Category: Strategy

Studies and surveys conducted by universities, government organizations and the media are revealing some startling – and occasionally stark – statistics about the state of business in America today.

Among the more incredible realities facing business owners today is the fact that, as the last of the Baby Boomers retire over the next 13 years, the number of privately-held businesses sold in the US will increase over 15-fold. While, on average, 23,776 such businesses have been sold annually in the US over the past 30 years, that number will statistically increase to 378,000 per year over the next 13 years. This massive influx of supply will create a buyer’s market and all but commoditize the value of businesses that are not operating at peak profitability.

The sale of a business usually represents the largest paycheck in the life of a business owner. It is critical to plan ahead and start taking the steps necessary to ensure that your company is operating at optimal profitability in order to ensure the maximum value at time of sale.

The State of Small Business

Another interesting statistic comes from IDC, a subsidiary of the International Data Group. They’ve found that small businesses (defined as businesses with fewer than 100 employees that are not home-based) represent 99.7% of employers in the United States. 60-80% of new net jobs yearly come from this group of businesses. And according to Forbes, small businesses employ 50% of the American working population. And yet many small business owners don’t know how to delegate or inspire their employees to maximum performance.

The Small Business Association reveals that there are approximately 23 million small businesses in the United States (a 49% increase since 1982), making up an astounding 54% of all sales generated in the country. But many small businesses struggle day in and day out, especially when faced with larger corporate competition. Harder still is the struggle of small businesses with disorganized business plans or strategies that are not executed efficiently or effectively.

Also according to surveys conducted by the Census Bureau, the average lifespan of an American small business is 11 years, with 66% lasting at least 2 years, 49.6% lasting at least 4 years, and 39.5% lasting at least 6 years. In a tough economy, those numbers have been difficult to sustain.

The State of Start-ups

Small businesses are not the only ones facing challenges in America today. Start-ups must leap over a number of hurdles in order to succeed. According to Inc., when starting a new business surveyed entrepreneurs said the following factors contribute most to success: prior experience (58%), learning from past failures (40%), learning from past successes (39%), the management team (35%) and availability of capital/financing (23%). Of course, without a sound business strategy and managed accountability, there’s little chance for any start-up to grow.

But Forbes says an amazing 543,000 new businesses start up each month, come hell or high water. As awe-inspiring as that statistic is, a depressing counterpart is that more employer businesses shut down each month than start up. Perhaps a ray of hope is that according to research comprised of data from Entrepreneur Weekly, Small Business Development Center, Bradley University and the University of Tennessee, 55% of start-ups within the massive services industry are still operating after 4 years.

According to the same research, within the first 3 years of business, 25% of start-ups fail in year one, 36% fail in year two and 44% fail in year three. By year ten, 71% of start-ups have shuttered their doors. The top 5 reasons for start-up failure are going into business for the wrong reasons, taking poor advice from family or friends, pure bad luck, entrepreneur burn out and pressure from family or financial commitments.

Start-ups are subject to the same tough economy as other businesses – perhaps even more so than established companies. The Bureau of Labor Statistics reports the number of start-ups less than a year old has fallen steadily since 2006, with just 500,000 in their 2010 snapshot. And the number of new jobs created by start-ups has fallen sharply too, reaching just under 2,500,000 in 2010 (compared to the peak of over 4,500,000 in 2000).

Also according to the Bureau of Labor Statistics, by 2008, the closure of businesses began to outweigh the quarterly establishment of new businesses – and that trend, sadly, has held.

The Solution to Business Woes

What does this all mean? It means strategic and operational changes are necessary to help existing businesses survive and reach maximum valuation, give start-ups the boost they need to acquire funding or achieve acquisition, or provide distressed companies with a clear path to turnaround. Those changes can be made through the single most effective system of executing any business strategy, the Critical Factors Management System.

Developed by David Kinney, whose Fortune 500 management training and 30 years of business experience make him particularly qualified to guide businesses back on track, the Critical Factors Management System presents the most efficient way to maximize business value. The system helps business owners identify the factors that are critical to the success of their business. It also not only allocates accountability for those critical factors to appropriate members of management but considers the psychology necessary to inspire them to hold themselves accountable for the execution of the critical factors on an ongoing and consistent basis.

Within a short period of time, established business owners see the profitability of their companies consistently increase, allowing them to sell for maximum value or acquire funding for growth initiatives. Turnaround companies see a turnaround, not only in profitability, but in the attitudes of their workforce as the system inspires greater productivity among all personnel. And start-up stage entrepreneurs find themselves with the right plan to attract investors or bring their existing start-up to an attractive point for acquisition.

Not ready for The Critical Factors Management System? Download our FREE PIP Checklist for 7 steps you can start implementing today to sustainably increase the value of your company!

I remember when we were kids how my brother and I and our friends from the neighborhood would decide, every once in a while, to build a tree house. I think we would all start with this vision of something that looked like a miniature version of a real house but I don’t ever recall a discussion about what we would build beyond ‘a tree house’.

In our neighborhood, there was a junk yard down the hill on the other side of the wall at the end of our street. We were young, we had energy and we all had access to nails, hammers and even saws. We never built anything approximating a tree house. Why?

Would you build a real home without a blueprint? Fortunately, for all of us who grew up in my neighborhood the answer is no because, even if we were still fool hearty enough to try, zoning laws would not allow it. You can have the most detailed idea of what you want to build but you are required to have professionally drawn up blue prints in order to get the permits to build it.

For those of you who own a business and a home, it is arguable that your business is your most valuable asset. Without your business, it is unlikely that you will be able to afford to maintain your home. So, if your home requires a blueprint, what about your business?

The foundation of the U.S. economy is small business. Pretty much anyone with an idea or a passion can create the opportunity to own their own business. And, while government regulation does not require that entrepreneurs have a business plan, the realities of attracting capital do necessitate a business plan (your blue print). Why?

Capital sources and financiers want to know if you are building on solid ground. They want to know the prospects for actually making money by investing in your venture. They want to know:

• What are you building?
• Why is it different or needed?
• How much money do you need?
• How will you use the money?
• How much money will they get back?
• What are the risks?
• When will they get their return on investment?

But if you are not seeking outside capital, do you still need a business plan?

When we built our tree houses we never sought outside capital. We knew we wanted to build a tree house and we just went ahead and built it. I think the best we ever did was to build a platform that might have supported the weight of two of us – until the single limb that was supporting the platform gave way – and Tommy Flemming’s arm got broken in the fall.

We were kids building tree houses, our parents supported us and Tommy’s arm healed. We could afford to build without a plan. Can you?

In order to develop an executable plan, follow these 5 simple steps which are easily remembered as:

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• Past – Where have I been?
• Present – Where am I now?
• Future – Where am I going?
• Strategy – How am I going to get there?
• Time – When will I get there?

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Let’s take a quick look at each one:

Where Have I Been?

When we commence a new engagement, the first thing we do is analyze up to three years of historical financials. Why? Because we want to determine where any inefficiencies in productivity exist of course but, equally important, we want to ensure that the goals of the company are realistic. Building a successful company does not happen overnight. It is a process. And the process begins with a clear identification of realistic goals.

Where Am I Now?

Perhaps you’ve heard of a SWOT analysis? A SWOT analysis is an appraisal of your current Strengths, Weaknesses, Opportunities and Threats. Like the first step in developing a plan, it provides a reality check. It helps you to determine the resources (capital, personnel, equipment, expertise, etc.) you have available to achieve your goals.

Where Am I Going?

Now, having a good sense of where you are and what got you here, it is possible to set aggressive but realistic goals. When you set your goals, it is critical that, beyond being realistic, your goals are clear and quantifiable. (For more on this, download our FREE PIP Checklist.) It is only with clear and quantifiable goals that you can hold your team accountable to executing your vision and inspire them to perform at their best.

How Am I Going to Get There?

Like your goals, it is critical that your strategy be clear and realistic. Again, in the first two steps, you have identified the resources you have available to achieve your goals. Now it is essential to properly align these resources, set specific milestones and effectively monitor performance. The greatest strategy in the world is of little value if it is not effectively executed so it is critical to align your resources around an executable strategy. (Here again, our FREE PIP Checklist might help).

When Am I Going to Get There?

Adding a time element to your plan is absolutely crucial to execution. Just as common sense dictates that the foundation for a house must be built before the framework can be erected, that the framework must be erected before the walls can be built, that the walls must be built before the paint can be applied, so should it be that common sense dictates that EVERY function within a strategy must be coordinated in order for the strategy to work. And the resource that ties every function together is time.

Without regard to any outside influence requiring it, EVERY company benefits from developing a documented strategy before taking action.

We hope these 5 simple steps of developing a plan will help you to get started!

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