fabricator but all of your sales are based on selling an installed service to homeowners. However, this time you also sell conservatories. Your sales and advertising costs may be similar for both products; but conservatories require a roof, and also involve a significant amount of building works. So the cost structure of supplying and installing a conservatory is entirely different from that of windows and doors. Once again, if you lump these two product groups together, how do you know where you’re making money and where you’re not? And once again, you don’t.

Your accounts must be structured to provide a margin breakdown for all your key product groups and market channels so you have an accurate understanding of the true margin made by each one.

Moat accounting software can handle this type of analysis as a matter of routine; but it does have to be set up correctly to do so; and that’s where the main problem lies.

I’ll now move on to the second problem I encounter, which is all about whether costs are classified as direct costs or as overheads. Direct costs refer to materials, labour and expenses, related to the production or supply of a product or service. Other costs, such as depreciation or administrative expenses, are more difficult to assign to a specific product or service, and are, therefore, considered as overheads.

Many SMEs classify materials and direct labour as direct costs but almost everything else as overheads. And this can be very misleading. Let’s go back to the business selling windows and conservatories on a supply and install basis to the homeowner. Not only does this business have materials and direct labour as direct costs, but it has installation labour and materials, disposal of site debris, survey costs, sales commissions, lead generation/advertising, finance/credit card costs, warranty/guarantee insurance. All of these are directly related to the sale, production and supply of the product and its installation. So all should be classified as direct costs.

If you decide to classify only some of these costs as direct, you’ll end up exaggerating your gross profit, which is normally calculated by deducting your direct costs from your sales revenue. You’ll also overstate your overheads because some of your direct costs will be absorbed as overheads. The consequences of this could be quite profound.

Let’s say that the business is barely profitable and that you have to take action to improve profitability. One way of doing this would be to increase sales; you, therefore, put a sales plan together. You think you’re making some good margins so you decide to offer some additional discounts. You also need to spend some more money on advertising and, of course, extra sales mean extra commissions installation costs etc. Everything seems to hang together and off you go. You’re initially pleased with the increase in sales, but when you run your management accounts, the effect on the bottom line is shown to be marginal. You’ve added some volume but for little or no extra profit. So what’s happened?

The problem is that your accounts have mislead you about your margin. Because you’ve only included materials and direct labour as direct costs, you’ve been duped into believing that you’ve been making healthy margins. However, if you’d included all of the other direct costs as direct costs, you’d have found that your margins were in fact very poor; and, once you’d accounted for the additional discounts you offered, it would have been clear that there wasn’t much left.

If you’d known this at the outset, it would have been very apparent that additional volume wasn’t going to provide a solution. The only effective options open to you were (a) drive down your direct costs as a proportion of your sales, (b) increase your selling prices, or (c) a combination of both.

Let’s now look at another problem that can occur as a result of confusing direct costs and fixed costs. Many businesses seeking to improve their profitability, embark on a cost cutting exercise; but they cut the wrong costs.

If many of your direct costs are treated as overheads and you need to make cuts, staffing, process costs, administration, maintenance & renewals etc. are often the soft options that you go for rather than address the more challenging issue of high costs in sales and marketing, installation etc. However, the outcome of this can be catastrophic because, in reality, you still have a margin problem but you’ve cut the basic infrastructure that would have enabled you to address that margin problem by driving down your direct costs.

In the home improvement sector, which is where I focus most of my time, one of the most common problems I see is SMEs that under resource their processes, controls and administration and, as a result, suffer from direct costs that are out of control. Genuine overheads are relatively easy to control because you can make definitive decisions as to whether you proceed with something and spend the money or whether you don’t. Direct costs are much more difficult because they depend on operational efficiency, effective processes, quality control etc. In many SMEs, total direct costs are much higher than total overheads. So controlling direct costs provides far greater potential to improve the bottom line than controlling overheads. In fact, quite often, an increase in overheads is needed in order to provide the resources that are required to bring direct costs under effective control. In this situation, the bottom line may get worse, for a short time, before it starts to recover to the levels, at which it should be.

Once you have your accounts structured to give you really good information about your direct costs and overheads, you can start making these sorts of decisions with confidence.
Many owners and directors of SMEs find interpreting their management accounts quite challenging; so, if that describes you, don’t think that you’re on your own because you’re not. It’s, therefore, very important to have good accounting and bookkeeping support, the scale and structure of which will depend on the size and complexity of your business. It could range from a part-time bookkeeper or bookkeeping service to a significant sized accounts department. But wherever your business is on that scale, what you can’t do, is just let them get on with it, as they see fit, because they won’t understand your business as well as you do. You need to work with them to get the structure of your management accounts right and to ensure that it provides you with the right information in the right way at the right time. If you invest some time and effort in this, it will repay you handsomely.

If you’d like to discuss any of the issues raised in this article, in more detail, please feel free to contact me.

Why You Need a Business Plan & How to Prepare It

Virtually all businesses, within a corporate structure and the majority of larger private businesses, have well-developed business plans that incorporate clearly defined strategic objectives, detailed plans about how those objectives will be achieved and financial projections, including forecasts for sales, profit & loss account, balance sheet and cash flow. None of this guarantees success but it provides a road map, with a clear destination and a properly defined route for the business to follow. These types of businesses usually put considerable time and effort into the preparation of their business plans because they know it significantly improves the likelihood of building and/or maintaining successful market positions, strong balance sheets and sustainable competitive advantage.

By contrast, many small and medium-sized businesses spend very little time thinking through and preparing business plans and, in some cases, they spend none at all. As a result they tend to drift. The business is managed from day-to-day and goes from one year to the next, sometimes moving forward and sometimes going backwards but, in reality, making little or no progress.

Initially, many start-ups can show considerable progress, as they establish their market position but, more often than not, without a business plan as a blue print, they generally reach an early plateau, from which they find it difficult to progress. To be fair, this suits some business owners but, for many, it creates enormous stress, as they are continually living with a very uncertain future and less personal income than they require. And yet, preparing a worthwhile and effective business plan doesn’t have to be a massive project that distracts the business owner away from the action for too long; and actually, standing back for a short time to work on a business plan, almost always proves highly beneficial for the business and can be very therapeutic for the business owner.

So why don’t business owners stand back more? In my experience, the usual reason is that they think “no one else can do what they do” or no one else can do what they do as well as they do it”. So they micromanage everything and get increasingly bogged down and stressed out. In reality, many of the day-to-day activities can be done quicker and more effectively by their staff, if only the business owner would just let go. I’ve developed this theme in another article but, for the time being, let’s assume that the business owner has let go and is now about to work on a new business plan. How does she or he go about it?

The first thing is to look outside the business and see what’s going on in the market. For most small and medium-sized businesses, this doesn’t require a lot of detailed market research, it’s more about using suppliers, customers, competitors, trade organisations, trade publications and, of course, your own staff, who interface with customers. Using all these sources and any others that may also be helpful, try to establish what’s actually happening. Which market sectors and product groups are growing and which are declining? What’s happening with prices across those market sectors and product groups? What are your competitors doing? What quality standards and service levels are the norm? What technological developments are occurring? What legislative and regulatory factors are likely to affect you? In practice you’ll know much of this anyway; so it’s as much about standing back and putting everything into context and creating a balanced and objective picture, as it is about searching for new market data and intelligence.

The next step is to look at your own business and make an honest and objective assessment of how well it interfaces with the market. Are you capitalising on the sectors and products that are in a growth phase? Are you exposed to market sectors and products that are in decline? Are you under-pricing and giving away margin unnecessarily? Are you over-pricing and uncompetitive? How do you shape up against your key competitors? Where do you have competitive advantages over them? And where do they have competitive advantages over you? Are your quality standards and service levels meeting market expectations? Are you investing in appropriate technologies? Are you complying with all appropriate legislative and regulatory requirements? And are you running ahead of your competitors or lagging behind them?

You can now compare your business with the market by undertaking a simple SWOT analysis (Strengths, Weaknesses, Opportunities and Threats). You’ll very quickly see where your business’s strengths and weaknesses lie and you’ll clarify where the threats and opportunities, presented by the market, are likely to be.

Once your SWOT analysis has been completed, you can start to develop your strategy. Generally, you’ll want to build on areas, where you’re already strong. The more difficult decisions are likely to be around strategies for areas of weakness. How are you going to deal with these? Alongside this you’ll need to consider the threats to the business, from wherever they may come and decide how you are going to meet them. Then lastly, you’ll need to look at the opportunities the market is presenting and decide whether you should exploit any of them.

At this stage, you’ll probably have a lot of potential ideas, which collectively will be unaffordable and which, if you tried to implement them all immediately, would simply overwhelm the business. So you need to start establishing priorities and time frames; and as you do that, you’ll create the framework for your business plan, which would probably be built over a three-year period.

With the framework complete, it’s time to run some numbers, which would normally include projections for sales, profit & loss account, balance sheet and cash flow. The first year of the plan, which is your next full financial year, is likely to become the budget for that year. The second and third years will be increasingly aspirational. So this process needs to be undertaken on an annual basis, which means you’re always working with a business plan on a rolling three year basis.

It is highly likely that the first time you run your numbers, the projections will look completely unrealistic; unachievable, unaffordable etc. So you’ll need to adjust and refine; correcting errors; improving the accuracy of some of your assumptions; scaling some things down; scaling other things up; adjusting time frames etc. until you have a realistic and achievable plan. At this stage you’ll have your road map, with a clear destination and a properly defined route for the business to follow. As I stated at the beginning of this article, it won’t guarantee you success, but it will make success a considerably easier and more likely outcome.

If you haven’t been through this type of process before, you’ll probably need some help. If your business is big enough to employ its own management accountant, he/she should be able to run the numbers; if not, you may need to engage your external accountants. But, in a sense the numbers are the easy part. It’s the development of the strategy that leads up to the point where you can run the numbers that is important to get right. And to do that, you need to debate all the ideas, challenge all the assumptions and make sure that the strategic framework is realistic, robust and achievable. For many small and medium-sized businesses this isn’t always easy because it can be difficult for employees to challenge the boss’s ideas and there is no one else to do so. That’s where you need help from an experienced independent industry expert. Some small and medium-sized businesses have a non-executive director; and this is an area where he/she can play a very important role. If you don’t have a non-exec, there are invariably a number of independent business consultants who could be brought in. However, if this is something you are considering, do ensure that the person you select has had senior management experience within your industry and has a good understanding of your type of business and the market, in which it operates.

Once you have your business plan, it should become a key reference point for you and your management team. It should be the yardstick by which you measure performance and there should be regular monthly reviews to see how the business is performing against the plan. In areas where the business is under performing against plan you’ll need to consider what remedial action is required. Where the business is over performing, you’ll need to consider whether and how this can be further exploited.

Once you’ve started to use your business plan in this way, you’ll wonder how you ever managed before. It will provide focus for many of your management decisions; it will provide direction for your managers and staff; and it will help you to build a much more profitable and sustainable business.

If you’d like to discuss any of the issues raised in this article, in more detail, please feel free to contact me.

The UK Window Industry: Balance Sheets & Quicksand

Whilst there are some very successful businesses within the UK window industry, unfortunately, too many are seriously challenged due to their weak balance sheets. This may not have mattered so much during the long years of growth and comparative prosperity but, in today’s saturated market, it’s a crippling disease that the industry ignores at it peril.

Let me support this statement with some facts.

The Plimsoll Report analyses the financial performance of the 1,000 largest businesses in the industry. The table below shows some interesting data from their latest report, published in April 2014.Figure 1

Only 368 of the 1,000 largest companies saw their net worth increase during the previous year and 160 saw theirs remain static. So less than 50% actually increased their net worth. The report also shows that the average net profit for this group of businesses, during the last year was 2.3% of sales, which is a very low average indeed and suggests that there are a significant number of serious loss makers, balancing out a few star performers.

The pie chart below shows Plimsoll’s categorisation of these 1,000 businesses in terms of their strength and sustainability. 227 are classified as being “in danger” and another 90 categorised as “caution”.Figure 2

So, although 578 are either strong or good, a very large proportion of these businesses are relatively weak and, as we see from the above table, are either stagnant or declining.

The report also points to increasing polarisation between some highly successful businesses, building on their success and, at the other extreme, a very significant number of businesses in decline, to the extent that, without some form of intervention, they are at an increasing risk of failure.

Remember, we’re talking about the top 1,000 businesses in the industry, which according to Insight Data has around 14,000 businesses active within it. So, if this is the picture painted of the top 1,000, it’s fair to assume that the collective position of the smaller businesses is even worse.

To test this hypothesis, I undertook a small experiment.

From the GGF website I selected 10 businesses that were GGF members. I disregarded the larger names that would have been part of Plimsoll’s top 1,000 and I also disregarded all smaller businesses, of which I had any prior knowledge. So all ten that I selected were completely unknown to me; but to try and provide some regional balance, I ensured that my selection was distributed around the country. Having made my selection – and it’s important to note that I selected the companies, without any prior knowledge of their financial status – I then obtained their latest accounts from Companies House. For all but one company, the accounts were abbreviated, in line with small company rules.

The table below shows, in an anonymised format, some key balance sheet figures for all ten companies.Figure 3

Of the ten, there are two really good businesses (Company A & Company B) with strong or fairly strong fixed asset bases, good liquidity, represented by high net current assets, and significant shareholders’ funds (net assets). What isn’t shown, in the table, is the fact that Company A substantially increased its net worth over the previous year. So here we see two businesses in comparatively strong positions.

By contrast, Company J is balance sheet insolvent, having net liabilities of circa £20k. It’s difficult to tell from abbreviated accounts how the business is able to continue trading. It has net current liabilities of £30k, indicating a significant liquidity problem; and it has minimal fixed assets of £12k. So it’s either hanging on by the skin of its teeth, lurching form crisis to crisis, or it’s being supported by a kindly creditor or shareholder. Realistically, this business needs to embark on a major transformation strategy, which, in the absence of any significant cash, may be very difficult. But without this, the prognosis is unlikely to be very good.

The remaining seven businesses are all solvent, from a balance sheet perspective; but their nets assets (shareholders’ funds) range from virtually nothing to not a great deal; so none of them is in a strong financial position and two of them, Companies G and I, have net current liabilities, suggesting a very tight liquidity issue. Of the seven, only Company G has significant fixed assets; but that’s offset by its net current liabilities.

Based on this analysis, I’ve classified 20% as stars or stronger performers, 40% as chugging along but quite vulnerable, 30% as more seriously challenged and 10% as insolvent. This is a significantly worse position than that shown by Plimsoll for the top 1,000 companies. But if the systems companies and some of the large trade fabricators were to analyse the balance sheets of the companies, making up their customer networks, I have little doubt that they would find a very similar pattern. And this is the nub of the industry’s problem. We have a comparatively small number of larger capital intensive players, at the core, dependent on supply chains that are built on quicksand.

Roughly, 80% of the industry’s output to the final customer is via these small businesses, 80% of which range between vulnerable or insolvent; and that isn’t a foundation for a successful long term future.

So what can we do about it?

In my view we need to consider this very serious challenge on two distinct levels, namely strategic and cultural.

At the strategic level we need to move away from the current laissez-faire supplier-customer relationships, with each level of the supply chain and each business, within the supply chain, doing its own thing, in its own way, and often not very well. And we need to move towards strategic alliances that enable entire supply chains to act in a co-ordinated way, based on common standards, systems and processes and under the umbrella of a single brand.

A homeowner in Newcastle upon Tyne, buying from a fabricator/installer of Systems Company X should receive the same product, quality and service levels as a homeowner in Truro, buying from the Systems Company X fabricator/installer in Cornwall. The processes and systems deployed should be identical throughout; and the total brand experience should be exactly the same, just as it would be if these two customers were buying from a large national brand such as Everest or Anglian.

I’ve waxed lyrical, in previous articles, about the issue of small businesses in our industry having no brand, on which to base their business/marketing strategies. The systems companies and large trade fabricators have commoditised the product to an unprecedented extent; and to an extent that does not exist in other building product or home improvement markets. Other than the 20%, or so, held by the large national brands, most of the market is price driven, with an unrealistic belief that good selling can deliver premium prices in the absence of a brand. Good sales reps can undoubtedly achieve higher prices than poorer sales reps; but there aren’t enough of them; training is a never ending journey because of the high turnover rate, within sales forces; and, in any case, the higher rates that the good reps do achieve are relative to the levels of their own sales forces not to the levels of a premium brand.

It’s no wonder that we have so many unprofitable or marginally profitable small businesses within the industry. On their own, they’re not big enough to develop strong brand positions. They rely on local reputation, which is very difficult when, at best, their product is only purchased, by the end user, a few times in a lifetime. Some do break through to become significant local or regional brands; but these are a small minority and, even then, their own perceptions of their brand strength can sometimes be considerably greater than an independent brand recognition survey would assess them to be. Many of these small businesses are left, by the systems companies and large fabricators, to fend for themselves, often without the management and business skills that they need to run a successful, profitable business.

There can be several different ways of creating more cohesive networks under a single brand; and the precise structure is not the key issue. However, there are four important requirements.

The first is that there is a core organisation, at the heart of the network, that implements and monitors performance standards over the product range, productivity, operational efficiency, quality, systems, process and service levels. This could be a systems company, a large fabricator or some other third party; but all businesses, within the network, must be contractually bound to adhere to those standards.

The second is that each business, within the network, must have real and meaningful business support available to it. This doesn’t just mean marketing support of one sort or another. It means that they need support that will enable them to manage their businesses better, achieve high levels of operational performance, make good profits and build strong balance sheets. Everything from HR to PR; from production to installation; from financial control to administration; from IT to process and systems; from management to organisation structure. Support in all of these areas needs to be available to help the businesses, within the network, build on their strengths and really get to grips with their weaknesses.

The third is that the whole organisation must go to market under a single brand, with co-ordinated advertising, PR and lead generation strategies; albeit tailored to suit local circumstances. This could mean a franchise type arrangement, where the franchisees only use the core brand e.g. McDonalds or Body Shop; or it could be a dual brand with an identifiable independent business selling a branded product range – System X from ABC Windows. Either way, there should be a single, state of the art website, enabling the brand to be properly managed, developed and controlled, rather than many small, often not very good, websites with a wide range of uncoordinated brand messages, giving rise to hopelessly confused brand values.

The fourth is that all this has to be paid for; and each level of the supply chain – systems company, trade fabricator and retailer/installer – must accept their share of the cost. Again, there are many different ways of achieving this; but one thing is for sure, neither the systems companies nor the large trade fabricators can fund it on their own; so it must be a cost to the entire network, but proportional to each layer of the supply chain and to each business within it.

Developing a network with a good, well managed product range, supplied through a group of disciplined businesses, all optimising their operational performance and service levels, will bring significant financial rewards at all levels of the supply chain. And if this happens under a strong brand, the network, as a whole, can determine where it wants to position itself in the market and the price levels appropriate to that position.

This last point is incredibly important. Not every network can be a premium brand, going to market with a premium price. Some will need to be value brands and some will need to be budget brands. The cost structures, within the networks, will need to differ accordingly, as will the brand values that are developed and promoted.

That’s enough about the strategic level. So let’s now consider the cultural challenge.

To achieve the change, from where we are to where we need to be, a significant cultural shift is required.

I’ve talked to many senior people, from within the industry, about the need for the sort of changes that I’ve described. And there seems to be an acknowledgement that the products have been commoditised and that this has given rise to some serious difficulties. There’s also an acknowledgement that, if the industry is going to thrive once again, substantial change is required. But when it comes to the specifics of what that change should be, the barriers often go up and the reasons why things can’t be changed seem to overwhelm the reasons why things can and must be changed. The result, not surprisingly, is inertia and a retreat to comfort levels, which is likely to lead to continued decline.

Somehow, the bigger players must start thinking outside their traditional boxes. So much of our thinking is still influenced by the sales driven philosophies of the 1980s and 90s; but those days are over and the industry needs to move on. The face of retail and direct sales has changed beyond recognition, due to the on-line revolution; and we need to look closely at what happens in other more progressive markets and at the cutting edge of both B2C and B2B developments. There’s so much to learn and we’ve been so slow to learn it. Perhaps we need to bring in more people from more dynamic retail environments; not just to teach us but to lead us and to give us the confidence we seem to lack. One way or another the major players must initiate the changes that the industry needs because it can’t continue to exist on a foundation of quicksand.

But a different culture is not just needed amongst the larger players, it’s needed within many smaller businesses as well. Many of them really must raise their games; and this is something, with which some will struggle to come to terms. But they need to manage their businesses better so they can generate more profit, strengthen their balance sheets and create greater long term sustainability. But without help and support, of the type I’ve described, this is often very difficult for them to achieve; and sometimes impossible. So whilst I’m urging the systems companies and larger fabricators to develop more controlled networks, with far more support for the businesses in their supply chains, the smaller players need to accept that they may need some help and that they will lose some independence, as the price they pay for support from the network, of which they become part. At the moment the supplier/customer relationships, within the various supply chains, are a free for all that are, in practice, damaging many more businesses than they are helping. The network approach is that each business, within the supply chain, is part of and contributing to a larger team. But the strength of the larger team, within the market, is greater than the sum of the strengths of the individual businesses.

If we can start to address these cultural issues, the changes that are needed will start to flow.

On a final note, there are actually some encouraging signs that movements in the right direction are beginning to happen, albeit very slowly.

The US building products giant Masco is now well established in the UK window industry; and, whilst it’s still a bit of a sleeping giant, it’s hard to believe that it won’t want to develop a more dominant position over here. When it does, it will start to put some real pressure on the indigenous industry to change.

Similarly, Internorm, the leading European window brand, seems to be showing some increased interest in the UK market and this may also add to the potential pressure from Masco.

On the home front, Epwin’s recent news that it’s floating on the AIM market and appointing a new Chairman is very interesting. Peter Mottershead was a previous CEO of Anglian and brings some serious retail experience to Epwin. So we could see some interesting developments and perhaps a much greater emphasis on the Swish brand, which although a household brand name, remains only a small part of Epwin’s business. Perhaps it’s another sleeping giant that is starting to stir.

Network Veka is currently by far the most advanced network in the UK window market and has created a very successful organisation focused on first class service levels and operational performance. It’s associate Veka UK, now owns the Halo brand, which was originally designed as, and intended to be, a consumer brand (As the first CEO of Bowater Halo, I wrote the original business plan!). It’s not hard to imagine a “Halo” branded product supplied through Network Veka; that could be very powerful, so who knows.

The Conservatory Outlet is almost the opposite of Network Veka. It’s a fast developing network of independent businesses, all going to market under a single brand, based on a modern, on-line marketing strategy, using a single website. It seems to have some strong legs and, whilst still comparatively small, may be showing the way to some of its larger rivals.

Imagine combining the operational disciplines of a Network Veka type organisation with the brand management and marketing strategy of a Conservatory Outlet type organisation. Eureka! We’re getting there slowly; and someone is going to join the dots up before very long. And when it happens that organisation will be catapulted into a commanding position, within the market, with others being forced to play catch-up.

It will be interesting to see who gets there first. Epwin with Swish? Veka/Network Veka with Halo? The Conservatory Outlet by extending its business model? Or perhaps a current outsider? Polyframe, the Halifax based trade fabricator, has been taking market share very successfully, resulting in controlled and profitable growth. This has involved a number of strategic alliances with other fabricators/retailers; so perhaps its next move could be to extend its business model to incorporate a Conservatory Outlet type brand and marketing strategy. Who knows?

The changes that I’m advocating are starting to happen, albeit in a small way and perhaps without all the dots being joined up yet. But to return to my starting point about weak balance sheets and foundations of quicksand, things need to speed up. At the moment there is still too much resistance to change, a lack of vision, too little mould breaking strategic thinking and not enough energy and resources being applied to shaping the future. If we’re going to create a firm foundation for the future and address this debilitating balance sheet problem, this must change; not tomorrow or sometime/never; but today.

Better Times Ahead

Most economic indicators are now pointing to a recovery.

• The economy is growing
• Manufacturing and services are up
• Unemployment is continuing to fall
• Inflation is below 2%
• Living standards are beginning to recover, albeit slowly

Under these circumstances, business confidence is on the increase. However, over the last few years, small and medium sized businesses have had a tough time.

• Profits have been low
• Balance sheets have weakened
• Cash has been under pressure
• Investment in plant, equipment and infrastructure has been supressed.

So, it’s inevitable that many businesses remain very cautious. Nevertheless, as markets continue to recover, businesses do need to gear up; and being over cautious is likely to lead to lost opportunities and being left behind by your competitors.

So Think About Your Business

• Is your business model working effectively and still relevant to current and future market conditions; or does it need to adapt?
• Is your marketing strategy working; or have you been left behind by the fast moving on-line revolution?
• Are your products/services state of the art; or are they getting tired?
• Are your processes and systems as efficient as they need to be; or are they becoming cumbersome?
• Is your productivity as good as it should be; or are your direct costs too high?
• Are your quality standards under effective control; or are you getting too many complaints?
• Is your organisation structure fit for purpose; or has it become dysfunctional?
• Are you supporting your employees effectively; or are too many underperforming?
• Are your customers happy; or are they drifting to your competitors?

In all honesty, very few businesses can tick all of these boxes. Sadly, some can tick very few, whilst the majority fall somewhere between these two extremes and, therefore, have the opportunity to raise their game.

How Can You Raise Your Game?

As an owner, director or senior manager of a small or medium sized business, the first thing you need to do, is to be honest with yourself about the state of your business; good or bad. Then remember that you don’t necessarily have all the skills and experience needed to address the weaknesses your business might have, or exploit the opportunities that the market might present. Recognising that you aren’t superman or superwoman is a strength in itself.

Next, think about how you can spend more time working “on the business” and less time working “in the business”. That probably means more delegation of responsibilities; and remember that a failure to delegate is often more about your own inclination to micromanage, rather than the lack of competency of the people, to whom you should be delegating.

At this point, you can start to take a more considered view about the strengths and weaknesses that your business has, and you can be more objective about the opportunities and threats that exist. So you can now start to plan. Look at where you want to take the business and assess the resources you’ll need. Compare these with the resources you have. Then consider how, and over what time frame, you can acquire the resources you need but don’t have, as well as offload the resources you have but don’t need. This is all about developing a properly focussed strategy; and, once you have this, you can start to work on a more detailed business plan.

Now back to the point about your own skills and experience. For many owners, directors and senior managers of small and medium sized businesses, strategic planning and change management isn’t familiar territory; and if that is true for you, you have three options.

The first is do nothing, carry on as before and chance that everything will turn out alright in the end. It’s high risk but it might just work.

The second is to go it alone and to try and find your way through. If you do that, you may get there eventually, but the chances are you’ll take some wrong turns, get lost, have to retrace your tracks and end up taking much longer to reach your destination, whilst incurring substantially higher costs on the way.

The third is to hire a guide; a business advisor, familiar with the territory, who can steer you to your destination via the shortest and least costly route. Business advisors cost money; but the right business advisor will cost you a fraction of what it would otherwise cost, by the time you’ve taken several wrong turns en-route.

The changing economic climate means that small and medium sized businesses, which have battened down the hatches for the last few years, can increasingly start to take a more proactive position. But most markets are likely to remain highly competitive; so focused strategies, well developed business plans and ever increasing levels of operational excellence are essential to long term sustainability.

Cash v Profit

The UK economy is coming out of recession; that now seems to be the general view of economists, politicians and business. In fact growth in the July to September quarter was 0.8%, which equates to an annual rate of around 3.2% and is the fastest growth rate of all the G7 countries, over the last quarter. Even better is the fact that all sectors of the economy – services, construction and manufacturing – are growing.

This is all great news and let’s be thankful that, at long last, there’s some light at the end of the tunnel. However for small and medium sized businesses, it presents some new challenges and I’d like to highlight some of the more significant ones.

The last recession was longer and deeper than any other recession since the Second World War. But it has shown some very different and perhaps unexpected characteristics.

Consider employment and unemployment. The following tables show changes in employment statistics between August 2011 and August 2013. I’ve extracted all of the data from official figures prepared by the Office for National Statistics.

People in Employment

People in Employment

The number of people, aged 16 – 64, who in theory could have been working has risen by 101,000 (0.3%). But the numbers in employment will always be much lower than the total number in the 16 – 64 age group, which includes students, people who have retired early, people of independent means, people who are sick, disabled etc. However, the really significant factor is that the number of people, in employment, has increased by nearly 600,000, which means that many jobs have been created or existing vacancies filled; and there are proportionately fewer people, under the age of 65, who are economically inactive.

Economically Active & Unemployed

Economically Active & Unemployed

My second table shows that the number of people, between the ages of 16 and 64, who are economically active, has increased by 700,000 over the two year period; and yet, the number of people, who are unemployed, has fallen by 90,000. These first two sets of figures seem to disprove the suggestion that the unemployment figures have fallen, due to people being reclassified as economically inactive and in receipt of other benefits. The new jobs do seem to be real and the fall in unemployment does appear to have happened.

Full Time v Part Time Employment

Full Time v Part Time Employment

My third table shows that the number of people, working part time, has gone up by 269,000; so some of the new jobs have been part time. However, the number, working full time, has increased by 519,000. The notion that most of the new jobs are part time is, therefore, a myth. Most of the new jobs are, in fact, full time.

All of this has been happening at a time when public sector jobs have been cut by 437,000. So the private sector has actively created over a million new jobs, most of which are full time. And this has happened, during a recession, which is unprecedented. It also means that the wealth creating part of the economy has increased its capacity, which is now likely to be underutilised. But that, in turn, means the private sector should be able to support significant growth, as the upturn gathers momentum.

However, there is considerable evidence that salaries and wages have fallen and that living standards have been supressed. Furthermore, despite the loss of nearly 450,000 public sector jobs, over the last two years, public sector jobs now command a 6% premium over private sector equivalents, according to the “Policy Exchange” think tank. This all points to many private sector employees having had no pay rises for some considerable time and to people leaving public sector jobs and taking lower paid jobs in the private sector.

Understandably, the political focus is now moving from economic growth and unemployment to the cost of living. In reality, it is quite normal for real wages to continue falling during the early stages of a recovery. But it’s also normal to see pressure building up for wage increases; and realistically, there is likely to be a period of catch-up over the next two or three years. The challenge for business is to ensure that the higher wages that ensue, are paid for through productivity improvements and don’t just inflate costs. However, that should be possible due to the extra private sector jobs and capacity that have been created.

Another factor to consider is that the rate of business insolvencies has been considerably less, during this recession, than during previous recessions. And much of this is due to the banks, which have tended to leave struggling businesses to continue struggling, rather than calling in loans and appointing administrators. But the downside is that there are now a huge number of zombie companies that can barely generate enough cash to service the interest on their debts and keep their creditors at bay. The UK’s largest insolvency practitioner, Begbies Traynor has calculated that there could be as many as 432,000 businesses in this category.

If we now start to join up all the dots, a picture is emerging of a whole raft of businesses, particularly small and medium sized ones, which have weak balance sheets, high wage costs, upward pressure on wages, suppressed profits and cash flow difficulties. Add to this, a lack of investment in infrastructure, IT, R&D, plant & machinery and training and it’s clear that many of these businesses will struggle to invest and grow as the economic recovery gains momentum. Indeed, there is a developing school of thought that, because they will act as a brake on the recovery, it may be preferable to steer many of them towards administration, thereby releasing their employees to work for stronger businesses that can fully exploit the recovery.

I don’t want to get into the political arguments of whether this is right or wrong but I do want to emphasise, to owners of small and medium sized businesses, the importance of developing robust business strategies that take account of these very real challenges. I’ve written a series of articles about many aspects of planning and managing small businesses but, on this occasion, I want to focus on the difference between cash and profit because having a clear understanding of those differences is an essential part of developing a realistic and achievable growth strategy that is able to capitalise on the current recovery.

Depending on your type of business, it is perfectly possible to run a significantly loss making business, whilst generating a substantial cash surplus; at least for a time. It is also perfectly possible to run a profitable business and have a serious cash shortfall. So let’s look at this in more detail.

First of all consider a Business to Consumer (B2C)/retail business. It receives payment for its goods/services at the point of sale. In some cases it may have even taken a deposit prior to the point of sale. So it’s generating its cash very quickly. However, it may be paying its suppliers and employees a month in arrears. The following table is a very simple profit and loss account and cash flow statement for a £1m turnover business doing precisely as I’ve described.

B2C Business £1m Sales

B2C Business £1m Sales

This business has sold goods or services to the value of £1m and has collected all of the cash from those sales during the year; but it has made a loss of £50k because its total costs have exceeded its sales revenue. However because it is paying its suppliers on net monthly terms and its wages a month in arrears, it has only paid for 11/12ths of its costs; so its cash outflow has been less than its total costs. As a result it has generated £37,500 of cash, albeit, it still owes its creditors £87,500.

If the sales and expenditure figures, in the P&L, remain the same in the second year, the cash gain, in the first year, will have been a one off because the business will pay out 11/12ths of its costs for year two plus the final 1/12th for the first year. As result, it will have a net cash outflow equal to its loss i.e. £50k.

But now see what happens if, instead of remaining static in the second year, the business increases its sales by 20%, whilst maintaining its overheads at the previous level.

B2C Business £1.2m Sales

B2C Business £1.2m Sales

It still makes a loss, this time £10k. But it benefits from collecting all £200,000 from the additional sales but only makes payments for 11/12th of the additional cost of sales. As a result it generates £3,333 of cash. So over the two year period, it has made cumulative losses of £60,000, whilst generating £40,833 of cash

If, on the other hand, the business reduces its sales, in the second year, by 10%, whilst still maintaining its overheads at the previous level, a very different picture emerges; and this is shown in the next table: –

B2C Business £900k Sales

B2C Business £900k Sales

Not only do the losses increase due to the lower sales volume, but the cash drain is even greater. Cash in is reduced by £100,000 due to sales also being £100,000 lower, resulting in a loss of £70,000. However, payments related to the cost of sales, drop proportionately less because they include 1/12th of the cost of sales from the previous year, which were 10% higher. So the cash outflow is £76,667 i.e. £6,667 more than the actual loss. Over the two year period, this means that the cumulative losses would have been £120,000 and the net cash out £39,167.

This is a classic problem for many B2C/retail businesses. They embark on a growth strategy funded out of cash flow rather than profit. Providing they don’t let their overheads expand at a faster rate than their sales, they can keep growing and maintain a positive cash flow, often for several years, whilst continuing to generate losses. However, at some point, the crunch inevitably comes. Growth grinds to a halt; sales decline for a period; the cash disappears and bang! the business goes bust. The home improvement market is an example of a sector that has a large graveyard of companies that collapsed in this way; and some of those failures were quite spectacular.

Now let’s consider the reverse problem.

Take our £1m turnover business but, this time, let’s assume it’s trading Business to Business (B2B); that it’s profitable but gives its customers ninety day terms, whilst paying its suppliers in thirty days. The next table shows simple profit & loss and cash flow statements.

B2B Business £1m Sales

B2B Business £1m Sales

Here’s a nice little business making a modest profit of £25,000 but, because it has only collected 9/12th of the cash from its sales and has had to pay out for 11/12th of its costs, it has had a net cash outflow of £143,750, which it has had to fund.

If its P&L was to remain unchanged during its second year, then it would collect £1m of cash from its sales (3/12th coming from the first year’s sales); and it would pay out twelve months’ costs (1/12th from the first year’s costs). It would, therefore, generate £25,000 of cash.

As with our retail business, the second year’s cash flow would match the profit or loss generated, providing sales and costs remained the same. But let’s see what happens to this business if it grows by 20%, whilst holding its overheads at the same level as in year one.

B2B Business £1.2m Sales

B2B Business £1.2m Sales

A sales increase of 20% would result in a profit of £65k (+160%). Cash flow would benefit from collecting three months’ cash from the previous year, as well as nine months from the second year. But cash from three months of the incremental sales, in the second year, would not have been collected by the year end, so the cash generated would only be £41,667.

The cumulative profit for the two years would be £90,000 but the cumulative cash position would show a net cash outflow of £102,083. It would, therefore, take several years of this type of expansion to recoup the initial cash outflow from the first year. And this assumes that overheads could be maintained at year one levels, which may be unrealistic.

Now let’s see what would happen if we go for a 50% increase in sales. In this case we’ll also assume that overheads would increase proportionately.

B2B Business £1.5m Sales

B2B Business £1.5m Sales

The net profit of £37,500 would be higher than in year one but would be suppressed by the additional overheads. But there would have been a net cash outflow of £6,250 because the cash from three months’ worth of incremental sales would not have been collected. So, in this scenario, there would have been two years of cash outflow, totaling £150,000 despite profits of £62,500, during the same period.

For businesses of this type, growth can be quite tricky. It needs to be planned and it needs to be controlled because, even though the business may be profitable, it may not have the working capital it needs to fund the growth it would ideally like to achieve. In a worst case scenario, it could fail due to over trading.

There are, of course, ways of funding the working capital needed to support growth; invoice discounting being one option. But however it is done, it involves a cost, which impacts on both profit and the amount of cash required. So there is a balance to be struck that keeps the costs manageable, the bottom line sufficiently profitable and the level of growth supportable.

For most small and medium sized businesses, the recovery shouldn’t be a signal for a mad dash for growth because rapid growth has its risks. For B2C/retail businesses, the risks tend to revolve around throwing money at growth because the cash is available in the bank. But costs then tend to get out of control, which hits profitability and ultimately leads to a crisis. For B2B businesses the risks tend to be around over trading, the inability to fund growth and the risk of running out of cash, which also ends up in a crisis.

Stronger businesses will obviously want to capitalise on the recovery and should of course do so; but it’s important that their growth strategies are properly planned, resourced and controlled. It’s also vital that funding is in place to support the growth plan and that the incremental sales make a real contribution to the bottom line. Whether you run a B2C or B2B business, both cash and profit need to be properly managed; and focusing on cash at the expense of profit or profit at the expense of cash is a road that invariably leads to a crisis. Get all this right and the business should grow and prosper; get it wrong and the business could be in trouble.

But what about the many zombie companies that now exist? Well, I’m afraid that some harsh truths may need to be faced. The first is that most of them are where they are due to bad management not bad luck. The second is that some of them are probably past the point of no return and just don’t have a viable future. For those that do have a chance of recovery, they really must address the underlying strategic, operational and management deficiencies that are responsible for their current predicament. Only when they’ve done this and can demonstrate a turnaround are they likely to get the support that they need, from suppliers, customers, banks and finance houses, to put in place even a modest growth strategy. But with the right approach and the right help, I’m sure that many of these zombie companies could be brought back to life.

Crackers at Christmas

The summer holidays are over, the schools are back and, increasingly, our focus is now on Christmas. We Brits love our Christmas; don’t we just? But, as much as we might love it, Christmas creates huge distortions in the annual trading cycle. For some businesses, for instance many high street retailers, the run up to Christmas and the January sales account for a large slice of their annual sales; so, if they don’t do well over the December/January period, their budgets are knocked for six. For other businesses, probably the majority, sales in the run up to Christmas fall away dramatically, order books run down very quickly and, during the aftermath of Christmas, output is depressed until order books recover. Furthermore, a full month’s overheads are incurred during December, whilst trading is restricted to about three weeks. So you can see why many businesses find their cash flow very stretched at that time of year and why January to March is the danger period, when many weak businesses fail.

So, if your business is one of those that are hit badly at Christmas and the early part of the New Year, what can you do about it?

Well what you can’t do is fight it. It’s part of our British culture and there’s not much you can do to change that. The real issue is how you manage your business through this period with the least amount of damage.

The first action that you need to consider is right now. During the autumn you need to build your order book as much as you can. Increase your advertising, while your market is active, and maximise your flow of enquiries/leads. At this time of year, you’re targeting customers, who are a long way through the buying cycle and are ready to buy; so create some urgency by running a time related offer that requires your product or service to be delivered before Christmas. The orders you take need to be well priced, giving you good margins that will sustain your business and deliver some decent profits. So don’t be tempted to cut prices. The offer you run needs to be product related – an upgraded spec: a free extra etc. And what you’re looking to do is make it something, whose perceived value is greater than its true cost to the business.

However, at some point prior to Christmas, you’ll cross a threshold. Market activity will start to drop off very quickly and your order book will reach the point where you can no longer offer a pre-Christmas delivery. There’s no clear rule as to which of these will come first; but whichever does come first should trigger a complete change of tactics.

Your advertising must change to target a different type of customer. You’re now looking for customers, for whom buying your product or service isn’t influenced by the timing of Christmas. You’re after bargain hunters looking for good deals. They’re not tempted by free upgrades; for them, it’s all about price. You want orders that are placed before Christmas but with delivery in the New Year. The incentive is a significant discount that makes your product or service exceptional value for money. Whilst the market may be generally inactive, serious bargain hunters, with a genuine interest in your product or service, will still respond, if the deal is good enough. For you, low priced business is better than no business; and your aim is to keep your business’s output up, in the aftermath of Christmas. So not only is this cut price offer for a limited period in the run up to Christmas, it must also stipulate that the product or service must be delivered within a limited time frame after Christmas; perhaps by the end of January or maybe February. The actual cut off will depend on the length of your delivery period. Your objective will be to attract enough low priced volume to keep your output up, in the immediate aftermath of Christmas but not to impede the delivery of higher priced orders that start to build up in the New Year. It’s a tricky balancing act designed to fill a gap; and you probably won’t get it 100% right. But even so, it’s far better to have this type of strategy in place than to let your business be a helpless victim of market distortions caused by the British being crackers at Christmas.

Adapt or Die

The only certainty about any market is that it is in a state of permanent change. Some markets change very quickly, others much more slowly; but change is both continual and remorseless.

For businesses, of all types and sizes, adapting to market change is fundamental to on-going sustainability; and exploiting that change is critical for future growth and success. However, even some of the largest players misread the signs and get it wrong.

Think about Nokia; not very long ago the giant in mobile phones. Now Nokia is struggling against the likes of Apple and the smartphone; it just didn’t adapt soon enough.

Think about Comet, the now defunct retailer of white goods and brown goods; it didn’t adapt its traditional retail business model to embrace the on-line revolution. By contrast, Dixons Retail plc has reinvented itself several times. It started out as a camera and photographic retailer, based on in-store concessions. It progressively moved into brown goods, launched PC World as a retailer of computer hardware, moved into white goods, through the acquisition of Currys, and developed a huge on-line presence in parallel to its retail stores. It’s now Europe’s largest specialist electrical retailing and services company; and it has created massive competitive advantage, with which the likes of Comet just couldn’t compete.

So here are three interesting and different examples of how businesses have adapted to market change. Comet didn’t adapt and collapsed. Dixons Retail has continually adapted and, from small beginnings, is now a leading European retailer. Nokia didn’t adapt soon enough and has been left behind, with an enormous challenge ahead of it. But, of course that was the story of Apple. Apple lost its way a few years ago and came back with avengeance. But it came back through technical innovation that was at the cutting edge. So it actually drove market change rather than adapted to it; and that’s very difficult indeed.

Sadly, the world of industry and commerce has a huge graveyard of businesses that failed to adapt to changing markets; and, whilst there have been some spectacular corporate failures over the years, the overwhelming majority are small and medium sized businesses. So why do so many SMEs fail to adapt?

I’ve spent many years working with and supporting SMEs through periods of change and transformation and, in my experience, there are probably three critical factors.

The first is that many SMEs are actually very isolated from the markets they serve. They are minor players with small market shares and the only part of the market that is visible to them is that fraction, with which they regularly engage. They often don’t have sufficient budgets to fund professional market research and they tend to be poorly supported, in this respect, by larger customers and suppliers, who are frequently much better informed. So they are just out of the loop, unless they make a concerted effort not to be; and that leads me to the second reason.

The second reason is that many owner managers and directors of SMEs are too focused on the day to day issues of running their businesses and have a strong tendency to micro manage. Because they don’t empower their key employees, they don’t have the time to look over the horizon to see what’s going on in the wider market. It’s a vicious circle that leads to an introverted culture, within the business, and a strong tendency to remain within personal comfort zones.

The third reason revolves around skills and experience. Very often, owners and directors of SMEs may have backgrounds in sales, production, logistics, accountancy, operations, etc. However, they may not have broader based commercial or strategic skills and may, therefore, simply not recognise the importance of market intelligence or the need to adapt to changes that are taking place in their markets. In practice, once those changes have become obvious, they may respond but often at a very late stage, by which time they have lost a considerable amount of competitive advantage and are well and truly on the back foot, fighting for survival.

Having identified the problem faced by many SMEs, what can they do about it?

The answer is not simple because most of them can’t fund expensive market research; and moving ahead with a change programme that has not been properly evaluated could be even more risky than doing nothing. This isn’t a problem that has a clear cut solution in the way that a new piece of machinery could solve a productivity issue, at a known cost.

The main change that owners and directors of SMEs need to try and make is to put aside some time every week or every month to look over the parapet and see what’s going on in the wider market. Managing a business isn’t just about working in the business, addressing the various daily chores and tasks. It’s also about working on the business; monitoring progress and developing the strategy. Part of this should also include looking at the wider market and trying to pick up the trends and developments, within it. Talking to customers, suppliers, competitors, trade associations and providers of professional services can all help build up knowledge and information. The trade press and market surveys from organisations like Mintel and Keynote are good sources of information. Reading the business sections of the daily papers will provide an awareness of general business sentiment and trends. Attending trade conferences and exhibitions is also an important source of market intelligence.

All of this needs to stimulate discussion and debate within your own management team. But it all takes up time and to find that time, you’ll probably have to do less micro management, give more responsibility to your key people and stand back more. Ironically, you may well find that your business runs much more efficiently as a result. Over the years, I’ve found, time and again, that owner managers and directors, who micro manage and don’t stand back, become the main obstacle to growth and sustainability. In extreme cases, I’ve seen businesses collapse as a result.

By being better informed, you can start to see where the market opportunities are emerging, where the threats are developing and where the trends are heading. So you can then look at your own business and start to think about the general direction it is going in and whether this is exposing it to greater threats or positioning it to exploit emerging opportunities. In order to minimise the threats and maximise the opportunities, you may need to rethink your strategy and business plan; or in some cases actually develop a strategy and business plan.

For many owner managers and directors of SMEs, this may be taking you outside your comfort zone but it’s too important to ignore. So if you’re in this position, you really should bring in outside support. This could be in the form of a non-executive director or it could be via a business consultant or mentor. The way you do it is of less importance than the fact that you have available sound advice and support provided by a rounded business professional with a successful and relevant track record.

The objection to this is usually the cost; and yes there is a cost. But with the right person that cost will be repaid many times over, as your business’s success and sustainability grow. Successful SMEs are increasingly widening their horizons through some form of external support and once they’ve taken that leap, few revert back to the previous isolation that undermined their ability to adapt to the circumstances of an ever changing market.

Is your lead generation targeting the right prospects?

“I never respond to Junk mail; I just throw it in the bin”.

“If people knock on my door trying to sell me anything, I just shut the door on them”.

“When people phone me up selling things, I just put the phone down”.

How many times have you heard comments like these? Indeed, how many times have you made comments like these? And yet there are lots of businesses in the UK that rely heavily on direct mail, door to door distribution, telesales and door to door canvassing. These businesses collectively spend huge sums of money on activities of this type; and, if they didn’t work, it’s reasonable to assume that the companies involved wouldn’t invest in them. So how can we reconcile the perceptions of most consumers with the experience of many B2C businesses?

The simple answer is that, it’s all about appropriateness and timing. Let me give you an example. A close neighbour of mine retired a couple of years ago as CEO of a reasonably substantial business. He and his wife have decided that they want a new kitchen; and he was talking to me about it. Whilst they had the money in the bank, ready and waiting, they were busy with family and other things and just hadn’t found time to start researching the local market for an appropriate supplier/installer. And he said that, “if any kitchen company knocked on his door or phoned him, he’d almost certainly, at least, give them a fair hearing”. This is a man who normally never buys from door to door or telephone sales people and who is very adept at saying no to them. But despite that, in these particular circumstances, a direct approach would actually be welcome because he and his wife are in the market.

Lead generation isn’t primarily about creating markets or developing brands; it’s about generating enquiries from people, who are already predisposed to buy. It’s about getting the right product/service offer in front of the right people, in the right place, at the right time. Get all of that right and you’ll sell; get it wrong and it’s much more difficult.

Lead generation invariably means some sort of unsolicited sales approach and, if this is undertaken in a random, untargeted way, it can have a very damaging effect on the brand and its brand values. A few years ago, I was involved in some market research, for a client, who relied heavily on random, untargeted lead generation activities, on a large scale. And we discovered that for every customer gained through these unsolicited sales approaches, three other people, who could have been potential customers, in the future, were alienated. It became clear that whilst this company was successfully exploiting the market in the short term, it was undermining its brand for the longer term. And sure enough, as the market became increasingly alienated, the business started to lose market share; sales went into decline and eventually the business went into administration.

The problem with many unsolicited sales approaches is that they tend to be very poorly targeted; so most recipients of them aren’t like my neighbour; they’re just not in the market, for that product/service, at that time. As a result, they tend to see the approach as intrusive and can often feel threatened by it; so they develop a very negative view of the brand and/or the business.

Obviously few businesses, selling into B2C markets, can guarantee to target only those people that are in the market; that’s neither practical nor possible. But the more you can target your lead generation towards people that are in the market for your type of product/service, the more cost effective it will be. Conversely, the less you target, the more damage you will do to your brand and the less cost effective your lead generation will be.

I’d now like to turn to a third aspect of targeting, namely the profile of the prospect, who will be most likely to buy from you. Even if you offer the right product/service at the right time, you may still have a fight on your hands if your brand values don’t gel with the aspirations of your prospect.

Much of this is subliminal; but it’s still very real. Different types of people will tend to buy similar products/services from different types of businesses.

Some buyers are looking for premium brands; some for budget brands; and some for value brands. Some people place local suppliers above national; some the reverse. Price, specification, delivery period, quality, local reputation, image, length of time in business, knowledge and experience plus many other factors influence different people in different ways in their selection of a product/service. And this is why the customers of one supplier of a product/service may have an entirely different profile from that of another business, supplying a similar product/service. And if the first business tries to sell to prospects, whose profile is similar to that of the second business, it will find it much tougher to win sales; conversion rates will be much lower and selling costs will be much higher. Think about Marks & Spencer v Primark: Asda v Waitrose: Everest v the local window company: Magnet v the Alno kitchen studio. Different people shop in different ways for broadly the same thing.

To summarise all this so far, B2C businesses need to target the right profile of customer with the right product/service, in the right place at the right time. The closer you get to this, the more sales you’ll achieve; the more you’ll strengthen your brand position; and the lower your selling costs will be. The further away from this you stray, the lower your sales will be; the more you will undermine your brand; and the higher your selling costs will be. So the $64,000 question is, “how can you get your targeting right”? So I’ll try and give you some pointers.

The first thing to focus on is your existing customer base. These are people who have bought from you already; so they’ve accepted your product/service, your brand values etc. and by definition, these are the type of people that will buy from you or your business because they’ve already done so.

They are, therefore, likely to be warm to approaches for additional sales; additions or enhancements to what they have already bought; upgrades; linked sales; replacements of old models etc. And this should result in low lead generation costs, high conversion rates and good margins. But for this to be effective, you need an appropriate Customer Relationship Management (CRM) System to support the effective control of the process. I can’t stress how important this is and I’m regularly surprised by the number of B2C businesses that either don’t have one or have one but don’t use it effectively.

A good CRM system provides a full audit trail of the entire interface between the business and the customer, including contact details, a record of what the customer has purchased, when he/she purchased, the price paid, issues/complaints that may have arisen, how these were resolved etc. It should also record selling opportunities for the future. For example if you’ve supplied and installed replacement windows, there may be doors that have not yet been replaced or an opportunity for a conservatory. If you’re installing central heating or a new boiler, there’s an opportunity for a service contract. If you supply kitchens and bathrooms and you’ve fitted a kitchen, there may be an opportunity for a bathroom. These are just a few examples, within the home improvement sector; but most B2C businesses will have similar opportunities to record on the system. Add to this, records of conversations with customers and you have some really good information, which you can use.

If you have a CRM system full of the type of information I’ve described, you can start making direct approaches (subject to appropriate approvals for TPS, MPS etc.) to your customers with product/service offers that are both timely and relevant; and if they are timely and relevant, you have a much greater chance of a good response than if they are not. In effect, you will be developing strategies for individual customers rather than a “one size fits all approach”. In a very much more sophisticated way, this is what Tesco does with its Clubcard and the promotions it develops from it.

Still focussing on your customer base, the next step is to generate new customers from your existing ones. Most of your customers will have friends, relatives and neighbours that are similar to them; similar circumstances and similar values. So a higher proportion, of these people, is likely to look favourably on your products/services and brand than is an entirely random group of people elsewhere. So, once again, you’ll find them easier and cheaper to sell to than people, to whom you are entirely unknown.

There are really two things you should do.

The first is to have a good recommendation scheme with an appropriate reward for every customer that makes a successful recommendation and an incentive to the prospect that the customer is recommending. This means that both the customer recommending and the prospect are incentivised. Once again, this has to be properly managed on the CRM system and effectively promoted to your customer network. It should all be date driven with triggers for each part of the process so that every customer receives the correct details at a predetermined time and frequency. Good well managed recommendation schemes can be a highly effective way of generating new customers very cost effectively.

The second is to promote your products/services in the neighbourhood of your customer, shortly after that customer has completed his/her purchase. A variety of media can be used, depending on the type of product/service involved. It could be anything from knocking on neighbours’ doors to leafleting or direct mail. But the main point is that these people are more likely to have similar profiles to those of your customer than would be the case with a random group. And whilst the response may not be as strong or positive as it would be with recommendation schemes, it is likely to be stronger and more positive than would be the case with a random group.

We’ve looked at additional sales to existing customers and developing new customers from existing customers. But now we now need to consider how to target entirely new customers that don’t fall into either of these groups.

The key lies in understanding the detailed profile of the type of people that are most inclined to buy from your type of business and then identifying where they live.

Consumer profiling has become a very sophisticated process. And there are some very effective profiling tools on the market. However, rather than discuss these products in general terms, I’m going to concentrate on one particular product called ACORN. But when reading about ACORN, you should bear in mind that there are other similar types of products, some of which are even more sophisticated and some sector specific. However ACORN is a very useful product that is applicable to most B2C businesses; and it is the brainchild of a company called CACI.

So what is ACORN?

ACORN is a geodemographic segmentation of the UK’s population which segments small neighbourhoods, postcodes, or consumer households into 6 categories, 18 groups and 62 types.

 ACORN provides understanding of the people who interact with your organisation. It helps you learn the who, what, where, when, how, and why of their relationship with you.

This can help you to target, acquire, manage and develop profitable relationships and improve business results. The classification also gives a better understanding of places and the people who use them.

Who uses ACORN?

Retailers, financial organisations, and over 200 public sector organisations use CACI data to provide an accurate picture of the needs of their customers and local communities.

ACORN is used to understand customers’ lifestyle, behaviour and attitudes, or the needs of neighbourhoods and people’s public service needs. It is used to analyse customers, identify profitable prospects, evaluate local markets and focus on the specific needs of each local community.

You can learn more about your customers’ behaviour and identify prospects who most resemble your best customers by adding ACORN codes to a customer database.

Such an understanding of the ACORN characteristics of a market can also be used to drive effective customer communication strategies.

CACI Ltd is the company that has developed Acorn and it describes itself as follows:-

CACI was founded in 1975 in the UK and operates from several offices across the country.

Headquartered in London, CACI Ltd is a wholly owned subsidiary of CACI International Inc. CACI International Inc. is a publicly listed company on the NYSE with annual revenues in excess of US $3.8bn and approx 14,000 people worldwide.

CACI offers an unrivalled range of marketing solutions and information systems to local and central government and to businesses from most industry sectors.

The ACORN User Guide provides a detailed description of ACORN and gives a full description of the lifestyles and values of each of the 56 ACORN types. You can view and print the “ACORN User Guide” by following link below: –

ACORN User Guide

The first step for most B2C businesses is to profile their existing customer base using ACORN. Each customer record will be tagged with its ACORN type and the entire customer database can then be compared with the base population. From this you will see the ACORN types, with which your business does very well and those, with which it scores less well. Typically most businesses score highly with a few ACORN types – perhaps five or six – and then moderately well with another five to ten groups. Thereafter the scores tend to fall away.

The high scoring ACORN types are those, whose lifestyles, life stages, incomes, values etc. gel with the brand values of your business. These are the people most likely to respond to your promotions and the most likely to buy from you. Apart from existing customers and customer related prospects, these people represent the most cost effective target group for your business. As you move further away from these key ACORN types towards ACORN types that are less well disposed to your brand, response rates and conversion rates will decline and the cost of generating sales will increase.

Once you have established which ACORN types are key to your business, you can obtain maps, showing the concentration of these people, by postcode delineation and you can buy or rent mailing lists, including only people that fall within your key ACORN types. With this information you can develop well targeted advertising and lead generating campaigns, using a wide range of media that can be structured to focus primarily on your key ACORN types. And because you have a considerable amount of detail about these peoples’ lifestyles and values, you can ensure that the advertising messages are relevant and appropriate for the target audience involved.

As I’ve already said, I’ve focused on ACORN but there are other similar products available that do much the same thing. What is important for B2C businesses is that they start using these types of tools to improve the efficiency and effectiveness of their marketing and advertising and that they take a more structured, focused and targeted approach to lead generation. In so many markets, creating competitive advantage through product USPs, quality and service issues is becoming much more difficult, as playing fields level out; so competitive advantage is becoming increasingly dependent on smarter marketing, an important part of which is targeting the right people with the right offer at the right time.

If you would like to discuss any of the issues in this article with me or would like any further information.

Log on to my website: www.apbusinessconsultants.co.uk

Email me: anthony.pratt@apbusinessconsultants.co.uk

Call me: Office: +44 (0)1962 715899 – Mobile: +44 (0) 7770 816468

Marketing has never been more important. But what exactly is marketing?

To some people this may be a silly question; but, there are many businesses, in many different sectors, that talk about marketing but mean advertising and promotion. Undoubtedly, advertising and promotion are part of marketing but, on their own, they are not marketing.

So what is marketing?

Probably the best place to start is the Chartered Institute of Marketing (CIM), which is the world’s largest organisation for professional marketers and is based here in the UK. The CIM’s definition of marketing is: –

“The management process responsible for identifying, anticipating and satisfying customer requirements profitably”.

I would argue that advertising and PR, whilst extremely important to most businesses, represent a relatively small part of the marketing mix. However, they may well account for a disproportionately large share of the budget, particularly in businesses that sell B2C. This implies that there is a significant risk factor because, if a business gets the identification and anticipation elements wrong, the advertising and PR expenditure, which is part of satisfying customer requirements, may be wasted, in part or even entirely.

I’m afraid to say that I have seen this happen all too often, particularly in small and medium sized businesses, within which there tends to be less sophistication and fewer really experienced marketers. Typically, SMEs tend to develop strong operational and selling skills but marketing gets tagged on to the sales director’s responsibilities. He/she then becomes the sales and marketing director with a relatively junior manager heading up marketing, which is predominantly advertising and PR.

I’ll come back to how SMEs might consider addressing this problem, without spending large sums of money that they don’t have. But first I’d like to look at what a more rounded marketing process might look like.

We should probably begin with asking, “Who is our customer?” Because, if we get that wrong, everything that follows will also be wrong.

Whichever market your business is in, it is likely to consist of an array of sectors and segments; and even within these, there will probably be many different profiles of customers at both B2B and B2C levels. It is generally a mistake for SMEs to try and cover too wide a spectrum; and the risk of trying to do so is that the business never really succeeds in becoming a significant player in any part of the market. So there is a need to evaluate the market you’re in and build up a profile of the type of customer, with which your business is or can be most successful. In a B2B environment, this may require some market research. In a B2C environment, there are some extremely sophisticated and accurate profiling tools available. In both cases, these don’t have to cost huge sums of money; but, even so, relatively few SMEs use them.

Once you know the profile of your target customer everything else should be focused on optimising your sales to that target. This doesn’t mean that you turn away sales from customers outside your target profile; but it does mean that you don’t go looking for them and you don’t compromise your position, with your target customer, by taking them.

Having identified your target customer profile, you then need to assess what products and services those customers require. This needs to be objective and realistic; so, once again, some market research may be needed. Then comes, what I think is perhaps, the biggest challenge of all. Of the products and services your target customers require, which ones can you supply efficiently, effectively and profitably? Once again, this needs to be dispassionate, objective and numbers driven. If you can’t make money from it; don’t do it. If you can’t do it efficiently don’t do it. And if you can’t do it effectively; don’t do it. Inevitably, the argument will be put forward that, “We make money on product A; but, in order to sell it, we also need to supply product B, on which we lose money”. At the extremes, the solutions are easy. If you make a substantial profit on product A and the losses on product B are not significant, you sell product B. If the profit on product A is small and the losses on product B are large you don’t do it, even if that means you don’t sell product A. The dilemma comes when the balance between the profitability of the two products is less obvious; and it is in this area that many SMEs get themselves into trouble. Often, they don’t have a clear understanding of the numbers and they do favours for their customers, without fully appreciating the cost to themselves. But with a robust marketing strategy, this would be less likely to happen.

In addition to products and services that are current today, marketing also needs to look at trends and developments of both the products/services and the market itself. Going back to the CIM definition, this is about anticipation. What will your target customers require in the future? Which product groups have growth potential; and which are likely to decline? Where are the gaps for new product initiatives; and what new products are likely to emerge through market and technological developments?

Whilst there is inevitably a degree of crystal ball gazing in this, the risk can be substantially reduced through having really good market intelligence and, of course, market research.

Having established the target customer and the product(s)/service(s) to be supplied, the next stage is to ensure that the resources and processes are in place to enable the efficient, effective and profitable delivery of those product(s)/service(s). Most of the work here isn’t a marketing responsibility; it’s down to production/fulfilment, IT, logistics etc. However, marketing does need to have a watching brief and an involvement in the co-ordination of the various activities involved, so that it can co-ordinate advertising & PR, sales training etc.

Only at this stage does marketing move into the advertising and PR phase. However, if everything prior to this has been done properly, an effective campaign is much more likely.

I’ll finish off by returning to the challenge for SMEs that don’t have a substantial marketing resource. The key is to recognise the need for good strategic marketing input. Once that hurdle has been crossed, there are ways in which simple market research can be done at low cost and much of it “in-house”. And, as I’ve already said, there are some very good consumer profiling tools available at a modest cost. In many SMEs, the missing ingredient is senior marketing expertise. But, in reality, most of these businesses cannot justify the costs of employing a marketing director as well as a sales director. Nor do they need a full time marketing director because the demand for his/her skills is likely to fluctuate considerably. The obvious solution is to engage an independent marketing professional, with strategic marketing skills, on a “when needed basis”. This could be on a project by project basis; it could be on a regular basis of an agreed number of days per week/month; or it could be on just an advisory basis such as attending monthly review meetings. Different businesses will have different needs; but this strategic input should not be confused with the role of the advertising agency, which is to work to a specific advertising brief that is developed from and preceded by the marketing strategy.

There are some good strategic marketers around. But they tend to be industry/market specific; so be sure to engage someone that knows the market your business is in; and look for someone who has a marketing qualification and/or is a member of the Chartered Institute of Marketing. By taking this approach SMEs can benefit from the strategic marketing expertise they need, when they need it and at a cost that is affordable.

I’ll be following this article with a series of articles that explore some of the issues I’ve raised here, but in more depth.

If you’d like more information about me and my consultancy business, AP Management Consultants or would like to discuss any of the issues in this article,

Log on to www.apbusinessconsultants.co.uk

Email me at anthony.pratt@apbusinessconsultants.co.uk

Call me on 01962 715899 (+44 1962 715899 from outside the UK)