It sure feels strange right now, doesn’t it? Uncertainty is driving a white-hot M&A market; but clients are reading the headlines and asking some tough questions. Bottom line, everyone is wondering what the future holds and how to prepare for it... [4 minute read]
There are 2 possibilities:
- The economy keeps going as it is, and we continue growing like we’ve done for the past few years
- The wheels come off the economic bus, and we need to help our clients shine through an economic storm
The IEPA's John Leonetti points out that economic cycles run in 10 year waves, and we are due for a correction. With this in mind, I recently had the pleasure of collaborating with Danny Wheeler CPA CM&AA of FAZ CPAs on a presentation to the IEPA’s virtual summer conference. We discussed leveraging a growth consulting gig to help clients prepare for economic headwinds...
Times are good, and you have to make hay while the sun shines. But this growth economy can't go on forever, it never has.
What of learning about leading a growth engagement which, and this may seem counter-intuitive, also prepares your client for an economic downturn?
Counter-intuitive? Not so fast. The very strengths needed for creating predictable profits and cash flow (Growth Drive’s Dimension 1 of the 3 Dimensions of Business Growth) are the same as those needed to have a resilient business. You redesign your client's business to grow, while also designing life rafts and a survival plan.
Think about how this will make you stand out - and double the ROI your clients get from your services.
Still with me? OK, the process starts by getting total clarity about what your client needs to get the success they want. CoreValue Advisor Software is the best and most efficient way to get clarity - while also educating your client about best practices, objectives and key results.
Here are talking points to T up the conversation with your client:
- Best-in-class businesses are run using best practices
- These best practices are listed as growth and equity value drivers inside your client deep discovery process (aka the CoreValue system)
- Growth drivers are further defined by their supporting objectives, the stepping stones for implementing the growth driver
- Each objective has is divided into key results (together, OKRs) that must be achieved to reach the objective
- String together key results, you reach objectives; string together the right objectives and you’ll drive growth
The Growth Drive methodology is a playbook for converting an analysis like CoreValue into a growth-driving consulting project. How does this also apply to resilience and continuity?
It’s easy: the very same OKRs that create a business that has predictable cash flow and is easier to run can also provide the life raft needed when the economy fails. In Growth Drive this is called Dimension 1: Predictable Profits and Cash Flow. Why?
- Cash flow is the lifeblood of business
- Positive cash flow means the business is generating more cash than it is burning - funding growth
- Predictable cash flow can be repurposed to fund survival
Here’s a lift from the Growth Drive course. This course is available on-demand, or live streamed in September, more info here.
You’ll need to think through the data that triggers your survival plan; phase lines and fall back positions; and creating an incrementally implemented plan - don’t kill the patient while trying to save it!
OK, let’s unpack some of the OKRs for Dimension 1: Predictable Profits and Cash Flow, and see how they relate to resilience.
Growth Drive’s 8 OKRs for Predictable Profits and Cash Flow (and for creating resilience) are:
- SENIOR MANAGEMENT
- Predictable profits and cash flow requires:
- Growth Driver: a senior management team that works effectively together to deliver company goals and objectives
- Example Key Result: org chart with relationships and accountability
- Example Objective: clearly understood roles and responsibilities of senior managers that support the business’ objectives
- Resilience: Succession Planning de-risks the senior team; Create a transparent plan to shrink the leadership team and conserve cash
- HUMAN RESOURCES
- Predictable profitable cash flow requires a stable, productive workforce
- Growth Driver: process to find, develop and retain quality people that enables success in all aspects of the business
- Example Key Result: org chart with relationships and accountability
- Example Objective: clearly understood roles and responsibilities that support the business’ objectives
- Resilience: plan to trigger on a rolling basis, who gets furloughed and/or laid off; impact on production; return to work
- RECURRING REVENUES
- Predictable profitable cash flow should include a high percentage of recurring revenues - ideally >50%
- Example Key Result: contracts in place
- Example Objective: contracts or other assurances for >50% of future revenue
- Resilience: customer contracts assure future cash flow; you can also analyze the customer base to predict who can honor contracts if the economy turns
- MARGIN
- Margin delivers free cash flow, and is therefore critical to predictable profits and cash flow
- Growth Driver: Gross and Net Margins higher than industry norm
- Example Objective: gross and net margins above the industry norm
- Resilience: plan to (if needed) sacrifice margin to win deals, keep clients for survival
- FINANCIAL AND OPERATING REPORTS
- Predictable profits and cash flow requires accurate reporting - the senior team has to live the numbers if they want to control the numbers.
- Objective: Financial reporting process that enables fast and effective communication both internally and externally
- Example Key Result: Produce timely and accurate P&L, Balance Sheet, Cash Flow Statements
- Resilience: Operating Reports that identify trouble before chaos, trigger survival before competition
- SALES PLAN AND PROCESS
- For predictable profits & cash flow the focus is on sales process - marketing is a separate consideration, linked to Dimension 2 ‘Predictable, Profitable Growth’
- Example Key Result: well documented sales plan
- Example Objective: a documented sales plan and repeatable process to deliver the business’ revenue goals that are well developed, managed, and executed
- Resilience: ability to cut marketing expenses and fall back on sales plan and process
- OPERATIONS
- ‘Operations’ means delivering on the promises made to the market by sales; documented operational processes are critical to Dimension 1
- is the backbone of the business
- generates cash
- Best-in-class operational performance drives high customer satisfaction and its sibling recurring revenue
- Example Key Result: operations objectives support the business’ goals
- Example Objective: operations objectives that are executable, measurable, and updated regularly
- Resilience: operational efficiency facilitates reducing production, saving cash without sacrificing customer satisfaction
- CUSTOMER SATISFACTION
- High customer satisfaction drives predictable profits and cash flow, is like the Timing Gear - the Growth Driver that lends to repeat customers, premium pricing and more
- Example Key Result: formal, written customer satisfaction objectives
- Example Objective: documented customer satisfaction goals that are communicated internally and externally
- Resilience: a happy and loyal customer base is critical to maintaining cash flow, and to ramping up revenues when business returns to normal
GROWTH AND RESILIENCE ENGAGEMENT RECAP:
- The OKRs that power growth can also power survival
- Planning for chaos allows clients to meet unforeseen challenges head on
- Identify triggering events and phases of a resilience plan - don’t cut too deep without data
- Plan to scale the business down and back up
- Loyal workforce and satisfied customers are critical
- Doing the right things right - sales, financial reporting, and operational delivery
- High Customer Satisfaction fuels 5 of the 8 OKRs
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