A look at how company builders are working hard to acquire some foresight into the economy.
Sure, foresight isn't 20-20, but the smartest company builders work hard to acquire it and wouldn't make a move without it
Economic forecasts can be interesting, but at some point you have to prepare for the changes the new year has in store for your company -- changes only you can predict. Unfortunately, many small-business owners think they're just too busy surviving to take time to plan.
Karen Goode remembers when she felt that her growing business controlled her, not vice versa. "I was working 16 hours a day, and I was really being overwhelmed," the president of Goode & Associates, in Berea, Ohio, recalls. She started her medical-transcription business in 1986, but as the business grew her management systems didn't; she kept trying to do everything herself. Eventually, Goode found herself so buried by routine details that she lost sight of the big picture.
Finally, in 1994 a lawyer friend persuaded Goode to take a course on entrepreneurial strategic planning offered by the Council of Smaller Enterprises (COSE), part of Cleveland's chamber of commerce. The experience profoundly altered her approach to running a company. The discipline Goode learned forced her to do things like setting business goals and analyzing the profitability of various business lines. Today, because she knows what she wants from her 15-employee company -- and how the company makes its money -- Goode can better answer questions such as how to price a new account. "I can make intelligent decisions now," she says. "Before, I didn't even have the information I needed." In the past year Goode's profits increased more than 10%, an improvement she attributes to lessons learned in class.
But wait. Isn't "entrepreneurial strategic planning" an oxymoron? Don't small companies thrive by being adaptable, flexible, and nimble in fast-changing markets?
Yes, but smart growth-company managers plan first and then continually fine-tune their plans to adjust to new market realities. Ask David Harmon. In 1978 he cofounded El Camino Resources, a Woodland Hills, Calif., computer-leasing company that made the Inc. 500 in 1985 and has 420 employees and $512 million in revenues today. "Planning," CEO Harmon says, "is something we've done since right after we got into business." What changes as a company grows, he says, is that planning becomes even more critical -- and more complicated and formal, since there are more variables to track. "When you're small, you can almost put your plan on the back of an envelope," Harmon says. "Now it takes a whole three-inch binder." However, in a fast-changing industry, El Camino still has to remain flexible. "Is there a strategic plan that takes you out five years? No, five years is nothing more than a guess," Harmon says. "You try to understand what the trends are, and you try to go with the trend."
In entrepreneurial companies, even big ones, planning remains a hybrid, a trade-off between dreamed-of goals and changing day-to-day realities. But whether you're talking about a big-picture strategic mission for a 100-employee business or the first annual plan for a solo start-up, there are some elements that most good entrepreneurial plans -- and good entrepreneurial planners -- take into account. If there's an unfinished plan lurking somewhere in your business now, here are some steps you can take to turn it into action.* * *
Just Do It
The folks at Frontier Cooperative Herbs, in Norway, Iowa, have been writing annual strategic plans for a long time; the former Inc. 500 company, founded in 1976, has had formal annual plans since at least the early 1980s, according to CEO and cofounder Rick Stewart. The company, which distributes spices and other products to natural-foods retailers, has grown from $2 million in 1982 to $29.6 million in 1995. But when Stewart looks back at some of those first plans, he has an admission to make. "There were a few plans in the early years," he says, "that were really compost."
Never mind. Stewart contends that just the process of planning puts a company on the right track, because planning gets key staff members to agree on important goals. "It's more important to finish the plan than to do everything right," he says. "You can always get better at it next year." The first step in Frontier's annual planning process is, in fact, figuring out ways to improve on last year's method.* * *
You'll never have the time unless you make it
Today, Shefsky Froelich & Devine Ltd., the Chicago law firm that Lloyd Shefsky cofounded 26 years ago, has 72 lawyers. But even back in the early 1980s, when fewer than 10 lawyers were involved, it wasn't easy to get them together to focus on strategic planning. Like most partners in small enterprises, they'd rather take client calls than take time to plan. So one weekend, Shefsky recalls, about five partners gathered at a lakeside resort to talk about their long-term goals for the firm. They all brought tennis rackets, expecting to relax after their strategy session. Instead, the partners spent most of the weekend huddled around a small table in one of their rooms, hashing out key issues. By the end of the weekend, no tennis had been played -- and while the lawyers had agreed on overall goals, they still hadn't decided how to reach them. The next weekend they reconvened at a cheaper location -- one of the partner's homes -- and blocked out a strategy to achieve that growth. "We created what we today would call a business plan, but then it was very simply a format for accomplishing the goal," Shefsky says. Was it worth the trouble? Apparently. Shefsky says the firm is still following that original plan.* * *
Open up the process
Sixty-year-old Malley's Chocolates, in Cleveland, is typical of many privately held companies in that it has a few key decision makers. But in 1993, when president Bill Malley and his wife, executive vice-president Adele Ryan Malley, resolved to develop a formal strategic plan for the family business, they found that planning was a good way to bring new voices into company decisions. All five of the third-generation family members who work for the company got involved. The result, says Adele Ryan Malley, is that the younger relatives are gaining a more complete understanding of the operations of the company, which has about $9 million in sales and 205 employees. "It's giving the third generation some more opportunities to take a different look at the business," she says. "Now they understand more about the worries." The same principle applies in any company, even when family isn't involved. Creating a plan offers a great opportunity to delegate, hear opinions from employees, and groom talented young managers.* * *
Break down your goals; then take names and set dates
Delegating has one more side effect: it forces you to break down your main goals into practical, easy-to-measure steps that you can assign to others. At Frontier, CEO Stewart discovered that the effectiveness of his company's plans improved dramatically once he introduced a simple change: establishing clear accountability. Now every annual goal has the name of one person -- and one person only -- attached to it. Everyone mentioned in the plan gathers once a quarter and reports to his or her peers on the progress made (or not made) in each area. That arrangement brings group pressure to bear, Stewart says, and much more gets achieved. "It's a world of difference."* * *
Stay in touch
The best planning process in the world won't work if you base it on bad or stale information. Here's where it pays to stay involved. Although your customers and selling efforts probably provide the best information on current market conditions, industry associations can also be valuable sources of news and trends. Don't neglect hometown business connections, either, especially if most of your business is local. At Yantis Corp., involvement in local business is one reason the 21-year-old, $20-million San Antonio highway-construction company survived Texas's real estate woes of the late 1980s. President Tom Yantis recalls that his father, chairman John Yantis, served on the board of a local savings and loan. In the mid-1980s John began to worry about the viability of numerous real estate projects. He convinced his son that a slowdown was coming.* * *
Plan for the best -- and the worst
Preparing for hard times helped Tom Yantis develop a multipronged strategy that Yantis Corp. still relies on. Instead of specializing in highly profitable -- but cyclical -- private-development work, the company diversified into city, state, and even federal work. Now Yantis tracks the volume of private real estate projects that get approved by local planning and zoning boards -- a good indicator of construction activity six months or more out. With that information, he can vary his business mix and, with several options to choose from, adjust his company's plans as economic conditions change.
Find your own leading indicator
Tracking zoning decisions in San Antonio won't help your North Carolina software company or Idaho clothing store. But, like Yantis, smart CEOs everywhere look for a variable that gives them an advance indicator of coming business conditions. Sometimes those indicators are the ones everyone watches; a survey of 1995 Inc. 500 CEOs found that several track interest rates as a key variable affecting their businesses. However, indicators can be more indirect and still be telling. At Malley's Chocolates, for example, Adele Ryan Malley has found that stock-market prices are a good barometer of the confidence of the company's customers. Why? Malley's typical customers have medium to high household incomes, according to Ryan Malley. "The ones that have the bigger pocketbooks are usually watching the stock market," she says, "and when that goes up or down, they feel very differently" about spending.
If you can't find your own leading indicator, here's one you can borrow: Elkhart, Ind. David Pairitz, chief financial officer of Fastec Industrial, which distributes approximately $25 million in industrial fasteners and related products each year, says that Elkhart -- home of Fastec's corporate headquarters -- often leads the U.S. economy into and out of recession. One likely reason: Elkhart is a center of recreational-vehicle manufacturing, and RV sales reflect the rising or falling economic confidence of middle-class Americans. Even though Fastec's sales are national, Pairitz still keeps an eye on business conditions in his neighborhood. "Knowing what Elkhart can mean to the rest of the economy does help put things into a larger perspective for our company," he says.
Sometimes even a leading indicator isn't enough. Some industries change so quickly that CEOs need a constant stream of up-to-the-minute information to adjust their plans. Peter Tracy, the president of seven-year-old MicroPatent, an East Haven, Conn., company that distributes patent information on CD-ROM and over the Internet, finds the pace of change in his industry a constant challenge. "I've never seen anything like it. In this business, from one issue of Wired magazine to the next, the whole industry changes," Tracy says. "You just think, 'Am I stupid -- or how in heaven's name could anybody keep up with all this?"
In that frenetic environment, Tracy's $5-million company makes and monitors financial plans and goals, but its strategy has to be constantly adjusted to accommodate changing technology. One tool Tracy has found that helps him and his employees keep pace with change is a subscription to a customized electronic-news service offered by a company called Individual Inc. For $29.95 a month per user, Individual's "Heads Up" service each day transmits to every subscribing MicroPatent employee the first few lines of articles that are relevant to that employee's particular areas of interest. It will also transmit whole articles for an additional charge. Tracy himself uses Individual to track big strategic areas like intellectual property, but his marketers have more mundane applications. They've found, for instance, that by tracking mergers-and-acquisitions activity through the service, they can locate likely customers; acquiring companies are often looking for patent information about the new industries they're entering.
Know your costs
If your business forces you to make quick decisions, it's critical to have a sound basis for making them. That was Karen Goode's key lesson from her strategic-planning course. The class forced her to break down her business into revenue streams, called strategic business units, and then to analyze the profitability of each. The results surprised her. Goode does transcription business for local hospitals and medical clinics and occasionally for publishing companies. She had always assumed that the clinic business was a minor adjunct to her core (hospital) business. When Goode broke out the numbers by strategic business unit, she realized that the clinic business could be very profitable -- if she managed it properly. Because the clinic accounts require less-specialized medical knowledge than the hospital accounts, she could assign lower-paid people to them. However, without careful planning, she might end up putting her highest-skilled, most expensive people on those easier accounts, thus missing out on her potentially high margins.
Goode used to approach every sale the way most entrepreneurs do: more is better. Today she goes after only the work she knows she can profitably perform. "We can all fool ourselves into thinking we're making money," she says. "It opened my eyes to be able to say, 'This account makes x dollars for me." That information has altered Goode's entire strategy. As she sells she's also thinking about how to manage the new account. Goode now has something every business owner could use: a plan that continually adjusts to changing conditions, one that she has internalized and can use to make day-to-day decisions. But Goode puts it more simply than that. "I just approach clients and customers and business differently than I did a year ago," she says. "Now I think ahead."