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Sunday, September 27th, 2009

PEST Analysis

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I’ve been receiving a lot of attention to my articles on strategic planning tools such as SWOT Analysis, Fishbone Analysis and DACI To Get Things Done.

Here’s another one: PEST Analysis (by the way, there are many variations of PEST Analysis and so I’ve listed all of the ones at the bottom of this article with their definitions).

What is a PEST Analysis?

PEST is an acronym that stands for the following four Macro-Economic factors:

  • Political — These include factors related to how a government intervenes in your business. It may include taxes, law, political stability, regulation and de-regulation.
  • Economic  — These include factors such as interest rates, inflation rates, unemployment rates, income rates/distribution and tariff rates.
  • Social — These include cultural aspects such as population growth, age distribution, career trends (attitudes towards work), lifestyle trends, etc.
  • Technological — These include trends such as remote working (see my article called A Virtual Workplace), mobile computing, the Internet and other research and development innovation.

PEST analyses are best used to measure a market situation (this differs from SWOT Analysis as SWOT is best used to measure a company or business unit situation). A good time to do a PEST Analysis is right before a SWOT Analysis.  More PEST Analysis definitions and history can be found at PEST Analysis Wikipedia

The best uses for PEST Analysis are:

  • Strategic Planning
  • Business Planning
  • Acquisitions
  • Business Development/Joint Ventures
  • Product Development
  • Marketing Planning

PEST Analysis Example/Template

  1. Identify the key trends related to Political, Economic, Social and Technological factors
  2. Rank them on a scale of 1 to 10 in terms of what type of impact they could have on your business
  3. Pick the highest ranked items and dig into those using whatever tool you prefer (I recommend SWOT Analysis or Fishbone Analysis)

Here’s a good sample PEST Analysis of Yahoo

And, as promised here are those other variations of PEST with their definitions:

  • PESTEL Analysis (sometimes misspelled “PESTAL” Analysis)stand for: Political, Economic, Social, Technological, Environmental and Law
  • PESTLE Analysis is just spelled different than PESTEL (it stands for: Political, Economic, Social, Technological, Law and Environment
  • STEEPLE Analysis stands for: Social, Technological, Economic, Environmental, Political, Law and Education
  • STEEPLED Analysis stands for: Social, Technological, Economic, Environmental, Political, Law and Education and Demographics
  • PESTLIED Analysis stands for Political, Economic, Social, Technological, Legal, International, Environmental, Demographic
  • SLEPT Analysis stands for: Social, Legal, Economic, Political, Technological
  • PESTELI Analysis stands for: Political, Economic, Social, Technological, Environmental, Law and International
  • STEEP Analysis stands for: Social, Technological, Economic, Ecological and Political

You can tell that some people are really into these things!

If you like my articles on SWOT, PEST, etc. then you might want to check out my posting on DOS Exercise.

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Tuesday, September 22nd, 2009

7 Steps To Maximize the Value of Your Business

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I often get asked the following questions from business owners and leaders:

  • How much is my business worth?
  • How do I go about maximizing shareholder value for my business?
  • How do I look at revenue versus profit to determine how to maximize value?
  • What are other keys to selling a company?
  • What should I look for when buying a company?

Well, I’ve got my own thoughts but there’s a guy you’d much rather hear from — he’s been doing mergers and acquisition (M&A) deals for 20 years.

M&A Adviser Doug Hubert

M&A Adviser Doug Hubert

His name is Doug Hubert (pictured) and he leads the M&A work as a Managing Director at CBIZ Inc.

He and I graduated high school together and even though I haven’t done a good job staying in touch, he was kind enough to share seven tips for you to use to maximize value in your business. Here they are!

1. Build a deep management team

One of the most difficult challenges for an entrepreneur, and one of the critical differences between a good company and a great company, is the depth and quality of the senior managerial team.

Too many entrepreneurs make the mistake of trying to run and grow their businesses with only one or two people capable of making critical decisions.

As a result, most businesses will plateau in their growth. If your company can’t function efficiently without your direct daily involvement, then you need to immediately begin to hire and develop talent or the future of your business is in jeopardy.

Jack Welch, the former CEO of General Electric, considered talent development and succession planning one of his greatest accomplishments in his tenure. Treat this issue with the same importance.

2. Diversify your customer base

Your largest customer should ideally be no more than 15%-20% of your revenues and/or profitability. While it’s often efficient and easy to allow a major customer to develop into a substantial portion of your sales, nothing could be more dangerous to the future health and value of a business.

Once a customer becomes a critical portion of your revenues and/or profits, then they own you. They can begin to dictate the
financial terms of the relationship and any change in their business, be it financial, personnel or otherwise, has a direct effect on the health and value of your business.

While it might require extra effort and possibly some short-term sacrifices to your bottom line as you build other accounts, the long-term benefit of a diversified customer base is a significant reduction in your financial risk profile.

3. Maintain quality financial information

A consistent area of weakness with most small and middle-sized companies is the lack of strong financial documentation. Most business
owners don’t want to spend the extra money to obtain an audit, believing a review or a compilation is just as good-it’s not.

Audited financials provide credibility with bankers, commercial financing sources, insurance companies, and most importantly, potential buyers.

The extra money spent will be recovered in a higher premium when the business is eventually sold.

4. Develop a proprietary product or service

To truly thrive as a company, you must distinguish yourself in the marketplace by offering a unique product or service that can’t easily be replicated by competitors. While this seems obvious, very few companies are dedicated to creating this distinction.

Ask yourself if your customers, employees and competitors can all quickly describe what differentiates your company. A superior product or service will create the opportunity for a pricing advantage in good times and customer loyalty in difficult periods.

5. Focus on profitability

Too many business owners measure the success of their business on top-line revenues rather than pre-tax profitability. Value is created through maximizing profit, not maximizing revenue growth-a $25 million company earning $5 million pre-tax is worth more than a $40 million company earning $2 million pre-tax.

Another common mistake is desire to limit profitability to limit taxes. While fast growing businesses often need the extra cash to fund growth, this approach loses money for business owners, as the focus becomes tax avoidance rather than operational efficiency and profit maximization.

There are legal ways to minimize your taxes through the use of an S-Corporation or LLC rather than a C-Corporation.

6. Prepare and execute a business plan

Establish operational and financial plans and goals for your business in one, three and five year increments and share them with your employees. The plans should take into account various economic, industry and company specific scenarios and how management would react to each.

In addition to creating a road map for your future growth, this will focus your business and your employees around quantifiable goals and will allow you to make better business decisions as you grow your business.

7. Seek the help of outside professional advisors

Seek the assistance of outside professionals, especially a full service accounting firm, who can provide valuable advice as you grow your business.

Not only can they provide objective counsel as you grow your business, they can help you avoid disastrous legal, financial and operational mistakes that may have significant financial consequences down the road.

Similarly, if you plan on selling your business or are approached by a buyer, an investment banker can ensure that you obtain the best possible transaction by re-stating your financials, preparing a memorandum that highlights the intrinsic value of your business (including off-balance sheet items) and quietly approaching other buyers to ensure a competitive process.

CBIZ Mergers & Acquisitions Group, Inc. (“CM&A”) is the investment-banking arm of CBIZ, Inc. (NYSE:CBZ). CM&A predominantly represents owners of businesses with revenues between $15-300 Million in mergers & acquisitions transactions. CM&A offers a comprehensive and customized approach and welcomes all inquiries, which are treated in confidence.

To learn more about valuing a company and other mergers and acquisitions information, and to learn more about Doug, visit the CBIZ Website.
©2009, CBIZ, Inc.

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Monday, September 21st, 2009

Networking & Other Insider Tips From A Chambers Of Commerce Worker

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Chambers of Commerce are an enormous resource for small businesses. They are geared towards businesses of 100 people or less and represent more than 3 million businesses.

There is a local chamber of commerce in 3,000 towns and cities across the U.S. and Canada…and 112 additional Chambers of Commerce in 99 other countries.

I recently met James Mielnik, who works for the Halifax Chamber of Commerce and he agreed to share his insights on how your business can benefit from networking and being involved in a local chamber.

Hi James…I know networking is a key component of Chambers of Commerce — what are some specific networking tips you can share?

Sixty-five percent of businesses join a Chamber because of networking so I will really want to dig in here.

Below are my top 7 networking tips:

1. Cultivate a genuine interest in seeing others succeed…. and help them do it:

This mindset should be prerequisite before anybody begins to network.  You have a great post entitled Being a Go-Giver not a Go-Getter which echo’s this mindset and has some additional tips.   In short, what I see most people doing when they network is talking about themselves and talking about their product or service with the hopes of selling more.  This is very amateurish and turns people off right away.

Solution – do the exact opposite! When you meet somebody for first time focus all your attention on asking probing questions to learn about THEM such as: What brings you here today? Who are you trying to connect with? Who would be an ideal prospect for you? What is your biggest frustration?

“Every man is my superior in that I may learn from him” Emerson

2. Listen…Listen…. and then Listen some more:

I know you have heard this many times before, but it’s a skill that ALL of us can still improve. Rather than reiterate the importance of listening I’m going to share a technique which will automatically take your listening skills to the next level and FORCE you to listen more!

When engaged in a conversation, BEFORE you respond to somebody. pause and briefly summarize what you just heard before you share what you were going to say.  This is a simple yet powerful technique to make the other person feel understood and demonstrates that you care what they have to say.

This is harder than it sounds and takes a bit of practice, but starting today, put on the breaks before you reply to someone and paraphrase back what they just told you first!.

3. The 3 Second Rule

As soon as you enter a room of people start a conversation with the first person you see within the first 3 seconds.  DO NOT HESISTATE, don’t look for somebody you know and don’t go to the bar.  It doesn’t matter who you approach, just go talk to somebody!

The goal here is to build confidence, get outside ‘your head’ and build the habit of proactively meeting people.  At most events there is usually a registration desk.  Try and view this as the “warm up”.  Use this opportunity to speak to the person beside you as you sign in or receive your name tag.

4. The soft touch:

You may have noticed what typically happens at networking events is people form small groups (usually consisting of friends or office colleagues) who then talk amongst themselves.  This situation presents a challenge for most people.

Here is a very non threatening way to approach one of these groups if you know somebody in the group (even if you don’t know them very well).  As you are walking by simply “soft touch” the person you know on the shoulder, smile, and say hi, making sure to address them by their name.  Don’t motion to shake their hand, and instead simply give a small wave as you keep walking (shaking hands is usually too much of a commitment in this situation). This seemingly small gesture accomplishes the following goals:

a) Strengthening the relationship with the person you know.
b) In some situations the individual will stop you and say “James, have you met…..” and bring you into the group to introduce you to everybody else (although this is a possibility- do not expect it)
c) It gives you unconscious face time with the other people in that group.  Some of them will notice you and you now have a small connection with them for generating a future conversation.
d) If you really wanted to meet somebody from that group and didn’t get an opportunity to at the event, you can call the person you know and say “Hey I noticed you speaking to….I would love to meet them. Would you mind introducing us?”

5. Smile the whole time :) Smiling conveys happiness, fun, positive, and so many other great emotions!   Maya Angelou is quoted as saying

“I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

I think this is profound. How do you want to make people feel?

I find most people at networking events are unnecessarily serious, and as a result don’t let their true personality shine through. I use to be this way as well…. Do the opposite! I have found the more I smile while speaking on the phone, while writing emails or while in person meeting others, the more it makes others want to be around me.  Smiling can also do wonders for your “inner game” by increasing your confidence, helping you relax and increasing your overall level of enjoyment. Smile.

6. Introduce people to each other:

Anytime you have a chance to introduce people who can benefit from knowing each other do it.  Sending a quick email introduction is a great habit to get into.

“Help enough people get what they want and you’ll get what you want” -Zig Zigler

7.  Keep in touch by sending things of value:

In my experience, most people contact others when they want something.  This is okay once in a while, but if this is the only instance in which you touch base with somebody, sooner or later they are not going to screen your calls.  Ironically, you can have a lot of success in doing the complete opposite.  If 80% of the time you contact somebody to offer them something of interest or value they are going to open your email or take your call every time.

A simple way to do this is keeping your eyes open for events, articles, and blogs that would interest your contacts. Other ideas include sending email introductions or cards to congratulate them for achieving success or maybe offering tickets to a sports game.  These little gestures go a long way if you are dong it because you genuinely care.  You will not only grow your relationship with that individual but they will WANT to hear what you have to say every time you contact them.  In addition to making somebody else feel good you will personally feel like a million dollars when you make the time do something like this!

What’s the primary purpose of a Chamber of Commerce?

There are 2 key purposes of a Chamber.  One is to represent the interests of businesses in a particular community or region.  For example, the Halifax Chamber of Commerce represents the 15,000 businesses in the Halifax Regional Municipality.  The interests in our region range from a better public transit system to lower taxes for small businesses.

The second purpose is to help businesses grow and connect with others.  This is done by providing networking opportunities.  The Halifax Chamber of Commerce has over 100 events per year ranging from informal after hours events such as  ‘Commerce Connections’ to annual gala events like the spring and fall dinners.”

How does the Chamber of Commerce and industry work together?

This is achieved by having employees of various companies volunteer with the Chamber of Commerce, either on our Board or a sub committee like the Energy Advisory Group.  When you have CEOs of companies such as Nova Scotia Power or Bell Aliant (our major telecommunications provider) getting involved with a Chamber committee, this creates a synergy and cohesion between individual industries and the business committee as a whole.

This creates tremendous clout and gets the attention of government officials who can make the change happen.

What’s the typical membership fee for becoming a Chamber of Commerce member?

Membership is done on an annual basis and the fee is determined by the number of employees a business has.  Our memberships start at $280 for a 1-2 employee company and go up to $4,300 for 500+ employees.

Can a business list job openings through a Chamber of Commerce.

Each Chamber is different.  Our chamber currently does not offer the ability to post job openings .  What we do offer is discounts on recruiting firms through our member to member marketplace.

This is where a company who is a member of the Chamber can offer discounts (usually 10-20-% off their services) to other Chamber members.

How can a Chamber of Commerce generate Web site traffic for businesses?

Here are the top 3 ways:

1.    Chambers have what we call an online business or member directory.  This includes every business who is a member and links directly to your site.
2.    Advertise on the Chamber website.  Most Chambers have vertical banners or some place to advertise on their website which can link to your page.
3.    Email blasts.  Most Chambers give you the option to send out an email to every one of their members for a couple hundred dollars.

Would you give an example of the “biggest win” that a business had as a result of being a Chamber of Commerce member (please give details of the story).

I know a lot of business deals have been made during Chamber events.  Unfortunately, I don’t have details for any of them.  I can speak to some of the “big wins” for our Chamber.  We recently helped get a smoking by-law passed which prohibits smoking in all restaurants.

Another big win was allowing Sunday shopping (Stores in Halifax prior to this passing were closed for business on Sunday!).  One other big win would be introducing U.S. Customs pre-clearance at our airport so we can get screed prior to leaving for international flights.

If you were to start your own business, how would you best take advantage of the benefits of the Chamber of Commerce (please include a list of tips (including secret ones!)? ;)

Below are the top 7 things you could do if just starting a business:

1. Go to the free events offered by the Chamber such as Business After Hours or Commerce Connections and practice meeting and networking.  These events are very non threatening and it will also help get the name of your company into the market place.
2. Use the Membership directory and find potential businesses to partner with and cross promote.
3. Most Chambers have a monthly magazine (ours is called Business Voice) and we are always looking for content from members.  Offer to write monthly articles about your speciality or industry. This is much more effective than advertising and it’s free!!!
4. Volunteer for a committee within the Chamber such as the ambassadors, transportation or education committees.  This is a great way to meet and establish relationships with 20+ people right away.  It will also help keep you abreast of issues.
5. Take advantage of the group discounts offered by the Chamber to help save your business money.  There is everything from payroll services discounts to merchant services discounts.
6. Develop a relationship with the staff at your Chamber.  The staff will know many of the members and if you ask can help introduce you to them.
7. Put the Chamber of Commerce logo on your business cards and website.  This will help establish credibility.

I notice Chambers of Commerce are global. How does the American Chamber of Commerce differ from the Canada Chamber of Commerce versus the Hispanic Chamber of Commerce versus the British Chamber of Commerce or even the Chinese Chamber of Commerce, etc.?

It is safe to say that Chambers exist almost everywhere businesses do. While I am not involved in Chambers on a global scale, it is clear that they all follow a similar format and would have the benefits listed above.

The primary difference between these Chambers is the type of advocacy and the policy work they would do because every region has their own unique challenges.  Furthermore, each Chamber targets their particular region and/or cultural group.

Is there a good link you could share to a global Chamber of Commerce directory?

Hmm….To be honest I’m not aware of such a link.  Perhaps you’ve planted the seed of a new business idea!  The closest thing I could recommend is to find the Chamber of Commerce for a particular state.

Take California for example.  If you go to the California Chamber of Commerce Website they have a place which lists every local Chamber in California and their contact information.

Hey James, if someone wanted to learn more about you, do you have a link about yourself?

Sure.  The best way to connect would be my LinkedIn profile.  I am more than happy to answer any questions, share ideas or further insights with any of your readers.

Thanks Rob.

Thank you for sharing, James!

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Tuesday, September 15th, 2009

Fishbone Analysis

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My friend Ralph taught me how to do a Fishbone Analysis recently (it had been invented by Dr. Kaoru Ishikawa).

You can use the Fishbone process to help you figure out how to best achieve an objective, including how to prioritize the individual items which together are needed to meet your objective.

Fishbone Analysis Example

Let’s say that you determine that you need to grow the number of visits to a Web site/page from 500 per month to 20,000 per month by year-end.

First, you go through the six things that prevent you from getting that objective done.  These are called the six “M’s” because each starts with the letter “M” to make it easier to remember.

The six “M’s” that prevent you from getting anything done are:

  1. Manpower — The people resources you need.
  2. Methods — The processes you need.
  3. Metrics — The measurements you need.
  4. Machines — The automation or technology you need.
  5. Materials — The material items (such as physical goods or marketing collateral) you need.
  6. Minutes — The time you need.

Now, it’s called a fishbone because you draw a line (the fish’s spine) with three diagonal lines on each side (which look like bones) and it looks like a fish (see my sloppy image above).

Example of The Six “M’s” of Fishbone

So, back to the Fishbone example of getting your traffic to 20,000 visits per month.

Go through the six “M” categories and for each one answer the question: “What things within each category are preventing me from getting to my goal (e.g. to 20,000 Web site visits per month).

  • Manpower
    • You need a person on staff who can can be the driver of more traffic to your Web site (see my DACI article on the importance of a “driver.”
    • You need access to someone familiar with HTML.
  • Methods
  • Metrics
    • You need to know the definition of a Web site visit.
    • You need to confirm that you’re actually receiving 500 visits per month right now (because you’re confused about Web site traffic)
  • Machines
    • You need analytics software to measure Web site traffic.
  • Materials
    • You need content on your Web site to attract visitors.
    • You need to figure out if the Internet domain name you’re using is the right one.
  • Minutes
    • The key people who would work on this project don’t have any free time.

Fishbone Ranking

You then take each of the sub-items (in my case I made it simple and there are only 9 (usually you’d have 20 to 30) and list them out and do a Fishbone Ranking of them.

The ranking approach Ralph suggested is to do a 1 to 10 on the impact, resources needed and time that each item will take where:

10 is high Impact (1 is low)

10 is low Resources Needed (1 is high resources)

10 is low amount of Time it will take (1 is a lot of time)

  • You need a person on staff who can can be the driver of more traffic to your Web site (see my DACI article on the importance of a “driver.”
    • Impact = 8 (a new “driver” of this project will have huge impact towards reaching your goal)
    • Resources Needed = 2 (a new driver will require a lot of money to hire)
    • Amount of Time = 7 (you can hire a new driver of this project fairly quickly)
    • Total = 17 (8 + 2 +7)
  • You need access to someone familiar with HTML.
    • Impact = 6
    • Resources = 5
    • Time = 5
    • Total = 16
  • You need to understand how you will be increasing Web traffic
    • Impact = 9
    • Resources = 8
    • Time = 4
    • Total = 21
  • You need to know the definition of a Web site visit.
    • Impact = 5
    • Resources = 10
    • Time = 10
    • Total = 25
  • You need to confirm that you’re actually receiving 500 visits per month right now (because you’re confused about Web site traffic)
    • Impact = 2
    • Resources = 7
    • Time = 6
    • Total = 16
  • You need analytics software to measure Web site traffic.
    • Impact = 6
    • Resources = 9
    • Time = 8
    • Total = 23
  • You need content on your Web site to attract visitors.
    • Impact = 10
    • Resources = 1
    • Time = 2
    • Total = 13
  • You need to figure out if the Internet domain name you’re using is the right one.
    • Impact = 5
    • Resources = 7
    • Time = 7
    • Total = 19

Priorities Come Out of the Fishbone Ranking

So, now you list them out in order of highest score first:

25 = You need to know the definition of a Web site visit.

23 = You need analytics software to measure Web site traffic.

21 = You need to understand how you will be increasing Web traffic

19 = You need to figure out if the Internet domain name you’re using is the right one.

17 = You need a person on staff who can can be the driver of more traffic to your Web site (see my DACI article on the importance of a “driver.”

16 = You need access to someone familiar with HTML.

16 = You need to confirm that you’re actually receiving 500 visits per month right now (because you’re confused about Web site traffic)

13 = You need content on your Web site to attract visitors.

And, voila, this may be the order you need to do those items.

For those who really like fishbone brainstorming, you can take any of those individual items and do an entire new fishbone JUST on that item.

If you want to learn more about the man behind Fishbones, click here for a Kaoru Ishikawa biography

If you like this article, you will probably also like this article I wrote on the SWOT Analysis tool.

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