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The Art of Downsizing

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The Art of Downsizing – Part I – Products and Services

Downsizing is not an easy practice.  Not only will it affect the individuals and their families, if the wrong line item, individual or department is the target it could be detrimental to the future of a company.  Although many CFO’s may disagree, it is not just about the expense.

A company must take into account the direct and indirect value that will be lost when eliminating the expense.  An example would be the impact of removing the expense of a single trade show.  Sales are not the only purpose of attending a trade show.   A trade show is an excellent way to introduce a new product, meet with customers with little to no additional costs, or do competitive due diligence.  If a company has been attending a trade show for years and then stops, it is noticed by customers and competitors alike.

Marketing and advertising are another area commonly targeted when downsizing is necessary.  Marketing and advertising are the methods used to communicate to a large group of people at a reduced cost.  Unless you have methods in place to track the success of a marketing or advertising campaign, knowing its value is virtually impossible.  Always have a method to track the success rate of a program.  The simplest form of tracking is assigning a specific toll-free telephone number to each marketing or advertising campaign.  Based on the number of calls received will allow for easy tracking.

Sometimes the perception that a product or service has reached the end of its sales cycle can many times be a mistake.  Most products or services can be used for multiple markets.  Do not discard a product or service until you have investigated other potential market opportunities.  Many products or services, even if they cannot be used as-is in additional markets, may offer some value in new product development and reduce the timeframe of introducing a new product to market.

These are just a few of the areas that must be addressed when downsizing. The purpose of Part I is to give you some food for thought.  The elimination of areas that are perceived as unnecessary expenses may be incorrect.  Thorough analysis of the indirect value is also critical.  The perception within the market should also be considered.  How will the current customers feel if they believe that their product is no longer going to be manufactured?  Is service being eliminated?  The same goes for service oriented business.  Downsizing can be a ticket for your competition to come in and eliminate another source of income. . .your customer.  When you eliminate products or services, the potential for a reduction in revenues from current customers is a real potential.  These are just a few of the many reasons that a company must investigate all of the factors involved before making a decision.  Hasty downsizing decisions can be the greatest mistake any company can make if it is not thoroughly investigated.  It is not a decision that should be left solely to the finance department.

During the next part of The Art of Downsizing, we will address the factors involved in reducing personnel.

 

We are not having a business recession!

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I have heard one too many people trying to start a company or looking for capital and blaming the “recession” when they were not successful.  It is good business for my company but this needs to be said. . . it was NOT the recession that kept you from succeeding.  Don’t get me wrong, I do know of companies that are having problems and it is not do to their mistakes.  But the majority of companies can look at their process, or lack thereof, for the problem(s).  I have talked with several companies who have complained about the recession and asked if I could help.  I always say yes and ask them some basic questions.  Can I see you business plan?  Typically I am told that they know the Business Plan they have is not very good, but it is what they used to raise funds.  Or, my favorite. . .Business Plan, my idea is so original it doesn’t need a business plan, all I need is an Executive Summary.  I typically ask to see the Executive Summary.  I usually receive a 20+ page document that left me more confused about the company than before reading.  But it is very clear what the writer perceives as their strengths.

This may seem like I am complaining but quite the opposite.  As I said in the beginning these are the types of problems that have been the core business for my company.  I don’t see the need for the wide array of business services we offer going away.  I am hoping that I can reach just one person/company to see what is needed.  I see hundreds of good ideas monthly, only a few of them may be successful.  You may have a great idea but if you don’t follow what I have termed the four P’s you have dramatically reduced your chances of success.

  • Plan – before you can do anything you need to plan out your strategy.  no matter what you desire, put on paper the methods you will use and what will be necessary.
  • Prepare – once you know what is necessary, prepare all of the strategies, timelines and actionable items.
  • Produce –  now produce the items you have outlined during the preparation phase.
  • Patience – this is the hardest of all of the phases.  Be patient, if you have done your job correctly it will be obvious why your company or idea is so attractive.  It will take time, this cannot be changed.

If you have completed the above steps you will be thrilled with the results.  If you are not having the results you had expected, go back through the process and determine what might be interfering with your success.  These steps are dynamic not stagnant.  You should always be proactive in your approach.  If you see that something is not working, fix it.  If you see that a goal set is unrealistic, reset it.  Obtaining your goals are within your grasp, just be certain your not reaching too far.

 

Recession or Opportunity – Updated

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Many people and companies are claiming we are in a recession and that is the justification for lower revenues or not making a purchase. I disagree! This is a perfect opportunity for both businesses and individuals to capitalize on the opportunities available to grow and evolve. For companies, it is the time to prepare for the future and develop current potentials. For individuals, it is time to take advantage of your current position, and make progress. Be aggressive and proactive.

So, now it is almost four months  since I posted this comment.  And it seems that many people don’t want to agree with my thought but cannot make a case to justify why my comment is incorrect.  Well, as I tell my employees, I am happy to change my opinion if you can justify your opinion. so I am challenging everyone who disagrees with this post to justify why they feel this way.  I will give one of my justifications that I have not heard a strong response.

In most markets if you were told you had a 90% chance of winning/living. . . etc., you would be extremely happy.  According to the latest figures unemployment is @9.2%, how that number compares to the past is not relevant, let me explain.  The chance is that a fair percentage more of unemployed individuals is not calculated, let us then double the figure to 18.4% unemployment.  Based on that figure, 81.6% of all people are working, and that is based on DOUBLING the unemployment rate.  These are excellent odds. Are more people unemployed, yes.  Are more people worried about a loss of a job, yes.  Are over 80% of all people working, absolutely.

Many years ago, and without trying to age myself, a show called “War of the Worlds” played on the radio, mass hysteria almost broke out, many were worried we were being attacked by aliens.  Green men landing and attacking the world.  All over a few words that sounded realistic.  I am not saying that employment is higher than the past, but let’s not create a situation that keeps the marketplace in a downward slide.  My concern is not the unemployment rate but rather the rate that people are accepting being unemployed and blaming it on the recession.

If your supervisor comes to you and says he thinks he needs to let you go because of the recession, don’t accept this and walk out.  Politely explain why keeping you would benefit the company and how losing you would cost the company more than it would cost in payroll when you are terminated.  You would be surprised how companies don’t realize that firing that person actually harms the company although it might help a specific budget.  If you are working on several projects, split the budget so now they are only paying 50% of your budget…..the options are endless for the discussion.

So, other than the definition of recession, justify why 80% of employed people should be worried.  We all know why the other 20% should be concerned.  I will be having meetings with several major corporations to discuss the benefits to the company of hiring new employees.  If you are concerned about your job, contact me via e-mail and I will see if I can make some suggestions to make your situation less tenuous.

What do I need to consider in starting a new company? Part 1

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I hear this question on a regular basis and although I might not be 100% accurate, for me this question has always come from someone who has never started a new company. They may have done exceptionally well in their current or previous job, understand the market and had a phenomenal P&L responsibility. They may have been an excellent manager or c-level employee.

I then look at them and ask the following questions: do you have a family? Typically the answer is yes.  Do you own your home? The answer again is usually yes; I ask if the savings they have accrued can fund the company and keep the family in a financially stable position for at least 1 year?  The answer is typically no or a dead stare. I leave this as the last question because I know for the most part, the answer.
I remember starting my first company and saying, “Why am I doing this, making someone else all this money for a salary and commission. Why not start my own company and keep the profit rather than giving it away to someone else.”   This was the same company that paid my check every week, paid all the corporate expenses like heat, water, electric, credit card charges, air fare, expenses while travelling, trade show expenses, collateral material, business cards, pens on my desk, in and out box….etc. I took all of that for granted, I go to work for a company, and they pay the expenses. What’s the big deal?

After I explain my first experience, I have had quite a few head nods in agreement. I then ask what they did at their job. Many times sales, so we will focus on sales,  typically, based on the company, they would probably be defined as mid to upper level sales. I then ask them how they see the company functioning, and based on previous experience, they give me pretty close to what they know. I then ask how they are going to pay for the next 36 months of expenses. Yes I know that is high but it has happened and it gets peoples attention. I have been involved with several Biotech and technical firms that have taken far more than 36 months to get to positive cash flow, but once attained it is enormous!

Back to our new entrepreneur.  The funding issue is usually responded to with either, I will get a loan or investors, or mortgage the house. Don’t mortgage the house unless you are single with no children. I hope everyone succeeds, but if for some reason you don’t,(and if you are saying I WON’T FAIL at this point, stop reading, your doomed, and the possibility for failure is always a potential), you don’t want to lose your house and possibly family over starting a job. If you get a loan from a bank and it doesn’t work, as long as it wasn’t a secured loan, you can always file for a bankruptcy where a house motgage you cannot include that in a bankruptcy as easily based on the way you are filing (I am not an attorney and you would need to confirm this in your state, region. . .etc., to be certain).

Funding is critical, being prepared for the angel networks to the major institutions is even more critical. Know your business inside and out, have a “value” be it some sort of IP (Intellectual Property) or uniqueness that makes it difficult for the competition to duplicate. If you are just going to sell products in the same industry you are currently involved, consider building the business to be sold. Before you take on an effort in the same industry, and if you have a non-compete (did you sign any papers with the company when you started? get a copy of all papers), go to your attorney to verify the terms and that you can legally compete.

Now that I have your attention and you are sufficiently panicked, my next article will pick up with what do we do to prepare and then part 3 will discuss reality versus desire. And, I don’t know, I might add a part 4 and 5, I could easily write a book designed for the new entrepreneur so I will let you know when I am done with the parts. If you have any specifics you want addressed, please email me @ neil@commstratinc.com

The Lost Art of P&L, most people know what it stands for, but do you know how it works?

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This is a special post in response to a note I received from JC who brought up this topic and I totally agree, JC, it did put a smile on my face.  So I give credit to this post topic to JC.  Profit and Loss, seems so simple.  You take your profit line, subtract your loss line and you have your P&L.  When in  reality it is not that simple.  As JC would point out, and as those of us who have been responsible for the P&L for decades, know that the order is Cash Flow to Balance Sheet to Income Statement.  Those links are critical to understand and to follow.  You can get by other ways I’m sure, but if you want to do it right, then learn the process, it really is quite simple and easy to put into place.  And, Yes, many of you have CFO’s or similar people to do this for you.  If you are the CEO remember Enron and the changes that were made.  You NEED to understand the process and be certain you are getting accurate info, because if you’re not, and a public company, you just may be wearing a very unattractive bracelet on your ankle.

 

Neil

How to respond to our BLOG

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I appreciate all of the wonderful comments and posts.  However, unless you use your real name your post will be deleted. Too many people attempt to gain access to a BLOG by making some simplistic comment so that thier link will be posted.  So, PLEASE, use your name so your post can be considered.  This is a new policy put into place due to a recent post that was fictious.

Regards,

Neil

Please go to www.commstratinc.com to subscribe to our BLOG

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I appreciate all of the positive comments.  Please go to www.commstratinc.com to subscribe to the BLOG and get updates on a regular basis.

Neil

Saying you are an Entrepreneur does not mean you understand what this means.

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During many of my training classes and turnaround/restructures of new companies, the owner refers to themselves as an entrepreneur.  In many cases this is true, they have run multiple companies and have been very successful, they are just having a problem with this one.  However, more times than not, with new companies, I find the company to be the first one started by this individual.

Being a salesman making someone else money is frustrating.  You know the market, the products, the competition, you understand all of those issues regarding the sale of the product.  Then why not start your own company and keep the money in your own pocket?  This is a great thought, but unfortunately it is not complete.

When starting a company, knowing how to sell is the last of your worries.  The development of the product (you can buy someone elses but you will most likely be out bid), so you need to potentially develop a new product and get it patented.  Preferrably several products so you have a product line, and this works for services too.  You need to understand how you are going to fund the first 36 months and accept that you will not get a paycheck typically for a minimum of 6 months.

The development of the business plan, the creation of the corporate infrastructure, the collateralizing of your home.  All of these must be considered.  What sort of collateral material are you going to  use?  Are you going to print it out on your home computer, it will show as being cheap and unprofessional, so you need to find a printer.  You need a printer for your business cards. You will find places that will print them for you in every shopping center.  The quality of these is, at most, fair.  It is obviously not made by a printer.

I could go on and on with all of the development work needed to create your company.  What I will leave you with is that you need to consult someone you trust who has done this a few times.  They can lead you in the correct direction.  If that fails contact www.commstratinc.com.  Building a business is not like working for another company who is paying the bills and handing out payroll.  Now you have become that person.

Neil

To communicate is more than just words.

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Many people catagorize communication into two key areas, written and verbal.  I am not speaking about methods such as e-mail, blogs. . .etc., but in the truest sense of the word.  One area missed by many is body language.  Body language represents more than 50% of a conversation during a face to face conversation.  This is a key area to understand.  Regardless of your profession and level, understanding the unspoken, both in what you are saying with your body as well as the other party(s) is critical.  Lost sales, missed job opportunities, poor grades (mortar and brick with professors).  If you take this to your personal life, you can see it in your friends and family.  If you have ever heard the phrase “you knew what I meant” then you didn’t read the body language properly.

If this is a topic of interest I will be happy to expand, please let me know and I will address this in more detail.

Neil

Generic Business Answers for Business related problems can be disasterous

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I have listened to way too many people who “have the answer” before they bother to investigate the entire situation. When a business is in turmoil, knowing how to fix the problem is not done as a result of an answer found in a book. Good Due Diligence is necessary to determine the problem. A good example would be three manufacturing companies who mfg similar products are all having problems. The knee jerk reaction would be the market. But in reality this may be completely incorrect. Did I mention that one of the companies had changed it sales distribution channel about a month ago, that the second had the Senior person for Sales leave the company under questionable reasons or that the third company, familiar with small orders received a volume order and didn’t realize that manufacturing volume requires a different financial structure?

My point being, what seems to be the obvious answer is not always correct. In reality, it probably isn’t. So be certain to investigate and approach each situation as a new project with no preconceived notions.