Small Business Playbook for 2019 & Beyond
Introduction
Having been advisors of technology-enabled service businesses for nearly two decades, the Tablero Group has participated in and observed many economic, government, and business cycles. As a result, we have done a lot, and learned a lot. At Tablero, we have a constant desire to learn. On an ongoing basis, we survey and evaluate what it takes for small businesses to succeed. We have created this information and guidance document to assist you as you plan and execute your business.
The Small Business State of the Union 2019:
In general, small businesses will become a smaller portion of the total GDP of the economy (at a minimum, in the near-term). Small business growth is stagnating due to increased market complexities, globalization, labor force skill supply demand imbalance, increased competition etc., combined with leadership & executive skill deficiencies.
Trends Influencing Small Businesses:
Private Capital/Private Equity will only be accessible to the best and most economically efficient business models.
Institutional investors will require a proven, previously “backed” executive to attract equity capital on favorable terms.
Debt capital will become a “sole source of capital” for the marginal and mediocrity-centric business models. Asset-Based Lending will be prevalent versus cash flow lending.
Valuations for only “the best” business models will be flat and stagnate in the near-term.
Labor supply vs. labor demand imbalance will prevail as the economy approaches “full employment”. Large companies will dominate in retaining “the best talent”.
Small business bankruptcy rates will continue to increase and will remain at record levels.
Significant compliance burdens will remain, irrespective of the “Trump war on regulation”.
Inflationary pressures and higher interest rates will be more prevalent.
Survival tactics will be the norm in the near-term for many small businesses.
The federal government will not be supportive of the needs of small business.
The federal government and Washington, DC will continue to be dysfunctional and will create uncertainty for “pure market capitalism”.
Baby Boomer founder/CEO’s are “surrendering” or selling their businesses at a faster rate than in previous periods.
Consolidation activities in the business services sector will be more prevalent as Private Capital/Private Equity and Family Offices increase “platform” investing initiatives, coupled with “strategic” acquiring for franchise expansion.
These trends, while not significantly different than what has been experienced during the past two to three years, have become more prevalent and influential recently. 2019 will be pivotal year for many small and emerging businesses. As leaders, it is critical to effectively “change and adapt to our exogenous environment!”
In Q3 of 2018, as we normally do every two to three years, Tablero surveyed ~350 small business CEO Entrepreneurs to obtain their feedback and perspectives of their businesses, the small and emerging business environment, and the challenges they feel they need to overcome to be more successful.
Survey Overview – Q3 2018
Key Findings:
Approximately 2/3 of executives indicated that their organization is underperforming and not meeting expectations (primarily due to micro-economic, competitive pressures, and skill deficiencies at the workforce and management levels).
Small business executives admit being inappropriately skilled in general for the challenges of the “New Economy”.
They observe an increasing need for effective strategic positioning and product/value proposition management (“market discrimination").
They admit that their business models are not scalable enough as they need to maintain competitiveness, and meet a need for increased productivity from their workforce.
90% believe that sales and new client acquisition costs are not efficient.
70% state that customer retention/satisfaction is directly linked to financial success.
82% state that their operational and business processes need improvement.
Executive Priorities for Operational Improvement & Effectiveness:
77% indicated sales and market penetration: product/service expansion
63% indicated partnerships/alliances and alternative distribution needs
83% indicated operational efficiency and improved profitability
82% indicated improvement in workforce productivity and culture
64% indicated capital for growth and expansion
Therefore, as a result of our most recent survey, Tablero’s investing and advisory observations of the past two to three years, and input we have received from our peers who are likewise dedicated to the success of the small business services sector,
As such we have created a 10 action item:
Small Business Playbook for Success
This challenging, complex and ever-changing "New Economy" for small businesses commands significant change, adoption of best business practices, and the utilization of outside resources by CEO Entrepreneurs to become one of the “best” business models in the sector.
Therefore, the below ten action items and guidance form an effective Playbook to utilize as a template to execute on as you go about developing your business model to take full advantage of the market opportunity.
1. Evaluate, Change, Expand, and Enhance Strategy Components
Have an outside, sector-knowledgeable advisor or thought leader evaluate your strategy.
Create and implement product management capabilities and processes.
Re-examine market dynamics based on the “New Economy”.
Conduct competent SWOT analyses, and develop action plans.
Engage customer, distribution, and service delivery partners to garner their feedback and obtain outsiders’ perspectives.
2. Refine the Business Model to New Economy Needs and Strategy Elements
Enhance market differentiation concepts.
Create a workforce plan and human capital needs analysis.
Define what to outsource: how and when.
Determine where scalability is required and where it can be achieved.
Create a risk management plan (People, Process, Capital, Threats).
3. Implement Management Science
What are the top eight to ten non-financial Measurements and Metrics that evaluate and monitor how productive, efficient, and how scalable business processes are?
Communicate goals and financial performance to all employees. Reporting on performance, whether monthly or quarterly, holds everyone accountable (transparency of metric-driven performance is critical to creating a Perform Culture).
Conduct weekly metrics discussions. How well people are performing on a daily and weekly basis is the start of employee-level accountability.
Business Intelligence (BI) and workforce analytics can bring focus on relative performance, rather than just absolute performance.
With pragmatic Management Science, incentive compensation plans can be implemented to support business objectives.
Benchmark organizational performance Measurement and Metrics to industry standard performance.
4. Implement Cross-Functional Measurements and Metrics
Start measuring operational outcomes for the entire organization.
Identify process needs and improvement areas.
Implement or enhance new processes for scalability.
Where can technology and automation be applied to business processes?
Implement communication and reporting rhythms, including dashboards and KPIs.
Connect ‘Strategy Elements” to operating management Measurement and Metrics.
5. Further Differentiate the Product/Services Offering
Implement marketing brand equity and awareness programs.
Identify and “carve out” your niche including:
price, product, place, promotion.
a partner to "round out" and add value to your service offering.
Be known for something special:
credible and compelling references (“Raving Fans,” 3rd party testimonials and assurances)
be found online and in social media venues
brand promise
organizational culture
superior customer service
6. Create a product and distribution portfolio of revenue venues. only put a salesperson face-to-face with a prospect when there is a 70% chance or higher of “closing the sale”.
Step one: Increase the productivity of direct sales by having effective marketing that provides high quality probability leads.
Step two: Identify partners and channels that have the same profiled buyer.
Step three: Create strategic alliances with a select few: <5.
7. Illustrate Organic Growth Capabilities via a Portfolio of Revenue Initiatives from:
New product market entry; use penetration products;
Additional revenues from existing customers;
Value-added products to existing customers;
Economically efficient customer acquisition costs; and
Create "Pull and Profiled" Demand from effective and efficient marketing.
8. Create Non-Organic Growth via Corporate Development and M&A
Acquire and merge to create mass and density, increased capability, scalability and product/service capacity.
Implement a process-driven and defined Corporate Development / Business Development program.
Engage outside advisors and professionals who have been there/done that in the Corporate Development arena.
Remember that Corporate Development minimizes execution and investment risk of organic growth.
9. Connect Compensation to Strategy and Business Objectives
Tie cash compensation closely, in terms in time, to the successful activity
Enhance variable pay components
“Total Compensation Concept” (not only cash)
Equity-based incentive programs, based upon a strategic objective being achieved, not tactical execution objectives
Significant rewards for 'A Players’
Workplace is a “life experience,” not just a paycheck
10. Achieve Stakeholder Balance and Constituency Alignment
Align the interests of customers, employees, suppliers/partners, and owners.
Utilize the Executive Chairman function, Board of One concept, or advisory or formal Board of Directors.
Create customer councils, or user groups.
Define and adhere to the "Happy Ending“ for all Stakeholders.
Conclusions and Guidance
Over our 17+ years of operating, governing, advising and investing in the services business sector, we have learned that the CEO Entrepreneur’s job is nearly an impossible task. As such, the failure rates in the C-suite are already high and increasing.
Therefore, at Tablero, we have dedicated our professional lives to developing, providing, and sharing the tools, methodologies, and strategic leadership concepts that are proven to work and create successful CEO Entrepreneurs, and institutional worthy wealth at the shareholder level.
This Small Business Playbook for Success is just one of our tools that we have utilized over our many years to assist you, the CEO Entrepreneur. We urge you to use this template as guidance and for you to create a customized Playbook for Success for your organization.
To conclude, and in addition to this Playbook, we leave you with the following Leadership Guidance and knowledge:
Mediocrity is the first step to failure.
Change and improvement is required in the services sector.
The CEO Entrepreneur requires external support and skill augmentation to succeed.
Effective strategy elements are critical to success.
Every successful business needs a governance and stakeholder balance function.
A holistic approach (versus a functional approach) to the business is imperative for success.
Useful Growth Equity Capital will only be accessible to the “best” business models.