Monday, September 23, 2013

Strategic Planning Analogy #511: Motivated by Money

Years ago my team was proposing a new business plan to our CEO. In brief, the idea was to stop a competitor’s aggressive move into our markets by making a reciprocal move into their most profitable market. Since we were in a stronger cash flow position than them, we could afford to attack their key source of cash, and they would have to retreat in order to protect their core.

We could inflict great pain on them in their key market with only limited pain on ourselves. And this would cut off the cash they were using to attack us. Hence, we would create a long-term gain for ourselves with only a small immediate hit to ourselves.

The CEO listened to the detailed strategy with a puzzled look on his face. Eventually, he looked up and said, “Don’t give me a strategy. Just tell me how to make money.”

Since the strategy did not immediately make more money for the firm, the CEO rejected it. As a result, the competitor continued attacking our company. Eventually, their cash flow became even stronger, so they became even more aggressive. Over time, this aggressive behavior wiped out a key division of our company, leaving us with a huge loss of earnings.

The CEO’s actions helped us make a little bit more money in the near-term, but wiped out an entire division in the long term. It appears that we would have made a lot more money if we had focused less on making money and more on having a strategy.

In the world of capitalism, making money is a good thing. If you aren’t eventually making money, your investors and other key stakeholders will get upset. However, if your only motivation is to obtain money, then you may make decisions which lead to bankruptcy. The irony is that a single motivation towards money is not usually the best path for achieving the most money.

As we saw in the story, the best path for making the most money involved a time consuming process which caused near-term pain. By rejecting this approach and instead taking steps which created the most money immediately, the company put itself on a long-term path which destroyed a key division of the company.

Key decisions are made based on what motivates us. If “making money right now” alone is the key motivation, then we may end up making the wrong decisions. Other motivators are more likely to make more money.

The principle here is that motivations matter. And the singular motive to just “make money” is not the best motivation.

The Principal Applied to Entrepreneurism
Many studies have been done to look at what makes a successful entrepreneur. These studies consistently show that if the primary motivation for the person becoming an entrepreneur was “to make a lot of money,” then they usually failed as an entrepreneur.

Becoming a successful entrepreneur takes a lot of hard work and a lot of sacrifice. It often requires living near the poverty line for quite a while before the business takes off. If all you want is a lot of money right away, then you typically will not put up with the level of sacrifice needed to succeed as an entrepreneur. So you will fail.

In fact, there was a recent stream of articles on about people who voluntarily chose to become homeless in order to invest everything they had into their entrepreneurial start-up. In essence, they were looking for ways to become as personally cashless as possible for the sake of building the business. That type of sacrifice requires a different type of motivation than merely wanting to make money.

The studies on entrepreneurism usually show that the most successful entrepreneurs are motivated primarily by a desire to create a superior solution over what is currently in the marketplace. They are more driven to build a better answer for others than build a bigger pile of cash for themselves. Yet, ironically, by not focusing so much on the bigger pile of cash, the entrepreneur is more likely to eventually have that big pile of cash.

The larger, grander, and nobler motive of giving the world a better alternative is needed to motivate the extreme levels of sacrifice needed to create success. It also has a secondary benefit. Customers don’t just want to give you money because you want them to give it to you. The customer wants great value. If you are motivated to provide superior value for the customers, then you are motivated by the same thing that will motivate customers to give you their money.

In other words, an outward motivation to better the lives of others is the best way to get others to voluntarily want to give you the money needed to get rich. This point really reached home to me when watching the recent movie about the life of Steve Jobs. Making money was nowhere near the top motivator for Jobs. He was driven by a motivation to make great products (and got very angry with those who did not share that motivation). Yet, in the end he was very wealthy.

If all you want is a lot of money and aren’t motivated by a larger purpose, then you’re probably better off seeking a life of crime than one of entrepreneurism. In crime you get the money involuntarily from people. Rather than giving them a reason to want you to have their money, you just steal it.

This is not to say that successful entrepreneurs have no motivation for wealth. No, a desire to be rewarded for one’s sacrifices is logical. If there is no potential for a pot of gold at the end of the rainbow, then the entrepreneur will eventually stop the effort of chasing the rainbows. The point is that a money motivation alone is usually not enough. A larger, external motivation to provide the world something better is also needed.

The Principle Applied to Big Business
This same general principle also applies to large corporations. In the story at the beginning of the blog, we saw a large corporation destroy one of its business divisions because it focused too much on looking for easy ways to make money quickly rather than looking at the sacrifices needed to ensure long-term viability.

The grander, market-based motivations help large corporations in many ways. First, they provide a reason for all of the employees to give a strong effort on behalf of the company. Let’s face it. In large businesses, most of the employees are not going to become extremely wealthy. So why should they put in the extra effort?

When you have a business mission based on a larger, nobler goal, you provide a motivator that everyone can rally around. There’s the old story of the government official in the 1960s who was getting a tour of the NASA operations. He was asking people at NASA what they did. When he asked the question to a NASA janitor, the janitor replied “I’m helping to put a man on the moon.” Because the janitor captured the larger vision, he became a more diligent janitor.

Is your mission wrapped in a nobler goal, like putting a man on the moon? This is a great motivator for the masses in your organization.

Second, if a large business does not see its mission in larger terms, then it will not know what to do to succeed. Many large businesses have strategic plans which say little more than “We want to make a lot of money.” Sure, they may disguise it in more “flowery” language and make it sound more tangible by attaching a numeric target to it. But fancy words and numeric targets won’t disguise the reality that these types of “strategic plans” are nothing more than vague wishes for greed.

Just because you can say “We want to make a lot of money” does not mean that you have a clue as to how to make that money. Money is made when you have a solution desired by the marketplace that you can profitably provide because of the unique business model you have designed to deliver that solution. Unless your business has a specific strategy about…

1.     What it is delivering to the marketplace;
2.     Why it is a superior solution; and
3.     How it can be delivered profitably

…then you will not make those big piles of money. Without a reason to succeed, there is no reason to expect to succeed. Therefore, large companies need a planning process to ensure that the reason to succeed is discovered.

Finally, in large companies, you have lots of people doing all sorts of different things. If there is not a common understanding of what your success formula is, then employees will go off in all sorts of different directions. These uncoordinated efforts will be more like random anarchy than a coordinated march to success.

If you want a large company to be successful, you need to everyone moving in the same direction towards that success formula. That requires not only developing the grander plan, but making sure it is widely known and is rewarded when followed. Otherwise, the plan will not reach reality.

People act based upon their motivations. Ironically, the best primary motivation to create business wealth is not an inner motivation for wealth. Instead, it is an outer motivation to provide a superior solution in the marketplace. This outward focus forces one to create the types of value needed to cause others to pay you for your offering (the source of wealth). It also provides that higher cause which motivates people to work harder. That is why companies need strategic plans which outline what the outward success formula is and put it in words which motivate employees to put it in place because it achieves a higher, nobler goal.

In the movie Wall Street, Michael Douglas (playing the role of Gordon Gekko) famously says, “Greed is Good.” I say “Greed is Not Enough.” You also need a viable plan and an external motivation which transcends greed.

Saturday, September 21, 2013

It's All About the Beans

Back in the first half of the 20th Century, A.J. Bush decided to start a business. His first choice was to manufacture hosiery. However, a nearby canning company was trying to get rid of its old canning equipment at a price too good to pass up. So A.J. Bush went into the canning business.

A.J. Bush wasn’t very particular about what he canned. He canned just about every kind of vegetable produced by the farmers of Eastern Tennessee. The following generation kept up the tradition of canning whatever came along. They even experimented with more exotic items, like sauerkraut, dog food and spaghetti. If it could be eaten and it could be put in a can, then the Bush family probably canned it (or at least thought about canning it).

This strategy wasn’t working out too well for the Bush business. By the 1970 and 1980s, the company was getting into serious financial troubles.

As a result, in 1990 the Bush business began a serious and highly involved strategic planning process. After a few years of analysis and thinking, they came to make a number of difficult choices. One of those choices was to focus exclusively on canning beans.

These decisions turned the company around. Instead of remaining a troubled also-ran in the vegetable canning business, they are now a profitable market leader in beans.

In the first picture above, you can see me next to a cardboard cut-out of Jay Bush and his dog Duke, who promote Bush beans in television commercials, another part of their success.

So what can we learn from this story? Several things…

1) Strategic Planning is Important
When I am asked what the value is of strategic planning, I often say that it can be the difference between having a thriving company and a bankrupt company. That was certainly the case for the Bush family business. Had they not embarked on a serious strategic planning process back in the 1990s, I doubt the company would be around today. As a result of that planning, they not only survived, but thrived.

What kind of value can you place on the difference between success and failure? It is so large, it is too big to calculate. People would pay almost any price to improve the likelihood of success. This is why it baffles me why so many today are claiming that strategic planning is of little, if any value.

Wouldn’t you rather be a successful winner than a bankrupt loser? How much is that worth to you? If strategic planning can improve the likelihood of preventing bankruptcy and ensuring success, shouldn’t you do it?

Part of the problem is that a lot of what is done today in the name of strategy is not tackling those tough issues which can make the difference between success and failure. During that thorough strategic planning process at Bush during the 1990s, they tackled a number of tough issues, like:

a)     Leadership: The Bush family knew they needed to up the game in leadership, so they changed the board structure to bring in seasoned outsiders to the board of directors for the first time. This was a tough decision for the family members who had to give up some control in order to improve the leadership.
b)     Management: To get the quality of management necessary to win, Bush made the hard choice to move management operations from the little town of Chestnut Hill, Tennessee to the larger city of Knoxville, Tennessee. The larger city made it easier to draw in higher quality managers. But it was tough for the family who liked it back in Chestnut Hill.
c)     Product Mix: Not only did the focus shift from canning any food to canning beans, it also shifted from canning food as ingredients to canning beans that were ready to serve from the can due already having the special sauce. This was very radical and at the time perhaps seen as very risky to put all the future into one type of product.
d)     Sales/Marketing: Once the product mix was established, a professional sales force and marketing program was put in place. This was a significant change from the status quo which they knew.

Compare this to what a lot of companies do today and call strategy:

a)     Set numerical goals (with no details on how to achieve them)
b)     Use metrics and systems to try to do the status quo faster and cheaper.
c)     Have a week-long golf outing surrounded by a few meetings so it can be written off on their taxes.

Great strategies tackle the tough issues. They seek the right trade-offs between options. They challenge the status quo. They move companies into uncomfortable new areas. THEY MAKE A DIFFERENCE. And that difference can mean success rather than failure.

2) Focus is Important
The second lesson from the Bush story is the value of focus. The move from an unfocused “can anything” to the focused “experts in beans” made all the difference to the fate of Bush.  Focus is important, because it allows a company to specialize. And specialization is what it takes to win in a crowded marketplace.

Les Wexner, the genius behind the Limited retail empire (which over the years included such stellar brands as The Limited, Victoria’s Secret, Abercrombie & Fitch, among others), would refer to this as “Best At.” He always wanted to know what his brands were “best at” and then would make sure that the brands were doing everything they could to excel at the area focused on to be best.

The consultants at McMillan Doolittle refer to it as the “EST” strategy. Where have you focused to become superlative? Is it to be the big-est, the cheap-est, the hot-est, the easy-est, the quick-est, and so on.
The idea is that once you determine your focus, you know where to place your bets. You know which trade-offs to make. You know which direction to push your business. You know where to win. And over time, your specialized trade-offs will give you the expertise to excel at your point of focus, and you will win.

Bush was never going to win as an also-ran in canning all sorts of food. But by focusing on beans, it found a place where it could excel through focus, outdo the marketplace and win.

3) Positioning is Important
Focus is not only important to making a difference internally. It is also important to your customers. An internal focus allows you to create an externally winning position in the minds of your customers. By having an internal focus on beans at Bush, the company now had a compelling position to tell the consumers: Bush = The Best in Beans. Consumers were willing to seek out the Bush brand and pay a brand premium because they knew that they were getting the best in beans.

We’ve talked so many times in this blog about the value of positioning. Great positions lead to great success. But if you have not built an internal strategy focused on delivering something special, you have nothing solid to build a position around.

If you cannot deliver superiority on the key point of your position, then your position is nothing but a lie. And consumers will eventually figure out if your position is real or a lie.

That is why the integrated planning process is needed. The internal business model and the external marketing message need to be in sync. And this only comes through serious, company-wide planning. Positioning does not just belong to the CMO. It needs to belong to everyone.

Good strategic planning is not just some numbers game played in the fall to give an excuse for an off-site business vacation. Good strategic planning tackles the tough topics of focus, positioning and the implications of these topics on the status quo. If done properly, it can be the difference between success and failure. Therefore, if you prefer success over failure, put a high value on doing serious strategic planning.

When a company is operating smoothly, it is difficult to see the need for strategy. It is easy to forget that it was earlier tough strategic decisions which created today’s smooth operations. And if you want smooth operations in the future, you need to make more tough strategic decisions today.

Wednesday, September 11, 2013

A Book for You (FREE)

The reason you haven't seen many blogs from me lately is because I have been writing a new book on strategic planning. I am offering it for free. Just download it here. Although the book is based on prior blog entries, it is extensively rewritten from the original material. I hope you like it.

The objective of the book is to highlight the differences between what highly successful companies do versus what less successful companies do.