The last two commandments



Commandment No 9: Organize not by personality but by function.

When business are first being established, personality rather than functionality is them demonstrated theme. People's preference and personality are selectors for positions rather than competence in a particular function. The influencers in this early stage of enterprise life are: relationship to the CEO; equity participation; lobbying pressure; pressure from key vendors, suppliers or even customers.



With time the CEO must endure the beginning postings with the realization that soon the competent employees will be identified through performance rather than by urgent request.



Employees seem to fall into three categories: finders, grinders, and minders. Finders will migrate to marketing and sales jobs. Grinders will migrate to operations jobs. Minders will migrate to accounting/finance/hr.



Of critical importance is never to allow each of the three groups to emphasize there contribution as being more important than the other two. All are needed in portions and required by the business plan. There is and will always be a natural tension between and among the groups. That tension is productive in that it provides the "checks and balances" needed to keep the organization focused on cash flow.



Commandment 10: Believe in Yourself

This is a call for personal courage in the face of disappointment, disaster, despair, and discontent. There will be countless reasons, many legitimate, for you to fail. Here are some old bromides which seem to refresh a CEO:

• Your selfworth is never the same as your net worth.


• "Never, never, never, never, never give up." Churchhill


• What doesn't kill me makes me stronger.


• "Never take counsel from your fears." Patton


• If it was easy everyone would or could do it.


• Second effort brings touchdowns.


• The difference between success and failure is getting up one more time than you are knocked down.


• "Don't lay there, wrestle!" My last wrestling coach. The sign writ large was displayed so that it could only be read if you were laying down and looking up at the ceiling. Very motivating.

Well those are the 10 Commandments of Business. To summarize:

1. Be customer oriented.

2. Know the life-time value of the customer.

3. Use direct response marketing.

4. Work on your business, not in your business.

5. Garuntee satisfaction.

6. Receive weekly profit and loss statements.

7. Perceived value establishes price.

8. Reward behavior you wish repeated.

9. Organize not by personality but by functionality.

10. Belive in yourself.

To discuss and get help call 530.383.9079 or email me at stoddardconsult@yahoo.com

Commandment 7: Perceived Value Establishes Price
Wow!.... did I learn some lessons from engineers about this rule or commandment. First sub-rule is don't let engineers deal with price....it is way beyond them to comprehend anything but cost+10%.

This commandment requires outside-in thinking. Most engineers and operators think inside-out.
What? Listen close. Outside-in thinking requires us to observe and absorb what the market is telling us about our product, price, promotion, and place decisions. Listening requires humility...also known a "teachableness." Listen GM, Ford, and Chrysler....you are ARROGANT and not teachable....and so you are going to shake the money tree instead of giving us what we want.

A story to illustrate.
When ready to graduate from BYU, I had bought a new Mustang so needed to shed the old chrome and blue 1958 Oldsmobile with the flower decal and the aftermarket a/c unit. We had been driving it for 3 years; it had 200,000+ miles on it..but what a screaming engine!!!!

I listed it for $100. No calls, no buyers. Puzzled, I didn't know what to do. Since I couldn't lower the price, I raised it to $300 and felt guilty doing so. [Inside-out thinking was working overtime.] At the new price I received about a dozen calls, and one fellow actually came over to see the car. He asked for a test drive. We drove around the block. Half way home the engine stalled, the balking ignition switch failed in the middle of the intersection, and the radio quit.

I figured he would walk away. He did. But only after he gave me the cash and I gave him the pink slip.

I couldn't understand what happened.

Here is what happened: nobody wanted a $100 car...it offered no hope of salvation or operation. However, a $300 car offered hope. The customers view determind there was value at both the new price point and with the demonstrated performance.

Commandment 8: Reward behavior you want repeated
Logical enough. But seldom used.
If you want continued performance reward it. The reward must first be appealing to the person. How often the person rewarded comes next. Both are vital to insuring the behavior is repeated.

So there are three elements which require very close attention:
1. First, specify exactly what behavior you wish repeated. The more precisely one does this the more likely the reward system employed will work. Done sloppily the reward system won't work because the person whose behavior is being targeted won't get "it."

2. Second, establish a list or catalogue of rewards which are known or believed to be attractive to the person. Care must be taken to insure inside-out thinking does not rule the day.....outside-in thinking is critically important.

3. Third, determine either at what interval or what rate the reward will be given. Determine if the rate or interval will be either variable or fixed. This design element requires careful and systematic analysis before a final solution can be employed. Much trial and error is likely to be required. Even for the smartest of you.

Finally, start rewarding the behavior you want repeated. Actually it can be done simply and quickly but it does require premeditation...aka...thought.

Call me for further discussion. 530.383.9079 or email me at stoddardconsult@yahoo.com
Note: I am not the author of all these ideas. We all stand on the shoulders of those who came before us and who ride along with us. To them I give great credit for lessons learned.

Ok, so on with the rest of the 10 Commandments of Business.



Commandment # 4: Work on your business not in your business.

Great, so what does that mean?

It means putting down the hammer, or the computer, or stop driving the truck or airplane and work on where your business is going to go. Doing the work can be hired out. Deciding what work to do can only be done by the owner or the CEO.



This doesn't mean one does it in a vacum, one uses the best brains available.



Too many CPA firms flounder because the owner is busy with the eye shades on from December to April, takes a rest after the 15th, and then starts the cycle again. But he never gets new clients because he is too busy doing the work!



So take time to work on your business, not just in your business



Commandment #5 Guarantee Satisfaction

Sounds simple or hard depending on your business. There are all kinds of ways to approach this without fear of going broke or being sued. What matters is if you have a service or a product.



Services

If you offer services, the way to offer the guarantee is to repeat the labor for free or a reduced fee to resolve the problem.



Products

With products you can offer performance guarantees which reflect parts and labor for a specified period of time for their replacement.



Key point: If you aren't willing to stand behind your product or service then your customer will hestitate and begin to look for new options.



Commandment # 6: Review your profit/loss statement weekly

With the advent of computer aided accounting systems the ability to develop a cogent dashboard with practical metrics has never been easier. One just must know what the cash flow is.



The CEO of Terex www.terex.com , Mr. Ron DeFao, told me this about profits, margins, and cash flow:

"Profits for the investors, margins for the ego, and cash flow for the CEO." We were talking at the enormous construction equipment show, Intermat a few years ago. An interesting perspective from a CEO who specializes in taking failing family construction equipment businesses, buys them up, paints the products white, and starts marketing them again. When Ron comes calling, your family business should pay attention. I know of one 90+ year old construction equipment manufacturere who arrogantly showed him the door. Their plant burned down, and they are still milling around trying to figure out what to do two years later.



Review the company p&l statement at least weekly and take appropriate action.

Check back for the next three commandments. They are comming soon!

How to Make A Big Change Happen: aka Making Elephants Dance

Part 1 Realizing Just What You Are In For
[This is going to take a few installments.]


Making elephants dance is no trick for amateurs. Neither is making a major organization change such as introducing SAP or any other "big thing."


So how does it happen without running off the talent, tanking the company, or giving the competition the break they were looking for?


Does one just bear down harder?
Make threats?
Promises bonuses if everyone will just wait and see if this bird will fly?
Make more threats?


Or trust in that tried and failed strategy called: "Hopium".


A big change or project is [really is] a big deal.


Most M&As fail: more than 60%. Bean counter's dreams of that bottom right cell on the spread sheet never quite come to fruition. The investment bankers who sold M&A have long ago ridden into the sunset in their new hot cars. You are left with what's left. Grief, pain, and yet-to-be-realized expectations.


And that last word, expectations, is where we are going to start.


Yep, after the "vision" has been surveyed and savored, after the dreams of "hopium" have swirled away, what we have left are expectations.


There are two kinds of expectations from two kinds of people with which one must contend.


First the expectations. There are those which have been spelled out in the agreements, contracts, press releases, technical specifications.....and those which have been omitted but continue to be held but which still will come into play when determining if the project and you were a success or.......or the reason you are now out of the loop and pursuing special projects, leaving to spend more time with your family, or just unavailable for comment. You thought you won, but somehow there was no ticker tape parade.


Next the people. There are those involved in the deal: the merger team; the action squad; the raiders; the project team; the red team, blah, blah, blah. All those people who are in the know, hope they are in the know, want to be in the know. And then.....and then there are people who are organizationally above you them and beside you them who form the contextual interface.


Ignore them and the change will fail.


But you ask, how can a project or big change be measured on anything but stated objectives, agreements, tech specs, ROI, measured progress, etc., etc., etc., etc. Silly rabbit!


Check the next post, Part 2, and I will start walking you through how to make a "big change" and use strategy and tactics which have worked and will work...and much better than furrowing one's brow, working longer hours, and searching for that elusive hit of "hopium."

Note: the actual field data used to generate these conclusions is based on the authors work as senior consultant with www.Bechtel.com, Proctor & Gamble www.PG.com, the Williams Companies www.Williams.com, www.ExxonMobile.com, the World Bank www.WorldBank.org, the United States Trade and Development Agency www.USTDA.gov, and Chief of Party at the United States Agency for International Development www.USAID.gov.


Note: If you would like a copy of the full article, please send me an email so requesting.

Commandment Three: Use Direct Response

Commandment Three: Use Direct Response Advertising to Grow Your Business

[See special note at the end of this article.]

There are two kinds of response advertising according to M.J. Stoddard: direct and indirect.

What are they?

Indirect response advertising seeks as it's first priority to build awareness.

Direct response advertising seeks to gain a direct response from the customer to the business.

Let me explain as both are useful and employed around the world. Before I explain it is important to realize that product distribution channels availability helps determine whether direct or indirect advertising is used.

If every corner grocery store is able to carry your product then your object is to create an exhilarating awareness in your customer so they will feel compelled to run down to the store and buy your product. That is when indirect advertising works very well.

On the other hand, if you have 10 dealers in the US who sell your product but have little walk in traffic and rely on sales people to go out and get sales, then you would select direct response advertising to your customer to drive them into those 10 dealerships. The sales force will gather some of the customers but not nearly all that are available.

Also if you are introducing a new product, you will be seeking both customers and dealers. You have no choice but to advertise direct. Dealers will come after customers. Dealers tend to be skittish about new products. Dealers are not the first to work with a new product, the customer is.

In direct response marketing you want....a direct response from the customer. That means a phone call or a customer walking in your door or the dealers door. You want the customer to take the action you are requesting. You want much more than awareness. You want action.

After customers are established then willing dealers line up to cash-in on your efforts. That's good. When the product starts to fade [and EVERY product has a life span] then dealers are the first to dump your product even though some customers will remain. That's bad, but that's life. Study product life cycle for more on this subject. [Companies are also subject the same life cycle especially when they are built around one product or service.]

Use AIDA!

In direct response subtly is fails. Your advertising will not likely win awards, but it should win customers and sales. Awards are won by ad agencies who do indirect response ads. When you develop your direct response program a failure to use AIDA guarantees a failed marketing program.

What is AIDA: Simple!

Attention: you must grab your customers attention

Inform: you must tell your customers exactly what this products or service will do for THEM!

Desire: you must generate a positive emotion in your customer while informing them about your product or service. It doesn't matter if you are selling nuclear reactors, steel, coal, or lipstick....no emotion or desire = no sale.

A: Ask for the sale and get the money. First three rules in business I learned in the Middle East are: 1. Get the Money, 2. Get the Money, and 3. Get the Money. To get the money you have to ask for the sale.

[My brother M.J. teaches fledgling opera singers in the US and Europe how to grow their wings and fly; he came up with this apropos acronym.]

Funny story about asking for the sale. I was ready to pop the matrimonial question to my wife and I said this: " I would sure like to marry you." She said nothing. And nothing. And after ten minutes still said nothing. Suddenly it occurred to me that I had NOT ASKED her to marry me. I quickly recovered and asked. Immediately she said yes. I asked what happened, she told me she wasn't sure if it was a proposal or just a general comment. Zounds what a fool I was.

Remember, always ask for the sale. You are NOT there to make observations or general comments about business.

Next, unless your are Coke or Ford, a direct response marketing and advertising better be the objective of your ads.

SPECIAL NOTE: If you would like the other 7 Commandments send me and email and I will send you the whole article.

Cheers!

Know the Life Time Value of Your Customer

Commandment #2: Know the Life Time Value of Your Customer

We know the customer is the most important element of a business. The most expensive act any business can take is to lose a customer. That cost is stunning when considering the LVC.

So here is why losing a customer is so expensive: The Life Time Value of a Customer [LVC]

How do you calculate this? Simple. LVC = The sum total of money a customer will spend with you.  Example: Suppose you owned a clothing shop with a demographic of young women between the ages of 18-24.  Now suppose the average customer spend each month was $200. 

Over six years that customer will be about $14,400.00 with you!

Armed with that knowledge the following comes into sharp relief:

1. Customer service: poor customer service drives away customers.  If, after six months of spending at your shop the customer is outraged and decides never to come back, you just lost $13,200 in revenue.  A very expensive mistake.

2. When customers walk they talk. When customers like a product or a store they talk about it. When they don't like a product or store, they are likely to slam your product or store at a rate of about 6x.  That means you are continuing to lose business.  More of those $14,400 nuggets that fail to even show up.

3. Strategy in focus. Plenty of strategy consultants talk about qualitative research, but few if any talk about LVC.  Knowing LVC will refocus, refine, and realign your strategic objectives.

4. Cost per sale. With a clear knowledge of LVC you will be able more accurately determine what your annual ad buy should be. In addition, you will have an absolute standard against which to measure your cost per lead and ad cost per sale.

The Brits skidaddled and a million+died

Before I go to another post regarding business I return to Iraq.

What happened when Ghandi forced Churchill to succumb to the hurry-up wishes of the Indians and the British population?

More than 1,000,000 died in the ensuing bloodbath.  Muslim hacked Hindus and Sikhs. Hindus sacked, burned, pillaged, and bombed the Muslims.

And thus Pakistan was born.

Ghandi didn't care if more than a million people had to take a bullet to make India independent. The man of nonviolence received his wish.

Today sectarian violence still is a fact of life. Rickety trains burst into fire and passengers die in a fiery rail-bourn inferno.

Why are we in Iraq and Afghanistan?

The real reason?

Well there is only one reason and it has several locations: Auschwitz, Dachau, and more.  

It is just not in our guts to let people go unwillingly into that dark night. True, we did nothing about the Ruwandan genocide and Darfur is proving extraordinarily difficult.

Check the next post for more Business Commandments.

What We Told The Soviets

Before the wall came down, before Yeltsin was elected, and while Gorbechov was still in power, I was invited to visit Russia with my brother. We were there to give a series of seminars on the free market and to help the victims of the Chernobyl reactor disaster.

Passing through security in the Pan Am JFKTerminal, Dan Rather and CBS news declared Desert Storm had started. I gulped and boarded the flight to Moscow...Heart of the Evil Empire.

For the next 6 weeks Mark and I barnstormed the USSR giving thousands of Soviets the essential message of free market capitalism. It was Mark's gig but we worked like a couple of tag-team wrestlers.

We spoke to audiences of 500-1,500. Most were educators or engineers. None were in business. Business was illegal and anti-social...they called it "speculating".  "Speculators" were considered something less than bottom-feeding sucker fish.  My how times have changed.

To be concise and clear we presented to them The Ten Commandments of Business.

But instead of the traditional Soviet approach of sitting behind a desk on stage and ominously reading the lecture into the microphone to the hundreds assembled who were all taking copious notes in their bound diaries, we disposed notes, of coat and tie, and microphone. We walked the stage, both peppering the audience with our questions, and fielding their questions. Interacting with an audience was unheard of. We did it. They loved it. Nobody left before the day was done.

Time has now past those heady days into memories and journals. 

But the Ten Commandments of Business still apply.  Strange that even US business leaders frequently and perilously neglect them.

So in the next few posts I'll reiterate them one-by-one.

Commandment Number One:The most important element of a business is the Customer.

No customer=no business.  "Dot-com"-ers and their professors forgot about that. Zambians trying to sell cooper also forget it. Bechtel engineers find it hard to believe...or to stomach.

Example: I spent 10 years at Bechtel in management and organization development beginning in the construction department of the Refinery and Chemical division. Proctor and Gamble[P&G] had been a prime client but we had no projects in more than 4 years despite having done excellent work in the past and despite P&G continuing to build but using other firms. 

We were now proposing on building new project to build a plant in Canada. But we were nervous about winning the job because of some "undefined unhappiness" on the part of P&G. I sought to understand why. The last job had been completed on-time and within budget: a clear victory for both Bechtel and P&G. Why then no follow on work. I dug deeper. Speaking to P&G I learned that they had developed a hatred for the Bechtel Site Manager and decided that he was a permanent but unspoken impediment.  We removed the impediment and won more P&G awards.

We had been victorious on the project but alienated the client. We had no customer and we won no more work until we solved the customer problem.

The most important element of a business is the customer; ignore it at your peril. Just like K-Mart is doing.

Next posting will discuss:

1. The Biggest Mistake businesses make and

2. The Most Expensive event in a companies history.

Dreams,Ghosts, Opera, Iraq, and Panama!!

Somebody said young men have dreams and old men see ghosts.That is the state of the political race today. Obama has ambition laced dreams and McCain sees the ghosts of McNamara, Rumsfeld and his fallen, flaming nomex suited comrades in Vietnam's rice patties. And Hillary neither dreams nor worries about ghosts; she is pure ambition and guile. A true Lady McBeth...beware to any Banquo!  Is a America ready for a woman president? Was England ready for a woman? No doubt, when she turned out to be Lady Margaret Thatcher.  I know Margaret, Hillary, and you are NO Margaret! [Apologies to Sen Lloyd Bentsen]

Don't fix the mortgage crisis. They tried that in Africa a decade ago. The result: no mortgages available. You want a house... save up and buy it. No loans. Want to build an apartment complex? Build the first few floors, leave the verticle beams exposed on the top floor with rebar exposed....when you have enough cash build a few more floors.  Makes for a strange view....all those verticle concrete pillars with rebar sprouting up like hairs in an old mans ear.

Opera is making a comeback. Hope so anyway. Have a daughter, Olivia, trying her hand at it. Tough to break in.  Many auditions to get roles.  But plenty of Baby Boomers are getting tired of 2.5 minute songs that are nothing but ear candy. We want something that is longer, has more texture and is more than even a two-dimensional HDTV can give. Nothing beats live music. Right Martina? Keep the pit full of musicians, no sound machines please! We don't want a karaoke version of "Tosca"!

I used to have a travel company doing river cruises in Russia. People loved them. Great two week adventure. Great art, music, visuals. Imagine hearing Tchaikovsky's Seasons as you glide on a smooth river surface through the early fall color changed aspen forests. Intoxicatingly peaceful. I was there last September and it was as beautiful as ever. I want to go again with friends that like great music, art, ballet, and going from Moscow to St.Petersburg. Let me know if you want the details.

How is Iraq? As my dipolmat son says: "Not as bad as CNN would tell you, but not as good as Fox would claim." Ummm......sounds like the truth. He's trudging away saving ag in Afghanistan. Been getting a lot of ink lately. I guess the heavies trust him to stay on message. 

The Panama Canal Authority is enlarging the Pacific side of the canal. The world's richest man, Carlos Slim, has a company that won the bid. Heard the Bechtel didn't have the executive leadership to handle it. Dirt moving contract has been reported as $3.5 to 5.5 Billion. Lots of dirt and rock. They are using Terex shovels and Cat 777 ATD to haul it away.