Forecasting – wishful thinking or solid projection?

Never take growth for granted

It never ceases to amaze me how the simple basics of business get buried under the basic business of… business. OK, running a medium or even small operation is taxing and demands on the owner/manager or resource-starved manager are increasing month on month in this environment of “more with less”. Having said this, would you go ahead and order the catering before you know how many wedding guest there will be? Surprisingly enough many, otherwise competent, managers fall into the trap of running around after the day-to-day and letting the important stuff like planning and forecasting become permanently assigned to the back-burner. Some people like to give the impression of always being on the move, always being active. Chickens, given the appropriate yard space can run circles around any athlete. They are extremely active and energetic. But are they very productive or efficient?

Are you buying into the self projected myth that you are too busy? Too busy to see if you are going to have enough revenue and profit this (or next year) to pay your suppliers and staff?

Any manager worth his or her salary should spend a considerable amount of their time on the numbers. Depending on the time frame of delivery of your offering you should have your forecast and check your actuals against it daily, weekly, monthly etc. Then if you see that the actual is deviating from the forecast you put into action the what-if scenaria which, of course have already been prepared. This process is especially relevant in the current economic reality.

Everybody has their own way of forecasting. There is an unlimited supply of relevant articles and publications. Do spend some time looking into this. There are also tools available that can make the non statistical manager’s life easier. BUT, don’t rely only on the math.

I have seen too many managers take a ball park approach along the lines of “Well, we need to grow around 5%”. Then they turn to the sales director and issue a directive in managerial macho-speak, “Make it happen, Jim”. The problem is compounded if Jim answers in the same lingo, “I’m on it, John”.

There are three components that make for a sound forecasting exercise:

First you need the mathematical bit. This is where you look at historical data and project into the required period (next year, next semester, next quarter whatever).

You can be very detailed and use complex tools or you can use a spreadsheet and somebody who knows how to work it. It depends on what you have available. In a rapidly changing environment, I find that trying to be accurate down to the finest detail is a waste of time. It’s like spending six hours drawing a chalk street-art masterpiece on the sidewalk next to a big puddle.

The second component is the intuitive bit. This is where you look at where the numbers are coming from. Never take anything for granted, especially growth. Remember, the more historical data you have (let’s say three or four years as anything logged before Lehman is probably irrelevant to the reports you are getting today) the easier it is to identify patterns and flukes. If there are flukes (outliers or outright liars) kill them. Disregard them. Unless you can repeat them (that once-off big deal with the ministry or whatever). Do spend some time looking at your ad hoc business. It’s pretty safe to assume that if your sales force is bringing in a relatively constant level of said, one could assume that they will continue to do so. Report ad hoc gains separately and spend some time on them. Some repeat cases simply have a smaller frequency (a company that uses you once every twenty months?).  Segment your customer base by industry, at least. What is going on in their industries? Are they beating the market or following suit? What lies ahead for their industry? Good old PEST analysis. Changes in legislation? Liberalisation? Elections? Change of Administration? War? What countries do they trade with? Then go and look at each customer individually. If you have a sales force, they should sit with you and discuss the validity of the mathematical validity of the forecast in relation to their clients. Then you can factor in the real life input and adjust upwards or downwards.

The third and most important component (possibly the least documented in regression analysis white papers) is realism and the ability to face brutal facts and take, if necessary, brutal steps. Once you taken the pain to arrive at a sound forecast, it is totally useless if you refuse to take into account what it is showing you. If it looks good, fine. Just don’t let the sales force get smug. If it looks bad, then you must make decisions. Is boosting the sales commissions and taking a firmer hand to the sales people enough to bridge the gap? If not, how serious is the short falling? If it is such that it makes your lower intestine feel uncomfortable (sort of a gut feeling) then you need to take a serious look at the other contributor to your profit: cost. But that’s another story.

 

 

Recruitment is everything

Get the right people on board – or else

You may be familiar with the credo that human capital is a company’s most important investment or asset or whatever. There is a problem with this statement if it does not contain a disclaimer. You see, investments often do not offer the expected yield and assets at some stage need to be written off, become obsolete, defunct etc.

So what is the disclaimer? Yes people are what companies are made of but they are only the most important investment if they have been correctly selected (just like shares, actually). They are only an asset (not in the accounting context) if they actually do what they were put there to do. Otherwise they are in fact a deficit, loss, waste or whatever else you would like to call it for the sake of political correctness.

I am something of a pragmatist, so I tend to get strange looks at meetings. One statement that earned me certain looks at an HR meeting was: “Most companies continue to employ people who are incompetent, unsuitable and downright wrong for the job”.

So how does this happen? Crappy recruitment, followed by lukewarm or non existent induction and initial follow up on new recruits.

There is so much emphasis placed on training and development. This is a good thing. It absolutely necessary and it costs sooo much. But… would you try to train your grandmother for the decathlon? Would you start training for the Olympics tomorrow? You can’t teach a cat to heel. So why does everybody insist on trying to. You can not train a self-centered, rude, uncouth b*st*rd to be customer centric. You can probably make them up to seem customer centric but that’s not culture, that’s fashion. And (surprise!) a good recruiter could have picked up on the negative traits fifteen minutes into the interview.

If you want to get things done, make sure to get the right person in the right position. Then you can help them develop to unbelievable levels.

 

The power of “?”

Everything is a Trade-off. Always.

How do we learn? By asking questions. This holds true for every aspect and stage of our life. Never underestimate the ability to ask the right questions. This is the only way to arrive at the right answers. The good student is the one that continuously bombards teachers with a barrage of questions. Good interview candidates ask good questions. Bright children ask intelligent questions. The best scientists ask the best questions. The sales people with the highest close ratios are the ones that base the sales process on specific types of question. There is no reason why an entrepreneur or a manager should be an exception. If you don’t ask questions you will end up with teams that aren’t geared towards having the right answers. Even worse, you will lose touch with your business/people/industry etc.

One of the most powerful questions a manager can ask is also childishly simple: “Why?”

Question everything. Remember, we are living in a rapidly changing reality. What was a good call three months ago may have disastrous results two months down the line.

Sit back and take a third eye look at your routine. Does it still make sense? Objectively and unemotionally? Did your ego shoot down somebody else’s idea? Are you avoiding meeting with a prospect for personal reasons? Are you not firing somebody when you should have done it six months ago? Are you still selling to a client that is no longer paying as agreed?

Question everything. Ask why you do this and not that. Question your sales reps’ results. Question the efficiency figures. Keep on asking until the answers you get make sense and satisfy you. You are the boss. It’s your job.

Train your people to answer questions directly. In most cases, especially if something has gone bad, you will ask what color and get an answer referring to taste… Don’t be afraid to say, “that’s not what I asked” until you sound like a broken record. Don’t be afraid to show your discontent after the second attempt to get a straight answer. The person sitting across the desk may not even be trying to avoid the question. It is a sign of professionalism to answer questions completely and accurately and for most people it is a skill to be acquired. Help your teams develop this skill. It will make for a much more efficient organization and should also help enhance the sense of responsibility of your people.

And of course don’t forget that other very powerful question: “Why not?”. This also gets the mind wondering why certain things are not done? You will be surprised by the number of cases in which the reason is emotional rather than rational.

 

What’s your strategy, Boss?

Know yourself, know your adversaries

You run the company. It may be yours. So, since there is no stressful quarterly board presentation, no tight arsed SOB MD flying in to chew you on the numbers and you are working so hard, it’s so easy for business sense and strategic management to give way to day-to-to-day management. So here is a little exercise. It’s one of those cool ones like imagining the audience you are stressed about talking to from the conference podium are in their underwear. Imagine you have a Boss. An unforgiving son of his mother. You probably had one at some point in your career. Hell, these days it’s probably your banker. Anyway, this imaginary figure of authority always asks the tough questions and you simply do not want to be caught unprepared. He is asking, “What is your strategy?” Do you know? Did you lay it down five years ago and then forget about it as you had more important things to attend to such as writing proposals, visiting clients, appraising staff, balancing the books, answering the phone and emails? All the stuff above is, of course so much more important than actually knowing why you are doing it. When I ask this question at the first meeting with prospects, I usually get something along the lines of a smile bordering on the condescending and something like “Andrew, you know the theory is OK but we have a business to run”. In some cases this is a cover for a guilty managerial conscience. In other cases it stems from empirical managers or business people thinking that a business strategy is up there with quantum physics and as such beyond their grasp, so let’s just get on with running the business. In so many cases this ends up as just running around in circles or, worse, running the business into the ground.

Strategy made simple:

Ask yourself three questions:

1. Where are we today?

2. Where do we want to be in X months/years?

3. OK, How the heck do we get there?

That’s it basically. Get as philosophical and as detailed as you like, but this is the essence. Of course, you then need to think along the lines of, “What sort of obstacles would we encounter? Is there anybody that would go out of their way to stop me?”.

Before you get to the strategy questions, ask an even more important one:

What is my business?

This may sound borderline stupidly simple but take a minute: Are you selling coffee or are you selling an image of those that frequent your caffeine enriched beverage purveying establishment? Can you see how different your strategy needs to be depending on the answer?

Define, no, distill the essence of what it is you do. Then decide where you want to end up. Then work backwards to how you are going to succeed. And as you are starting from what you ideally want to achieve, don’t be surprised if you find that you have quite a way to go. Don’t be afraid to question the way you do things today. This will lead you to the “How do we get there” answers.

Oh, and by the way, check your ego at the door. It makes a crappy adviser when it comes to managing change, especially if you need to change your decisions and directions you set.

 

Are you the top guy/gal ?

You are responsible for EVERYTHING

I work mainly with small and medium companies. The term is SMEs. I find it’s easier to get things done in smaller companies. The are usually more agile and the politics are simpler. You don’t have to convince a different manager every step along the way and it’s clearer where the buck stops. Having said this, the owner/manager needs to be adaptable and open minded. Over the years, I have been granted the wisdom to know what I can’t change. Some brick walls you simply walk away from. You may experience this with people you employ or that you are responsible for. People, life is hard enough. If you are faced with a difficult decision, surgically remove the emotional content. This provides unbelievable clarity which in turn leads to good decisions or management calls. And here’s a hint: if you are trying too hard to manage somebody, don’t. You shouldn’t have to. “Did you do that thing?”, “Did you send the quotation?”, “Why is this contract still pending?”… Is any of this ringing a bell? See if there is another role that could benefit from inefficiency or lack of dependability or else send them home. Cruel? Cold? OK, keep on paying them to ignore you, the customers, common sense etc.

Anyway, small and medium companies. Do you run one? Do you know what the most common issue is? The top guy is, well, the top guy. A small company may or may not have processes and controls in place. The guy (or gal) at the top may or may not be disciplined. At the end of the day who is he or she accountable to if things slip. If issues aren’t followed up? If this month’s sale figures weren’t what they should be? In fact, to nobody but his or herself. So remember this always: Thou art mortal. You too can screw up. And most importantly, you are NOT always right.

Don’t make excuses for not managing your company professionally, as if your job depended on it. In fact , it does…

 

Greetings fellow managers

Wipe the mud off your thoughts

I have spent the last seventeen years in entrepreneurial and management roles and I must admit the last three or so have been the most interesting. Indeed we live in interesting times.

I spend part of my “free time” as a guest lecturer and as a trainer and the resident faculty usually wrap up the session with a “Thanks Andrew, for telling my students that the theory I’m teaching them is fine but…”. Don’t get me wrong, you need a sound theoretical base. Then you need to grab it by the proverbials and drag it into whatever reality you are struggling with and make it work for you. As a manager in a global corporation I was called upon to rightsize my operation when the fan was hit. It was painful. It was hard. It cost sweat, blood and tears and definitely impacted the old sleep patterns. But I adapted. I learned from other peoples’ mistakes and successes and found my own way. In another life time when I started my own company I set the ground for myself to learn from many creative mistakes of my own. In both cases I would have been grateful for some solid practical input that would help me with my perspective and  if possible offer a few recipes and tips. There is so much pomposity by what have come to be known as consultants that people have lost faith in the role. Oh for some simple truths straight from the horse’s mouth.

I hope I can offer some pointers through this forum. When I consult (for want of a better word) I usually ask more questions than provide answers. I find that intelligent people in managerial roles, be they sales managers or general managers, process improvement managers or cost managers often get buried under that every day sheer-sluggery that saps creativity and represses knowledge, tools and techniques.

So, from one busy, oppressed professional to another, please feel free to join me in giving ourselves the necessary wake up calls, reminders or simply tips that should, in most cases, make us raise a palm to our forehead and say, “Of course, I know that!”. And then bloody well go and do it!

I hope you enjoy reading them as much as I enjoy writing them

Andrew