4 Keys to Successfully Navigating Business Transitions

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Skiba Consulting wanted to find out the keys to success during major business transitions at small and mid-sized businesses.  We interviewed 24 leaders of privately held companies that ranged in size from $3 million to $150 million in annual revenues.  They came from industries that included manufacturing, services, construction, distribution, and printing.

The transitions faced by the companies were almost always initiated by the company leader (the owner, president, CEO) either in support of the leader’s vision or as a reaction to changing business conditions.

The roadblocks to success faced by these companies were fairly diverse:

  • Difficulty in finding the right people for key leadership, management, or technical roles,
  • Very tight deadlines required by a market opportunity or client requirements,
  • Outdated business or manufacturing processes,
  • Lack of clarity on leadership roles within the company,
  • Unclear understanding of a market need for new products or services,
  • Lack of planning or project management expertise,
  • Lack of a roadmap for where the company is going and how to get there.

We found that even with the diversity of challenges, the path to success relied on a limited number of factors: (1) Put the right people in the right roles, (2) Plan for success, (3) Be realistic about the time required for success, and (4) Utilize outside resources as needed to fill in the gaps in internal capabilities.

  1. Put the right people in the right roles.  This was clearly identified as the most important element of a successful transition, and was mentioned by most company leaders.  We were surprised at how strongly this was emphasized as the number one element to success.
  1. Plan for Success.  Regardless of whether the transition is a leadership change or a change in company direction, it is important to put together and follow a strong plan.  Planning becomes more important when the risk is high or the time frame is tight.
  1. Be realistic about the time required for success.  Owners, investors, and employees need to clearly understand the time required to implement changes, and agree to a realistic schedule.  This helps everyone stay focused on their role in the overall project and to understand how meeting their timelines affects the success of the entire project.
  1. Utilize outside resources as needed to fill in the gaps in your internal capabilities.  Business owners from small and mid-sized companies utilize external resources strategically.  They go outside of the company when there is a need for specific expertise that is not available internally.  They also go outside when an unbiased outside viewpoint is needed.

Change is the norm in business and should not be feared.  It can come in the form of opportunities such as growth that requires business practices, major new clients, transitions to new leadership teams, or challenges from declining sales in a competitive marketplace.  Successful companies are not afraid of change, but recognize the need for action and take the steps necessary to successfully go through the transition.  Based on our research, the keys to success are:

  1. Put the right people in the right roles,
  2. Plan for success,
  3. Be realistic about the time required,
  4. Utilize outside resources when needed.

Download the full white paper at http://www.skibaconsulting.com. 

Impact Enterprise vs. Non-Profit

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Some budding entrepreneurs want to make the world a better place by meeting a specific social need, and then struggle with whether they should start a for-profit impact enterprise or a non-profit organization.  I reached out to participants in several LinkedIn groups to get their input, and added my own insights based on over 20 years of entrepreneurial and non-profit experience.  Here are some ways to look at the non-profit vs. for-profit question that will help you to make the right decision.

Is there a clearly defined need?  Perform market research or run a pilot program to find out more about your customer/beneficiary.  You need to answer two key questions: (1) Is this a compelling problem?  (2) What (if anything) can the customer/beneficiary pay to solve the problem?  If the answer to #1 is no, then there is no need to do anything.  If the answer to #2 is a dollar amount that can sustain a for-profit business, then follow the for-profit route.

KISS – Keep It Simple, Stupid.  It’s hard enough to start a new organization – don’t make it more complicated than it needs to be.  What is the simplest way to meet the need?  What business model is the most financially sustainable?  If it can be done with the for-profit model, then that’s what you should do.

Follow the money.  A start-up for-profit needs investors.  A start-up non-profit needs philanthropic support.  Either way, you need an up-front financial commitment which will get you through the proof-of-concept start-up period.  Funding sources have generally seen a lot of different proposals, so their responses can give you some keen insights into which model will work best.

Would you rather chase grant money or customers?  Your gut level response to this question can be very meaningful in helping you to decide what type of organization best suits your personal profile.

Leverage Your Management Team.  What is the background and expertise of the management team – for-profit or non-profit?  They’re very different animals, so stay with what you know.  If you want to go the other route, then first get experience by working for an existing organization.

Are you a control freak?  Do you want control over the mission and vision of your organization?  A for-profit impact enterprise will generally give you greater control than a non-profit.

Legal form follows organizational needs.  Determine how you want to run the business/organization, and then utilize the legal form that supports what you want the organization to accomplish.  Don’t let the tail wag the dog by settling on a legal form first.

You’re No Longer a Start-Up — Stop Acting Like One

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Most new enterprises are started due to the passion of an entrepreneur or founder.  He/she works long hours, does a little bit of everything (or more likely a lot of everything), and gets the enterprise to grow to a dozen or more employees.  Now they’re both stuck – the organization’s growth is limited by the leader’s personal abilities and availability.  It’s time to take the next step – professionalize and systematize so that the organization can continue to grow.

Entrepreneurs are frequently seat of the pants risk takers who abhor being pinned down to standard practices.  Standardization of any kind sounds like hell on earth!  The reality is that a lack of standard systems and procedures forces the entrepreneur to spend the vast majority of their time on the minutiae of the business.  Or the details are avoided and chaos reigns.  Professionalizing the business frees up the leader to focus on the big picture, visionary aspects of the business.

Here are some of the elements that might be implemented at this stage of the organization’s development (not a full list.)

  • Implement a simple business planning process that creates a road map  to follow,
  • Standardize business processes and implement best practices,
  • Create job descriptions and performance-based compensation,
  • Implement information technology for managing customer relations and operations,
  • Implement financial systems and software that provide high quality information.

The entrepreneur frequently does not have the mindset or skill set to professionalize the organization.  So what’s the solution?  There are several, depending on the organization’s needs and resources.  In increasing order of needs and resources:

  • Utilize existing staff to implement or manage projects.  This can work for smaller organizations when they have a person who has the skills to handle the specific project.
  • Hire consultants/contractors to implement specific projects.  This works when you have a specific important project.  There needs to be a point person within the organization has the knowledge of the organizations needs and can manage the assignment.
  • Hire an interim or part-time COO to manage project implementation.  A good solution if you have multiple projects requiring implementation, but do not yet have the resources to hire a full time COO.
  • Bring in an administrative partner or full time COO.  This works best for a growing enterprise with the financial resources.  Most organizations need a #2 person to handle operations and implement the organizations vision when they reach between 10 and 30 employees.

Impact Enterprises Can Measure Progress with an Impact Milestone

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Financial break-even is an important business milestone, particularly for start-up organizations.  An impact enterprise should also have an impact milestone, tied to its mission statement.

There are a number of benefits to having a clearly defined impact milestone:

  • Clearly define what success means from a social/environmental standpoint,
  • Focus the organization on activities that support the mission,
  • Track progress towards the mission, and force an ongoing reassessment of activities being taken,
  • Provide clarity as you work to align social impact and financial results,
  • Promote the organization’s progress to internal and external stakeholders.

How do we define the impact milestone?

  • The impact milestone should be aligned to the mission statement.  As discussed in a prior blog, the mission statement briefly describes how you satisfy a customer’s need.  In the case of an impact enterprise, this is a social or environmental need.
  • The impact milestone should signify reaching a tipping point in terms of meeting the mission, much as a financial break-even signifies proof of the financial model.  A construction material recycling center might start by asking questions that define its outreach and impact in the community, e.g.:  What % of construction firms in the community are aware of and use our services?  What % of home owners contacts us before starting demolition?  How many unique customers come through our doors?  What % of visitors purchases what they came for?
  • The impact milestone should be easy to understand and based on data that’s relatively simple to collect.
  • The impact milestone should be meaningful as a way of showing appropriate progress towards the organization’s mission.
  • Once an impact milestone is defined, define the specific amount that represents a meaningful impact.  For example, 50% of construction firms that worked in the community over the past year have contacted the construction material recycler prior to demolition.

Don’t be discouraged if you don’t get the impact milestone quite right immediately.  Just having the internal and external discussion on what it should be can have very powerful effects on the ability of the organization to move in the right direction.

Use Break-Even to Drive Key Business Decisions

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Start-up organizations frequently have stars in their eyes when they look at the long-term.  Their revenue projections show the traditional hockey stick – a slow start followed by major revenues and profits starting in year 3 or 4.    The unfortunate reality is that 25% of businesses do not survive their first year, and many more limp along because they haven’t used their first year wisely.  Reaching break-even can be the critical milestone that determines future business success.

I recommend that start-up businesses establish a goal of reaching financial break-even on operations within the first 12 months.  In most cases, that should be enough time to demonstrate proof of concept and validate the business model.  Using break-even as a milestone can lead to asking some key questions (and answers):

  • What is the target market that will be easiest to crack quickly, and which will set the stage for future growth?
  • What expenses can I eliminate or defer?  (Cheap space, barter for services, staging of investments.)
  • What capital expenses can I defer until after I’ve reached profitability?  What can I rent or lease in the meantime?
  • What processes should I put in place quickly in order to maximize efficiency?
  • What personnel do I need (not want) in order to get to break-even?
  • What revenues and profit margin are necessary to achieve break-even?
  • What is a reasonable timeframe for reaching break-even?
  • How much cash will I need on hand?  How much do I have?  Will this cover expenses for the inevitable 6-12 month delay?  Should I raise more cash?
  • How will I determine whether I’m on track to achieving break-even?

Your organization will probably not be accurate in predicting when and how you will reach break-even.  Nevertheless, going through the break-even planning exercise will provide many insights that will help to set the stage for future success.

Use Your Organization’s Core Values as a Decision Filter

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A large Catholic hospital chain has decided to argue in court that fetuses are not people, in order to protect itself in a lawsuit.  A woman went into cardiac arrest upon arrival at the hospital, and the hospital did not perform a C-Section to deliver the 28 week old fetuses.  The case is being appealed to the Colorado Supreme Court, and Colorado bishops are reviewing the decision of the Catholic hospital.

In the immediate term, this means that a large Catholic entity decided that money is more important than its core beliefs.  Catholic Health Initiatives owns 171 hospitals and has net assets of $15 billion, so settling the lawsuit was not a life or death situation for the organization or the people that it serves. (Full disclosure: I am a mostly lapsed Catholic who cherry picks his Catholic values.)

Wow!  You couldn’t have a clearer case of core values and financial results being in total opposition to each other, and in organization that has such a strong belief system.  So what hope is there for the rest of us as we struggle to balance values and financial results in our impact enterprises?

Impact enterprises frequently face decisions that may fall one way or the other – greater social impact or greater profitability.  How we make those decisions may determine the soul of the organization, its social or environmental impact, and its long-term viability.  Here are some questions you can ask that may help you to make these tough decisions:

  1. Does the decision go against the core values of the organization?  If so, should the values change?  This should not be done lightly.
  2. What will be the short term and long term impact on the soul of the organization and the people who work for it?
  3. Will the decision have a negative social impact in the short term, but strengthen the organization in the long term and allow it to increase its impact?
  4. Is the social impact one of omission (we’re not able to help more people) or commission (we are harming people?)
  5. What is the level of financial impact?  Will it have a marginal impact, or does it threaten the organization’s existence?
  6. How can we be creative in aligning core values and financial results?  There may be ways to gain the financial benefits without compromising core values.

The last question is the most intriguing and powerful.  It is the question that an impact enterprise should ask itself on an ongoing basis.  It is the question that drives change which results in the most sustainable long term impact.  It is the question that requires creativity, and encourages organizational and leadership growth.

Get Over It: There’s Nothing Wrong with Your Impact Enterprise Making Money

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A non-profit organization is considering providing for-profit services to a new client base, in order to generate revenues for the organization.  The new leader of social enterprises was struggling with how these new services aligned with the core mission of the organization, which is to provide an array of supportive services to individuals and families within an under-privileged Chicago neighborhood.  Services include a donor and self-funded tutoring program, which they have an opportunity to provide on a fee basis within other more affluent communities.  The profits from the paid services would help to provide services for people who cannot afford to pay for them.

The organization’s charter is to provide services within a specific geographic area to people with limited means.  The proposed social enterprise would provide paid services in more affluent communities; a disconnect in two ways with what the organization has done in the past.  We came up with four ways in which the new social enterprise would support and align with the organization’s core mission:

  1. Money for the core organization.  In the days of more limited government funding and the possibility of limits on tax-free donations, it makes sense to be creative in expanding the organization’s funding sources.
  2. Meet the same need within the middle-class community.  Doctors don’t feel guilty about saving the lives of people who can afford their services.  Why should this organization feel bad about taking money for their services?
  3. Lessons learned from the paid services might improve the quality of free services.  The competition within the free market will force the organization to tighten up how they provide their tutoring services.  This will improve the quality and cost effectiveness of the free services.
  4. Broaden the reach of the organization.  There might be opportunities to provide joint services to free and fee-based clients, which might generate yet to be determined opportunities.

So get over it!  There’s nothing wrong with generating income from your services, as long as it doesn’t compromise the core mission of the organization.

Six Questions that Provide Focus and Results in 2013

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Organizations of all kinds need to focus on those activities that will have the greatest impact for the organization and its customers/beneficiaries.  The following thought-provoking questions have been developed specifically for social enterprises, which must align their social impact and financial goals.  The questions are based on a set of questions developed for small business owners by John Dini, a management expert.

1)      In 2013, my organization will measure its social impact by changing (what) ____________________________________________ from _____ to _____.  The mission of a social enterprise is to have a social impact.  How will you know that you are achieving the desired result this year?  What specifically is the desired impact?  What is the one key metric that will tell you that you’re heading in the right direction?

2)      Our revenues will increase/decrease from _____ to _____.  Financial growth is important for a social enterprise, since it allows the organization to expand its impact and establish a strong foundation for the future.

3)      Our net profit margin will go from _____% to _____%.  Net profit margin is what’s left after all expenses have been paid.  For a social enterprise, this provides working capital for expanding its impact.  It also provides profits for the owners of a for-profit social enterprise.

4)      The one most important improvement for this year that my customer/beneficiary will recognize is ____________________________________.  Put yourself into the shoes of the customer/beneficiary of your organization. What will provide the greatest additional value?  Focus on an improvement that can leverage existing strengths, is viable in the short-term and is sustainable in the long-term.

5) The one most important process improvement for this year is __________________________. Process efficiencies lead to greater alignment between social impact and long-term financial results.

6) The one most important leadership improvement for this year is ________________________. How will you improve the leadership team?  Will you hire key people, develop managers, allow them to take on greater responsibilities, or implement improved management practices?

These questions do not replace other more thorough planning methodologies.  They can, however, provide insights that can be incorporated into those plans, or act as a business plan executive summary.  They can also help identify areas where there is a lack of clarity or focus.

Seven Ways to Determine Whether Your Impact Efforts Are Misguided

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It’s easy to have a sense of entitlement when we want to “change the world.”  We may feel that others should just get on our bandwagon and support our efforts.  I know the feeling – I’ve been there more times than I care to admit.  Unfortunately, this attitude of entitlement can lead to wasted energy and squandered money.

Don’t let the tax status of your enterprise lead you into misguided efforts.  Some basic rules apply regardless of whether your organization is a Benefit Corporation, Subchapter S, 501(c3), 501(c4), Partnership, or other type of organization.

  1. Need: Is there a glaring need?  How do you know?  Have you done the research to determine the specific need?  Or are you just guessing based on your gut?
  2. Competition: Is there another entity that is already successfully working on the problem or opportunity?  If so, then why are you entering the space?  Do you have a superior solution?  Or should you be partnering with the existing entity?
  3. Examples of Success:  Is there a non-competitive entity that has successfully implemented a similar business model in another region, industry, population group, etc.?  What did they do to be successful?  Will it apply to your situation?
  4. Funding: Is someone willing to pay you to meet the need?  Don’t just guess on this — get those first paying clients or that first major donor.  There are plenty of people who will politely tell you that “it’s a great idea” and then be unwilling to pony up the money.
  5. Organizational Capacity: Do you have the capacity (management, funding, contacts, and expertise) to meet the need in a meaningful way?  If not, can you acquire them?
  6. Timing:  Is this the right time for what you propose?  Are you capable of acting with some sense of urgency?  You should be able to quickly achieve something meaningful in order to prove the concept.
  7. Expansion: If your venture is part of a larger organization, then how does this venture benefit from and contribute to existing capabilities?

I’m sure that there are additional questions that an organization can ask to determine whether its efforts are wishful thinking rather than substance.  I look forward to hearing some of them in response to this blog, and will summarize them in a future blog.  I particularly want to hear from those of you who’ve learned from your mistakes!

Climate Change: An Opportunity for the Human Race

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  • An opportunity to develop a sustainable economy.
  • An opportunity to strengthen international cooperation.
  • An opportunity to develop longer term thinking.
  • An opportunity for the human race to grow up.

Climate change is not typically looked at as an opportunity, and for good reason.  Climate disasters such as Hurricane Sandy, the Midwestern drought, and the Philippine cyclone are difficult to envision as an opportunity.  Yet there is an opportunity for the human race in these recent disasters.

One of humanity’s more endearing traits is the propensity to step up and cooperate when disaster is at our door step.  Climate change provides the opportunity for the human race to take the next steps in its development, as it forces us to learn more quickly how to “meet the needs of the present without compromising the ability of future generations to meet their own needs.” (Definition of sustainability by United Nations Brundtland Commission in 1987.)

Develop a sustainable economy:   We are stuck in an economic system which requires us to make more and more “stuff” in order to create jobs and increase the standard of living for all.  There’s a limit as to how far that will take us — and we have reached that limit.  What if there was a strong recognized value in developing products for a sustainable economy that minimizes carbon emissions and reduces resource utilization?  How much creativity and economic value would that unleash?

Strengthen international cooperation: The efforts of individuals, companies, and states are important.  In a global economy, we need global cooperation that matches the scale of the problems.  As the limited progress at Doha has once again demonstrated, this is difficult.  Can facing a major shared disaster inspire us to collaborate at a level never seen before?  The Philippine representative to the Climate Change Conference in Doha certainly hopes so.

Think in the very long term:  CO2 emissions stay in the atmosphere for 50-200 years, so we’re not going to solve our problems any time soon.  We need to think in the long term and act in the short term on decreasing global warming gases and learning to live in a changing world.

Grow up as the human race:  Humans tend to focus on their own selfish interests in the here and now.  In order to decrease the effects of climate change on future generations, we need to grow up and act in ways that consider the needs of our great-great-great grandchildren around the world.

The future of our planet depends on whether the human race takes advantage of this opportunity to “grow up.”  I hope that we’re up to it.