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People tell me that they don’t plan because they have no money. They ask, ‘Why plan if I have no money?’  I normally respond, ‘How do you know that you need money until you plan?’

People don’t like the challenge of planning before finding money. Too many people think that they need money — to think about money.

So here are 10 ideas for Strategic Planning that can reduce or remove the need for cash.

  1. Avoid capital intensive Strategic Plans – Forget your plan to start a new low cost airline from New York to Phnom Penh. You can’t even afford one engine! You also can’t start a luxury clothing store there either. Clothing has to be purchased in quantity in different sizes. Inventory of expensive brands is a large investment and requires cash.
  2. Avoid long term payoff Strategic Plans – You want to find the cure to cancer? You don’t have the time to wait 5 years for drug trials. Do you want to start a new daycare in New York City? It will take a year to update or build and license before it opens. You need to use cash to pay salaries and construction during all that time.
  3. Avoid low cost goods for resale. It’s very hard to buy low cost clothes from Honduras for resale. Walmart got there first and has the power of a volume purchase. They offer to buy $1 million of cheap clothes with only a 1% profit for the manufacturer. It sounds like a bad deal but it actually returns $10,000 in profit to the clothing company.

You come along next and want to buy $5,000 of the same cheap clothing. If you could get the same terms as Walmart, the clothing company would only receive a profit of $5 dollars from your order. They will laugh you out of San Pedro Sula.

Once you pay $6,000 for the same clothing, you will need to raise sale prices back in Phnom Penh. It’s a desperate game that is hard to win.

  1. Build a service based Strategic Plan. Why doesn’t Walmart take over nail salons? Nail salon expenses are mostly labor. Nail polish does not cost much nor does advertising. The playing field is more equal. It’s hard for Walmart to make more money than you in labor intensive business.
  2. Build a materials + labor based Strategic Plan – Since you can’t compete directly with the purchasing power of large companies, add a unique service to the product that you sell. For example, buy cheap clothes in Hionduras and add an identification tag printed with a name and address. The price is no longer comparable to the shirt by itself because you have added a service.
  3. Avoid a Strategic Plan that has a long cash conversion cycle – Dell Computers was an early company that charged customers as soon as the computer order was made. They had the cash before they made the computer! Contrast that to a specialty clothing store that has a large inventory that sells slowly. The store may be quite profitable but requires cash to buy the clothing and then wait a lengthy period of time for the sale.
  4. Avoid a Strategic Plan that requires high fixed costs – Renting a storefront in a mall or on a busy street will require cash even in the slow season. It’s better to sell ice cream from a cart than from a store. There is no rent and the cart can be taken to a warmer climate in winter months or stored. Street fairs are popular because there are no rental costs on the days that you choose not to be open.
  5. Avoid a Strategic Plan in regulated industries – Industries that involve government inspections and licenses take cash and time to learn. The companies that are already in the market have more opportunity. For example, in New York City, there is a great need for the service business of child care. It’s also a business that the City watches closely with inspections, licenses, and regulations. Each of those add to the cost of a service and require cash.
  6. Consider a Strategic Plan that generates loyalty – Let’s assume that you sell ice cream from a cart. You are always on the same corner and you memorize the name of every child who buys a cone. Children love that attention from adults and loyalty will become part of your business model. No cash required for loyalty
  7. Consider a Strategic Plan that assumes one time sales – Tourists often pay outrageous sums of money for trinkets to remember a trip. In Florida, you can pour sand into a bottle and sell Florida sand at the airport. Customers will never return to buy more but they really don’t care if you charge $10 for sand. Cash from a few sales pays for a lot of inventory.

And now, I return to my first point. You don’t need any money until you painfully create the Strategic Plan on how to invest and make more money. A plan that is good and usable is not easy to create. It’s going to take several months and need quarterly review after starting.

Some business ideas require less cash. And no business requires cash until you have a good Strategic Plan.

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

fight-computer.jpg?fit=450%2C450&ssl=1

Most strategic plans assume a static future where the basic costs and use of labor remain the same. That is a critically false assumption.

Machine learning started in the 1990s. Anthony Goldbloom states that machines were trained to look at credit applications and determine a score. Since then the trend line was arithmetic but recently has climbed more steeply. Now we actually have cars on the road which are one step from being self driving.

The rapid dislocation of labor from human to machine is one major factor in the unusual American election. It’s a global challenge on how to make all humans necessary. At this point, the economy does not need grocery checkers, cab drivers, subway drivers, live telephone reception, farm workers, and a host of other tasks which have been human based for time immemorial.

Will your Strategic Plan survive the onslaught? Only those that account for machine learning and avoid that competition will be here in 15 years.

Machine learning requires tasks which are high volume and have limited causal factors.

  1. High Volume – Machine learning thrives in high volume. For example, one study had volume reports on police in Philadelphia and teachers. The goal was to hire police officers who are productive and not violent and to promote only worthy teachers (Chalfin et al. 2016). Since the variability is significant between exceptional performing teachers and future failures, the machine learning was able to discern patterns which would predict correctly in both scenarios – better, more productive police and teachers.
  2. Limited Causation – checking out groceries involves a group of products with bar codes, passing the scanner, settling the price and payment. Presumable bagging will be computerized too. The causation for the checkout system is simple – a consumer wants to process items one at a time and pay for the results and take them from the store.

Machine learning is not effective in novel situations, or with creativity, or with relationships

  1. Novel – Novel situations occur where original reasoning trumps learning. For example, some of the best American scholarship looks at problems from the perspective of 2 disciplines. Sociobiology looks at sociological problems and traces evolutionary causes. It’s a terrible discipline for machine learning at this stage. There is not a high volume of reports from which to learn.
  2. Creative – Machine learning will never produce the creativity of Mozart, bell hooks, or Monet. Creativity is a unique human fountain that never runs dry, While machine learning can produce copies of the Mona Lisa, it cannot jump ahead and create a new Mona Lisa. It’s work will always be derivative.
  3. Relational – So much of business success depends on 8 socio emotional skills
    1. Goal persistence
    2. Awareness of others
    3. Awareness of Self
    4. Optimistic Thinking
    5. Decision Making
    6. Relationship skills
    7. Self Management
    8. Personal Responsibility

Those skills work together to build teams, invent new solutions to business problems, and consider unique value propositions based on available resources.

So how does your Strategic Plan match up?

Test your vision based on the strengths and weakness of machine learning.

  1. Are you planning to manufacture a product without investing in robotics? It’s likely that robotics locally with lower transportation costs will be cheaper than cheap human labor in other locations.
  2. Is there new infrastructure planned in an area that you exploited? NYC plans to go green in 14 years. Any business that moves quickly can compete with old energy guzzlers that don’t see the problem coming.
  3. Did you create a unique value proposition that uses relationship skills for success? Edith Penrose says that effective teams become the real competitive edge of a company.

The coming and current dislocation will be a time for some Strategic Plans to gain the advantage and many others will collapse. It may be an opportunity for a start up to move shrewdly where a larger company could not change.

Is your Strategic Plan going to be terminated?

 

References:

Bloom, Anthony.  “Machine+learning+ted+talk”. TED Talks, n.d. Web. 14 Aug. 2016.

Chalfin, Aaron, Oren Danieli, Andrew Hillis, Zubin Jelveh, Michael Luca, Jens Ludwig, and Sendhil Mullainathan. “Productivity and Selection of Human Capital with Machine Learning†.” American Economic Review 106.5 (2016): 124-27. Web. <https://econ.tau.ac.il/sites/economy.tau.ac.il/files/media_server/Economics/PDF/seminars2015/AER%20picking%20people%20ML%2020151228_final%20complete.pdf&gt;.

Nickerson, Amanda B., and Callen Fishman. “Convergent and Divergent Validity of the Devereux Student Strengths Assessment.” School Psychology Quarterly 24.1 (2009): 48-59. Web.

 

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

People often ask me what I’m doing at work. If I want to get rid of them, I start to talk about what I’m doing. I do meetings, phone calls, and interviews. They quickly get bored and  turn to another conversation.  If I want to get their attention, I tell them that I get kids to college who don’t have English as a home language. That’s what I’m really doing. And that is dramatic and meaningful.

The most important part of Strategic Planning is to decide what service or product you are really offering. The risk of failure jumps when you divorce the purpose of your product or service and only think about manufacturing / service activities.

Example:

I bought a GE dishwasher.  Dishwashers last so long that I decided to go towards the top end. This machine offers a normal cycle, a cooking pans cycle, and an antibacterial cycle.

How could I go wrong? I assumed that the dishes would come out clean but it doesn’t wash dishes very well.

Now I have to rinse all the dishes and scrape the plates in the sink with a scrubber, load the dishwasher after I’ve run the water to get it as hot as possible, and then the dishwasher works. That’s not really what I expected.

It turns out that I don’t want a dishwasher. I want clean dishes. My Aunt Ina cleaned her own dishes with a rag and drip dried them. Bloomberg hires a maid to clean dishes but I’m cheap and want a machine. Bloomberg and I and my Aunt Ina all have the same need even after 60 years and with very different states of wealth.

We want clean dishes.

So let’s practice

A restaurant makes meals.      McDonalds says that you deserve a break today

Detroit makes cars.                   Hummer gives self respect to pathetic wimps

You’re selling bracelets            Tiffany says that memories start here

Churches hold services            Marble Collegiate inspires a second chance

Schools teach children             My school gives tools to struggle and win

 

How to create your purpose

The purpose statement has to include 3 elements. (Carver)

  1. Who is it for?
  2. What result will people expect?
  3. At what cost for highest value ?

 

Who is your market?  That may take some work to decide but it’s an easy idea to understand. If you want to sell Hummers, don’t include me in your market. Your market should also exclude some people who want to be in your market. For example, we all like Southwest Airlines prices, but most of us would like free snacks and free checked baggage. Southwest decided to focus on customers who only cared about price. They cut out the free chip lovers.

 What result? Don’t decide this too quickly because people have a lot of hidden desires. My grandfather bought Buicks to show he was a working man who turned professional and succeeded. He would never give that reason if you asked him. He always said that the Buick was the most reliable car. I think Buick would be a larger brand today if they understood my grandfather J

Manfred Max-Neef made a chart of 36 basic human needs. Make sure that your product or service is carefully grounded. Some group of people in the market must want it and benefit or you will not succeed.

 At what cost and value? Start with the value. You need to be the best for the market group and result that you have already identified. For example, if you’re going to include my grandfather in your market, then you want to make a car that shouts success better than Buick.

Your problem may be that you don’t even have enough money to make a Buick

In this example, you keep working on the equation until you realize that there is a senior housing nearby where people no longer drive. You do have enough money to make a stately carriage called Sundays that stops at each senior center and takes elderly non driving people in style to the mall. They get a free soda as they enter the car. Your market is people who need to feel that they are a life success. Your method is semi public transportation with frills. And people value it enough to pay $20 for one ride and that covers your costs.

Don’t stop working on this equation until your product or service is the best for the market you want at the right cost and value.

 Barriers:

Your biggest enemy is to try to be all things to all people. This is pernicious in non profits. It is far better to limit your market and have incredible success than to reach to everyone with a service of such poor quality that no one wants.

 Conclusion:

Strategic Planning always starts at the most basic level. If you have been in business for a while, you need to repeat this exercise to make sure that you still have a good plan.

You need to identify the market you will serve (and the markets you ignore), the results that your market of people will receive from your work, and the highest value at a cost you can afford. Then start manufacturing for success!

Marry what you’re doing with what you’re really doing. You will focus on the results and activities together. And that will keep you in business for a long time.

 Which you like because the result for you is that you always wanted to feel like a success! 

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

 

References:

Max-Neef, Manfred. “Human Ecology: Following Nature’s Lead.” Ecological Economics 48.4 (2004): 490-92. Web.

Carver, John, and Miriam Mayhew. Carver. The Policy Governance Model and the Role of the Board Member: A Carver Policy Governance Guide. San Francisco: Jossey-Bass, 2009. Print.

The Divorce Between Two Partners –  What You’re Doing and What You’re Really Doing

torn piece of paper with divorce text and paper couple figures

 

I’m always envious of the for profit companies. I know they have their bad days (Tesla after it’s car crash) but their business plan is so simple. Make Money. Two elegant words that everyone understands.

The non profit world is messy business. We are mission driven. That one phrase leads to our great challenge – arrogance. If you are really good at understanding your mission, then criticism from stakeholders runs off your back like water off a duck. We actually like criticism because it shows us how the peasants really don’t understand. Criticism becomes a compliment.

Who criticizes?

 

Government

Government contracts often struggle against the unique mission of a particular non profit. Government does not want to cut individual deals with 1.5 million nonprofits in the USA. They simply specify what they want to do and we rush to respond to the RFP.

  1. Government contracts are often written to prevent failure rather than strive for success. Youth diversion contracts are written to count kids in seats, not to measure more peace and confidence for an angry teen from a broken home. Mission driven non profits often are organized for more specific results.
  2. Government contracts are politically driven. That means that the next President, Governor or Mayor can ruin the excellence that you built. Contracts get cancelled. New contracts veer off in new directions. I honestly understand the many non profits who have given up on excellence in mission and simply supply whatever minimums are required.

 

Families and Clients

Families often don’t understand what they need or why we offer specific resources. Example: While you may be the specialist in lactation therapy for babies, that does not mean that parents will simply rush to fill your appointments. They don’t connect their need with your resources.

  1. People live for their fears and your mission may not connect. Do you know how many parents ask about gluten in food programs?  Only 1% of the nation is allergic to gluten. From parent comments, you would think it’s the silent killer of America.
  2. People have trouble measuring the quality of service industries so they look for symbols of quality that have nothing to do with your mission. You provide quality daycare and parents look. They look to see if you bought Little Colorado train tables. And are the tables low formaldehyde? The symbol has little to do with the quality of your service.

 

Self Criticism

The most painful critic should be the management and board. Sometimes the mission has not been carefully considered and you have critics because you deserve critics. Is your agency really providing (1) measurable results (2) at a reasonable cost (3) for a worthy group of stakeholders? That key question (Carver) needs to be reviewed regularly.

I was recently at a gala for another agency. The evening was filled with spectacular comments about getting basic rights for prisoners across the globe. The speakers were inspiring.  The reasonable cost and how to raise it was never mentioned. The speakers were traveling constantly and regaled us with stories of trips. Perhaps they should change the mission to bringing prisoner care packages on their trips.

 

How to Stay the Best and Survive

Let’s assume that you have done the self criticism and your mission is clearer and better than ever. What are some steps to protect it without irritating all your stakeholders?

  1. Reduce the areas where you are unique to the bare minimum. This is no time for grand gestures that add little value to the end results. If your need to add your special elements to a government contract at your own expense, most contractors have no trouble with that.
    1. Any unneeded extra uniqueness has to be paid from your free cash. Ouch.
    2. All parts of a program need staff orientation and professional development. The simpler program requires less effort in training and will be easier to achieve highest quality results.
  2. Tie your mission to stakeholder fears. The Challenger Sale is a six step process for sales. Two of the six steps are Rational Drowning and Emotional Impact (Dixon). Both steps show the customer more about the problem before talking about the sale. Example: Why do I have to pay $2,000 for Test Prep? I’m ready to accept that price after someone teaches me why kids are struggling with the Common Core.  Once I understand that most children will spend their career saying “You want fries with that burger?”, I’m ready to listen to why I need your non profit service.

 

Conclusion

NonProfits are mission driven which gives us great privilege to look at society and direct resources to areas of strongest need. We have to accomplish that mission with humility and realize that we need the good will of the stakeholders. They are trying to make the best decisions too. We have to be smart as to how to apply our mission to contracts and we have to understand client fears before we announce that we are the magic cure.

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

Works Cited

Carver, John. Boards That Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations. San Francisco: Jossey-Bass, 1990; 3rd edition, 2006. Print

Dixon, Matthew, and Brent Adamson. The Challenger Sale: Taking Control of the Customer Conversation. New York: Portfolio/Penguin, 2011. Print.

Abstract

CEOs need to invest intentionally and annually in professional development for key staff in order to achieve the objectives of the Strategic Plan.

 

Adding a New Asset

Many nonprofits are service industry corporations with few fixed assets.*  That means the success of your company is the result of your wise use of two items:

  1. Assets (Cash and other Assets – Depreciation)
  2. Temporary Assets (Labor Costs and Materials Cost)

 

Meir Russ argues that you need to take your key managerial training expense out of the Income Statement (Expensed at a year or less) and make a supplemental Balance Sheet with a new category of Managerial Assets. So the success of your company is now the result of your wise use of three items:

  1. Assets (Cash and other Assets – Depreciation)
  2. Temporary Assets (Labor Costs and Materials Cost)
  3. Managerial Assets (Training and Professional Development Investment – Depreciation)

 

The rationale is that we invest in our key managers with the expectation that they will bring new skills to work everyday and that new productivity will last more than one year. This is not that novel an idea in other industries. Performers already look at life this way. They insure parts of their body with the expectation that its value will last more than one year. “As the Beatles sang “I wanna hold your hand”, their business managers were busy insuring their fingers for £200,000 – a colossal sum at the time…. More recently Bruce Springsteen’s voice was covered for $3 million.” (Hunter, 2003)

 

Let’s assume that your average key staff member has a job tenure of 5 years in your company. Create a supplemental Balance Sheet that records the professional development asset and depreciate the expense over that period of time instead of the normal pattern to expense it all in the year that it occurs.

 

The result is to showcase whether you leverage talent with training or are satisfied with the current state of affairs. If the new account has a balance of $0, I can predict the failure of your Strategic Plan.

 

Intentional Investment for Success

Your key players face the struggle to implement the Strategic Plan. If they don’t do it – what is your Plan B? The Strategic Plan, by definition, is not easy. Your key managers need to improve their skills to meet the challenge of tomorrow. Placing those expenses on the balance sheet gives attention to :

  1. What is a reasonable investment yearly in managerial development?
  2. Does that manager have an IDP (Individual Development Plan) and are they happy or resistant to work on it?
  3. Are some key players in danger of skill aging and need to get one more chance and discussion about moving forward or transition in the next year? One problem of strategic planning is a key manager can be valuable in one strategic advance and not really interested in the continuing journey.

 

Like anything else I write about, these conversations are about as pleasant as a trip to the dentist. But the CEO is solely responsible for the wise use of labor, materials, and assets to accomplish the Strategic Plan. Leveraging the value of your managers is arguably the most strategic action that you can take. Publicly reporting it will make sure it happens and it’s also a better way of looking at leading the company than Financial Accounting allows.

 

Increase Tenure of Key Managers

All of us have a dream of who we can be. I have met very few employees who really feel that they are in the perfect place. I can tell you that if you tell a key employee that you are willing to invest $5,000 every year in their professional development, you are guaranteed to extend their time in your agency. Your reports will feel appreciated and understood.

 

You can’t keep progressing on the Strategic Plan when key talent quits repeatedly. They take too much institutional history and culture with them.

 

Tell your board that you can keep a key staff member Ms. Gold 7 years instead of 5 years for $35,000 ($5,000 per year). Mention that you can implement a key objective of the Strategic Plan with the help Ms. Gold. If I could get that bargain, I’d give the extra $35,000 myself!

 

Conclusion

You are richer than you thought. Those managerial Professional Development Costs are not going to be used in one year. They are going to stay for year 2, and year 3, and year 4 ……..  They are one of your keys to complete the Strategic Plan.  You simply must treat them that way.

 

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GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

 

 

*Hospitals and museums are examples of capital intensive nonprofits. The rationale of the managerial reclassifying of expenses should still be valid.

 

 

 

Hunter, Teresa. “What Price an Arm or a Leg?” The Telegraph. Telegraph Media Group, 29 Jan. 2003. Web. 07 June 2016.

 

Russ, Meir. Management, Valuation, and Risk for Human Capital and Human Assets Russ (2014-10-15). Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . 1st ed. New York City: Palgrave MacMillan, 2014. Print.

 

 

 

 

 

people-leaving-workpeople-leaving-work

 

Failure in strategic planning is the most commonly shared managerial experience. You have probably been to entire retreats of several days to create the Strategic Plan. Most of those statements that were argued and discussed, nuanced and negotiated, now reside on the President’s shelves. Most of us have forgotten the 1, 3, and 5 year goals by the time we review the plan again. There are several ways that the plan can fail.

  1. Lack of a believable Strategic Plan
  2. Lack of 1 year, 1 quarter, and 1 week planned actions to execute the Strategic Plan
  3. Lack of energy to execute the 1 week plans due to Satisficing

Satisficing – ‘Satisficing’ means to make something satisfactory. For example, you need a good chair for your office. No one has job satisfaction just because they were given a Herman Miller chair. People don’t accept another job because it came with a SAYL. But it’s also true that staff will complain about the absence of a good chair. Their productivity will suffer until they are given a good chair. If the struggle goes on long enough, they might even quit over the lack of a chair.

Satisficing is those conditions and actions that are necessary to keep everything going smoothly – to keep all parties satisfied. The problem with satisficing is that it does not move your company ahead. Fixing the holes in the boat so that it doesn’t sink is not the same as setting off for your Caribbean vacation.

What are examples of Satisficing that dooms Strategic Planning?

Let’s assume that you have a good strategic plan to build a community center in 5 years. Your first year plan is to choose the location and type of financing. Your three month goal is to meet with 3 realtors and 12 banks. You weekly plan to spend an afternoon each week with 1 bank, 1 realtor and 2 followups.

As you prepare to execute current actions for the future Strategic Plan, you check the morning mail before you leave the office. There is a claim for unemployment and the HR staff is on vacation. You drop the plan to meet the realtor. It takes an hour to document why he was fired and mail the document as well as scanning it.

You have just satisficed.  It was necessary. No company can ignore unemployment claims and the many other issues that arise in the work week. Even worse, we all face satisficing issues next week that we are not expecting. It’s easy to consume the week with satisficing activities. It’s like checking the boat motor, checking the electronics, buying the stores and fuel – and never leaving the dock.

How can you protect the Strategic Plan?

Avoid your temptations –  Strategic plans are not tried and found wanting, they are found hard and not tried. Satisficing activities are often easier than our real agenda. Even in my example, the Strategic activity of looking for suitable real estate sites and talking to 12 banks and following up on realtors and banks sounds like something I don’t want to do. The unemployment claim is far easier to tackle and can burn up at least one hour.

Arrange Your Management Team – Harnish lists key roles in any company. They include Director, IT, Sales, Marketing, Customer Service, Innovation, Controller, Talent development, HR (Harnish, 2014:38). The point is that if you don’t have clear delegation for the critical core areas of a company, all satisficing flips back to the Executive Director.  If your title is Chief Satisficer, throw away your strategic plan. You cannot lead in both areas.

Sometimes, in my own company, I feel guilty as I see people working hard and I’ve saved time today for reading and reflection. I wonder if people think that I’m not working hard enough as I take 2 principals to lunch on Tuesday. I don’t take any sales calls. I only get involved with parents after the manager of that program has tried to solve the problem. The fact is that I need to protect my time to accomplish the Strategic Plan.

Reclaim Vacant Time – ‘Jell’ is one example of a program where all the members of the team report in the morning what they will accomplish in the next 24 hours. It increases self discipline. I work until 6pm, but I notice that if I run out of tasks after 2pm, it’s easy to waste time on satisficing.  My call to the Board Chair can stretch to include reflections on vacation. My search online can expand to read the news.

Those messy tasks that don’t have a specific deadline could be stuffed into my vacant time, but motivation is lacking. Believe me – telling your management team on Jell that you will be doing some of these things is a great stimulant to keep pushing.

Conclusion:

If you have a Strategic Plan, then your company has accepted that the future needs to be changed. It’s a sacred trust placed in your hands. The most important task of the Executive Director is to make a Management team that can execute the Strategic Plan. Don’t let anything steal your energy from bringing the future to today.

 

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GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

 

 

 

 

A Story of Two NonProfits –

When I started my first nonprofit, I bought a computer before I paid myself. That should have been a sign of trouble ahead. The truth is that I’m in love with systems. It was no trouble at all to set up systems for the nonprofit. I had enough credibility to get a board of directors from respected colleagues. I got bank accounts started, hired staff, started fund raising, and began flying between Madison, Chicago, Knoxville, Buffalo, and New York.

The devil was in the details of the strategic plan. The mission was too broad and the staff were more academicians than strategists. We had great meetings twice a year with the Board and theory flowed like wine. We did not notice any weakness. If we had been a for profit company, we would have noticed immediately how few people wanted our services. As a nonprofit, we were drunk on grand theories of broad vision, dreams of how the world should be, and my administrative competence.

Another nonprofit was set up at the same time. That director understood the strategy and created an aggressive, manageable vision. She did not like systems and ignored legal and financial details as much as possible. The early days had time when paychecks did not arrive and the IRS impounded the account twice for nonpayment of taxes. There was very little in writing, but oral history and a staff team of 2 people made communication easy. There was no computer. What was happening was that she was getting activities started and results for clients.

Which agency survived? The agency with the defined vision and strategic plan (not mine). Thirty years later, it thrives as a $3 million program to support refugees and has 100 staff members.

Systems sink small nonprofits, sustain large nonprofits and suffocate dying nonprofits

Small – If your nonprofit is under $500,000 in revenue and in a human service area of low risk, you can possibly ignore some systems while you get your vision and strategic plan working. Your licenses may not have all the right dates but regulatory agencies often don’t worry about small agencies. If you work in high-risk human services (ex. children or medicine,) you have the worst of worlds with a need to be good at everything.

Large – In a larger nonprofit, the strategic plan is in place but needs the cooperation of many people. It’s no longer a fluid set of tasks that two or three people hand off easily and interchangeably. After $500,000 in revenue, your nonprofit is ready for an increasing round of systems to sustain the vision. When you hire more people, there will be more unemployment claims. The cost of the audit escalates with higher revenue and more time is needed to provide paperwork for the audit. At $5 million in revenue, my company struggles to keep up with the regulatory requirements. Size increases regulation and I have no time for the internal tasks that I used to enjoy.

Dying – Many agencies that are declining have an odd combination of insufficient vision but strong systems and strong systemic need. Let’s use religious congregations as an example. Thom Rainer states that ‘between 8,000 and 10,000 churches will likely close this year’. (2013:Huff Post, The Blog). The Archdiocese of Chicago speaks of closing 100 churches this year. Clearly, there are many religious groups in the middle of retrenchment in the USA.

In the middle of their trials, most of these groups have expensive fixed assets – buildings with towers, special windows, complex organs, and years of neglected maintenance. These remaining assets of the nonprofit and denominational regulations require finance committees, Trustee meetings, and other systems.

Most small nonprofits just don’t have these systemic needs because they have not had the chance to accumulate the assets!

The systemic needs of over asseted J churches overwhelm their strategic planning energy. There is rarely the energy in a small group to discover and refine a Strategic Plan at the same time that a Systemic Plan is being operated. Declining groups are usually loathe to give up a fixed asset. They don’t want to be known as the group that sold the church as long as there is any life left. That is precisely when they should be divesting to shift the remaining energy resources into Strategic Planning.

 

Conclusion:

Operating any corporation is a mix of skill and blessing. Very few companies in the United States of any size have existed for 100+ years. It’s not easy

One of the issues that plague organizations is the balance and need for both Strategic and Systemic Planning – and divesting as well as investing in systems.

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McSwain, Steve. “Why Nobody Wants to Go to Church Anymore.” The Huffington Post. TheHuffingtonPost.com, 14 Oct. 2013. Web. 17 Apr. 2016.

 

 

 

 

 

 

Synopsis: If you have noticed that fewer government RFPs are arriving for your mission, it’s a possible sign that political priorities have changed and your great agency no longer has a private key to the statehouse. This article proposes 4 ways a nonprofit can respond to cuts in contract funding.

Background

Higher Education is a jilted lover.

At the end of WW II, the President feared that the USA would return to peacetime with riots (this had previously occurred after WWI). The economy could not absorb all of the returning soldiers into the work force. The GI Bill was an elaborate ruse to divert soldiers out of the work force temporarily until the peacetime economy resumed.

You know the rest. Soldiers went to college, the Marshall plan created demand for USA goods, and the national standard of living advanced steadily in the 1950’s and 60’s.

By the 1980’s, Higher Education was cast aside while Crime and Medicaid projects flirted with government. The City University of New York lost its free tuition and the rest of the NYS system was no longer cheap. While almost all states have cut funding since 2008, Alabama, Arizona, Louisiana, Pennsylvania, and South Carolina have the sad distinction of removing 35% or more funding for higher education (Center on Budget and Policy Priorities, (2015:Mitchell and Leachman).

 

What can you do if you are in education, AIDS, or some other downsized priority?

I suggest that you choose one of four alternatives:

  1. Reduce your mission to a niche that can be funded
  2. Acquire a similar agency
  3. Look for a hero and negotiate your surrender
  4. Start a forprofit partner

 

Reduce Your Mission

In good years, we all tend to broaden our mission. Our best stakeholders demand it with considerable pressure. We gracefully yield, impressed by our own capacity. The trick is to understand the core where we are determined to be the best and  return to our true love when our government suitor is found with a new friend.

In my agency, our core is academics for kids who don’t have English as a home language. We have supplemental programs as well and many additional students from English speaking homes participate because they like our quality.

NYC does not always have our constituency at heart. The last administration proposed stopping all after school programs throughout the city for fiscal reasons. The current administration thinks more about diversion to avoid youth violence than college prep.

We accept some of those contracts but we also understand our core for those times when the love affair with government falters. We work hard to keep our tuition based programs filled and expanding to guard against the day when funding cuts occur

 

Acquire a strategic company

Notice that I say acquire rather than merge. Mergers often fail as two living organisms try to live as one.

  1. Weak finances of many nonprofits make bad mergers. Owen et al. state that “…. many organizations have grown quite weak in the present economy and are today in an extremely vulnerable position. ….. it would be difficult to carry out effective mergers with organizations that had grown financially desperate as demonstrated by an inability to meet ongoing monthly expenses or the loss of significant revenue sources.” (Owen, 2011:46)
  2. Unusual leadership is needed for mergers– While there are examples of successful mergers, the success depends on skills of boards and executives. I submit that these skills are the exception more than the rule.
  3. Less conflict in acquisitions– The power of the acquisition is simply for one organization to surrender its resources in the expectation that the combined company will have more efficiencies and two networks for its continued mission. There will be staff reductions, but the acquired organization may easily have some talent that will get preference in merit based selections. The spirit of the acquisition under the lead executive will be understood. People accept in advance in an acquisition that difficult decisions will be made to protect what we do for the people we serve.

What do acquisitions provide?

  1. Key contracts– The acquired agency may have a key contract or lease that is hard to obtain.
  2. New networks– assuming that the acquired agency has done quality work and managers will not leave precipitously, you can quickly expand your own network
  3. New talent– if some positions are now duplicates, you may find that some of the better talent should be chosen from the acquired organization. This is a strategic chance to strengthen your bench
  4. Efficiencies of scale– while service organizations do not profit from scale as much as manufacturing, acquisitions with a total revenue of less than $10 million will likely benefit.

 

Look for a Hero

There are too many nonprofits even without the cutbacks and fickle behavior by government. Kobara (2015) states that new nonprofits started at a rate 50 times faster than small businesses in the last decade. He points out that there are no investment banks, specialists, and attorneys that assist non profits as they begin operations.  Since the funding is not provided by the persons served, the market forces that cause forprofit companies to succeed or fail don’t affect nonprofits as quickly.

If you have less than $5 million in revenue and contract revenue is at risk, consider surrender rather than acquisition. Verne Harnish calls the revenue of corporations between $1 million and $5 million the ‘Valley of Death’. Your agency has not attained the efficiencies of scale. While you still may have the talent to lead a combined organization, you probably don’t have the experience.

There is no dishonor in strategic planning to keep the mission alive in a different corporate form.

 

Create a ForProfit Partner

For Profits are helpful vehicles for attracting social investors and business plans that could throw off tax or ownership benefits.

  1. Investors Easier than Donors– For long term fixed assets such as buildings, friendly investors such as board members and friends may be more willing to invest in stock than to donate. The building can be purchased with their capital down payment, financed by rent from the nonprofit, and sold if the rental stream fails. The nonprofit gets use of a property that is normally not available.
  2. Higher Rents– For government contracts that discourage ownership, a leasing structure from the forprofit partner may permit more contract funded repairs and lease money that essentially pays the mortgage.
  3. Exploiting Assets– If the nonprofit has unused assets, the forprofit corporation can rent them from the nonprofit and exploit them for unrelated purposes.
  4. Managing Risk – if the programs have significant risk, the nonprofit can accept the risk since it has few fixed assets. The forprofit keeps the fixed assets at arm’s length and cannot be touched in the event of a lawsuit.

Conclusion

If your agency is largely funded by contracts, changes are inevitable. The needs of communities change and politics change. Even friendly legislators retire or move on. Many of us assume a relationship with government that is not reciprocal. Why wait until your nonprofit is one of the many unlucky ones that fail? Choose your backup strategy now and rejoice that you could survive singleness!

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GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

References

Harnish, Verne. Scaling Up: How a Few Companies Make It… and Why the Rest Don’t. N.p.: n.p., n.d. Print.

Kobara, John. “Facilitating Mergers and Acquisitions for Nonprofits” Huffington Post.  9/09/2015

Owen, Greg, et al. “What Do We Know about Nonprofit Mergers?” Wilder Research (2011): 1-49. Wilder Research. Web. 12 Apr. 2016.

My father was in the Navy so I’ve been immersed in dreams of boating. Boating is 80% planning — considering destinations and choosing, planning supplies for the trip, studying the charts closely, watching the weather – there’s a lot of ways to sink a boat if you don’t plan strategically.

I first worked on Strategic Plans in college. I’ve had Training on Microsoft Project. All of my plans sank or had no effect on the company until recent years. I’ve been through more 5 year plans than the Communist Party. The planning conversations were thoughtful and sincere. The stakeholders were smart people. So I looked through my swamp of sunken failures to see if there were any common planning traps that turned sincerity and brilliance into a vessel foundering in waves.

 

Too Much!

Half of Strategic Planning is deciding what not – not — not to do. Lafley and Martin take the concept further in Playing to Win. Only make plans for products or services where you intend to be the best. There are no prizes for 2nd place. Throw all of the other good ideas overboard.

Some of my historical plans were collections of every good idea. It’s an easy way to run a planning committee because no idea gets turned down. Perhaps you don’t have clarity about the 5 year planning so you’re unwilling to criticize untimely ideas of others.  Poor planning is like the Costa Concordia.  The captain should have planned by deciding what not to do.

Lafley and Martin turn Strategic Planning on its head by insisting that we only determine to be the best in each planned objective. That is facing the waves beyond the harbor wall and heading into them. Poor planning accepts all ideas uncritically. Strategic planning only takes the plans with commitment to win.  That change of attitude refines strategic objectives and gives a team a chance for buy in or back out. They have to consider the cost to get clarity.

 

All Tomorrow, No Today

Strategic Planning usually results in a document that is edited, voted, and stored. There is no way to look at a chart once a year and successfully steer the ship. If I asked you right now to spontaneously recite the major objectives of your strategic plan – can you do it?  I was recently in a training where the staff could not remember the purpose of the company!

In Scaling Up, Verne Harnish uses a one page strategic plan, quarterly goals, and daily quick meetings to keep answering the question – what did you do today to help the Strategic Plan? Brilliant! Who would take out a ship without watching the chart and making regular course corrections?

 

All Work, No Results

You will discover that it was easier to plan attempts and action than to plan results and consequences.

The Logic Model points out that listening to the weather forecast and reading the chart hourly is not the same as safely landing at the destination. Many managers focus on doing the right things but the Strategic Plan can only be about results – not activities!

Two captains get the tourists to Puerta Vallarta. The modern captain has a new ship, the food is best, and the crowd is great. The cheaper captain has an older boat. The cheaper captain constantly monitors fuel and weather. Weather conditions change and waves fight both ships. The cheaper captain changes course for waves and tide that will save enough fuel to finish the voyage. The modern captain filled her boat with extra shrimp instead of extra fuel. She can only afford to keep the engines on low to head into the wind and the rocking of the boat means that no one wants the shrimp. The cheaper captain makes landfall a day earlier because the captain knew that getting to Puerta Vallarta was the real plan. The modern captain finally gets there and all the passengers want their money back because they know that planning is about actually getting there!

 

Conclusion

You may be thinking that your company just doesn’t have the capacity to add this planning to everything else that you’re doing to stay afloat.

True.

You may be like a captain of a 16 foot Sunfish. You don’t have the capacity to face ocean waves but you’re quite capable of a lake journey. You do have capacity to choose one key result you want from your work, choose one key time each day to spend 5 minutes working on your plan and choose one key objective about which you’re prepared to win. You will be amazed at how often you make safe harbor!

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

Lafley, A. G., and Roger L. Martin. Playing to Win: How Strategy Really Works. N.p.: n.p., n.d. Print.

Harnish, Verne. Scaling Up: How a Few Companies Make It… and Why the Rest Don’t. N.p.: n.p., n.d. Print.

Summary:

Kindheartedness can kill your business in less than 15 years if you are paying for staff or salaries that you don’t need.

 

Compensation is your biggest cost

If your company is a nonprofit or service company, the biggest budget line is compensation. You only have one thing to offer the public – the actual service of your staff. For example, the cost of owning a barbershop is not the chair and the razor – it’s the barber.

You create savings or leverage for more results only on your biggest line item in the budget. That line is your biggest expense so that is where the profit or loss really happens. Your line item to watch is compensation. In the case of the barber, saving 30% on the cost of razors is very nice but doesn’t really change the bottom line. The cost of razors is a small cost compared to the cost of barbers.

A common way that labor can be changed is buying technology so that a manual task can be automated. We used to have a time clock and cards which were manually input into payroll with cards and work papers stored. We bought hand scanners which directly enter the online payroll program. We require direct deposit so there are no checks to distribute. We changed the pay date to twice a month instead of biweekly and went from 26 payrolls per year to 24 payrolls. The result is a reduction of 18 hours of labor per month.

Technology is only one way to leverage labor. Use your imagination!

 

Reasons Not to Change Labor Costs

It would seem logical to reduce positions, hours, or compensation when needed except that:

  1. You’re a nice person and hate to cut hours even when staff have nothing to do
  2. The staff member is 55 years old and you’re afraid she can’t get another job
  3. You’re concerned about age or other discrimination
  4. The staff member scares you and you’re worried that he will damage the company online after the termination
  5. You have two sisters working in the same company so you will end up with two headaches while changing one job.

 

 Since these are all real feelings, let’s look at each one –

  1. Starting with two sisters – never hire related persons in the same department. Move one of them as soon as possible into a different department so that each can be supervised on their own merits. If the company is small, it can be very difficult without losing both of them.
  2. The staff member scares you – I remember one staff member who scared other staff. When I fired him, I felt like a lion tamer facing an unusually hungry beast. He left the firing room to accuse other staff of hating him and sent notes to customers about my untrustworthy behavior. My only mistake – you need to escort the person off the property as soon as you finish telling them the news. Ignore the threats
  3. Discrimination – you must follow labor law scrupulously. Consult your attorney. The money you spend on the attorney can be paid with the dollars you save from making the change. Document all your actions and employee responses.
  4. Age – There are now more and more people working later in life in all companies. That is wonderful as long as they add value. You can protect the company and protect them with an immediate policy that they have to invest in their skills development every year to keep the position. In my first job, the company had a policy of requiring progress towards a Master’s Degree within 3 years of hiring or the 3rd year would be the terminal year. They wanted the freedom to change the work force as needed without damaging employees. What a graceful way to handle staff relations! I’ve always followed it.
  5. The biggest problem in making change is your own feelings as a manager. It’s an awful feeling and responsibility to disrupt someone else’s life. And it’s part of the responsibility that comes with your compensation.

 

Conclusion

Our economy is changing rapidly. “The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.” (BBC News). I can’t predict how your agency will manage external threats and opportunities. What I can say is that labor costs in a service organization are your major challenge. If you don’t manage those costs, your chance of survival is bleak. Good luck!

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

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