business planning

This Simple Law of Physics Will Change Your Business

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“The law that entropy always increases holds, I think, the supreme position among the laws of Nature.” —Arthur Eddington

Have you ever heard of the Second Law of Thermodynamics? Unless you were an engineering major probably not, but it’s a fundamental law of the universe which dramatically impacts your business every day.

The Second Law of Thermodynamics states that the entropy of a closed system will never decrease. Entropy is the natural tendency of things to lose order. 

Here's the important thing about entropy: it always increases over time, which means that left to its own devices, life will always become less structured, everything will decay, and disorder always increases.

The article Entropy: Why Life Always Seems to Get More Complicated, by James Clear, gives a great explanation of entropy and how it impacts our personal and business lives.

As James points out, “You can fight back against the pull of entropy. You can repair equipment. You can clean a messy office. You can organize individuals into a cohesive team.  But because the universe naturally slides toward disorder, you must expend energy to create stability, structure, and simplicity. Successful relationships require care and attention. Successful houses require cleaning and maintenance. Successful teams require communication and collaboration. Without effort, things will decay.

This insight—that disorder will increase over time and that we must exert effort to create order has dramatic implications to your business.

Think of all the systems you’ve created in your business and then ask yourself what structure you’ve put in place to counteract the pull of entropy? We wouldn’t think twice about the need for continuous improvement and maintenance for the machines in our companies, and yet our systems related to people and planning often limp along without an eye toward continuous improvement or even a yearly refresh.  

I see this in the way many organizations approach their business planning. Teams get together for an off-site retreat and a plan gets created that everyone feels good about. And then entropy takes over—the plan ‘sits on a shelf,’ and isn’t reviewed on a regular basis. There’s not consistent, on-going energy expended towards keeping the plan current, relevant and responsive to the day to day disorder that affects it.

So, consider reviewing your planning system like a scientist, and ask yourself how you’re fighting the forces of entropy. How often are you checking back in with your team to solicit their input? What about adjusting the key performance indicators to respond to changing variables in the marketplace. Are you getting the team back together on a consistent basis to review and refresh the plan at least monthly or at a minimum quarterly?

If there isn’t a system in place to keep your plans fresh, then they’re already out of date and sliding into a state of being irrelevant.  

Close to Home: The Measurement Imperative in Family Business Planning

Nothing personal, it’s just business,” was a saying coined by an accountant for the mob in the 1930s. A business where distancing yourself from the human impact was a pretty imperative requirement.  

But business is personal—in fact most people would argue that relationships or being ‘personal’ is the foundation for any successful business. And in family businesses, being personal is the foundation for both the business and the family. What’s the point of having a successful business if it destroys the relationships in the family?  

Objectivity reigns supreme in sustaining both the business success and personal relationships, forged by a relentless commitment to measurement: setting the right goals; choosing the right system to track implementation and performance; and convening regularly to review and evolve as required.

In the first article in this series, we talked about the three steps in the CG one™ planning process which are; Create Clarity, Focus Behaviors and Measure Results. The first step, Creating Clarity involves the definition of mission, vision and values. In the second article, we looked at Focusing Behaviors which involved identifying the strategies, game changing projects, and critical behaviors that would take the business to the next level. 

In this article, we’ll focus on the third step in CG one which is Measuring Results. Putting a system in place to help family members measure results is critical to maintaining healthy, productive relationships within the business and family. 

The Trust Factor

Early in my career I had a boss who taught me the rule of ‘No Surprises.’ He explained that it was OK if mistakes were made, but he didn’t want to be surprised by learning about the mistake from someone other than me. This rule of ‘No Surprises’ is critical for family members who work together; the feeling of family solidarity is so important to maintain. 

In my experience working with family businesses, the ultimate enemy of healthy relationships has been a loss of trust.  A commitment made in business is the foundation of trust, and trust is created by doing what you say you’ll do. When trust is eroded by a lack of follow through, it can quickly disrupt both the business and the family. A planning process that includes clear and tangible measurements can help families avoid both.

Building The System

Creating a plan is the first step to defining clear expectations among family members, but a mistake frequently made in the planning process is pausing too long after the creation of the plan.  

Sometimes leaders are so relieved that the planning process is completed, they drop the ball on the next phase of the planning process which is implementing a systematic method for tracking results and bringing visibility to the commitments family members have made to each other.  

The first step for creating an effective measurement system is choosing a system to document and track the implementation of the business plan. 

The key to choosing a system is first, that it provides transparency—all users need to have access to all planning information on the system, and second it must have monthly reporting that will enable users to track progress on plan implementation.  

This can be done using spreadsheets which are shared on a company server, or there are cloud-based software solutions, like the One Page Business Plan™ which has built in Scorecards for metrics and Monthly Progress Reports to track the status of timelines for game changing projects. The advantage of this type of system is that it provides a consistent platform for plans and is relatively easy to implement.  

The last step for setting up the measurement system is to define the meeting rhythm which will best support implementation of the plan and insure consistent communication. Most business owners find that a monthly check-in is necessary to maintain focus on the plan timelines and quarterly meetings are helpful for re-evaluating and adjusting the plan.  

Accountability to the plan, and each other

So how do you ensure that your “best laid plans” don’t fade away into the day-to-day operations of running the business. The key is to have a commitment to the established meeting rhythm.  

Family members can’t disregard a scheduled meeting because ‘it’s just family’; they need to treat those meetings with the same importance as they would a meeting with their most important customer.

To insure a productive meeting, it’s critical that all participants prepare for the meetings in advance by reviewing all plan updates and coming to the meeting prepared with questions or suggestions for other members of the team.  

The idea is that the management team holds each other accountable for plan results—they act as an advisory committee for each other. 

Accountability isn’t about being punitive when targets are missed. It’s about asking “why” and figuring out if the target is still legitimate, if circumstances have changed or if there are previously unseen barriers getting in the way.

Once a measurement system is in place, the process creates a productive tension around the topic of performance and results. The key is to create a system and structure for family members and the management team to come together on a regular basis to evaluate results and discuss challenges. 

In the absence of regular and consistent communication, misunderstandings can build into full-blown arguments and undermine the health of relationships. As William Shakespeare said, “expectation is the root of all heartache!”

The focus of measurement is to be constantly re-evaluating, re-tooling, and adapting the plan to changing circumstances. Having a process in place to measure results won’t insure that everything in the plan gets done, but it will help to maintain realistic expectations, reduce surprises and ultimately preserve the feeling of trust in the relationships, especially for the family members.

 

This is the third article in the Close to Home series. View the first article: Close to Home: Clarity, Focus and Results for the Family Enterprise and the second article: Close to Home: Focusing Behaviors for Family Business Planning and Protection.

Close to Home: Focusing Behaviors for Family Business Planning and Protection

Family-owned businesses are the backbone of the American economy. They account for 64 percent of the U.S. gross domestic product, generate 62 percent of the country’s employment, and account for 78 percent of all new job creation. When family businesses are successful, so is our economy.      

Research shows that a family business increases its odds of being successful when it has a written business plan. 

Although the importance of a written plan is common knowledge, it’s often not common practice. 

A business plan not only helps insure the financial viability of the family business—but perhaps more importantly—protects the family relationships.  

Family relationships are protected by a business plan for several reasons: 

  • First, the creation of the plan necessitates open communication between family members and provides a forum for frustrations to be shared.

  • Second, the plan creates a shared path forward so expectations for the business are in alignment.

  • Lastly, the plan contains metrics and accountabilities, so family members have quantifiable measures to evaluate performance, which helps remove some of the emotion involved in discussing results.

That all said, true leadership and advancement occurs in the everyday actions (and reactions) of the people within an organization. The behaviors, habits, and examples set forth by leaders drive, influence, and reinforce what is expected of employees. 

This can be even further amplified—and—complicated when you mix in the familial ties, where a blend of different expectations and comfort levels can exist. 

So what can the family enterprise do to help influence the desired behaviors of their teams, and keep everyone moving in the same direction? It starts (and never ends) with a commitment to focus.

Planning Before Action

In the first article in this series, we talked about the three essential steps in the business planning process: Create Clarity, Focus Behaviors and Measure Results. 

The first step, Creating Clarity, involves the definition of mission, vision and values. This critical first step establishes a foundation for the business plan.

It’s key that everyone in the family and on the management team know the core values and purpose of the organization, and are in agreement on what they’re building. Many plans fail because the authors skip over this initial work deeming it less important than the action oriented parts of the plan.

The clarity that is created in step one is what drives the next step, which is Focusing Behaviors.

Focusing Behaviors is critical to the implementation of a business plan because it helps to guide the day-to-day decisions that individuals make about how to spend their time. The discipline that is necessary for successful plan implementation comes from getting this part of the planning process right.  

Balance Before Behavior

Focusing Behaviors starts by identifying the high level strategies that will get the business to the next level, then determining what work fulfills those strategies, and finally establishing the corresponding metrics that support the strategies.

The first part of Focusing Behaviors—identifying the strategies that will get the business to the next level—can be found by answering the question, “How will we build this business over time?” The answers to this question should be high level, future oriented, and directional as they’ll guide the creation of subsequent sections of the plan.  

The concept of the Balanced Scorecard is a useful approach for developing your strategies.

The Balanced Scorecard framework instructs you to look at your company from a variety of a perspectives, including financial, customer, internal processes and learning and growth of the team. This approach helps companies produce a balanced plan that’s not too heavily focused on one particular area such as sales or finance. 

Once you’ve answered the question, “How will we build this business over time?” and generated a list of high level strategies, the next question is “based on those strategies, what are the important projects or initiatives that will take the business to the next level?

Defining Your Game Changers

The key to connecting strategy to execution is identifying and implementing game-changing initiatives. These are usually projects that have a beginning and an end, rather than on-going activities that are part of the regular operations.

Ironically most businesses can operate day-to-day just fine without implementing game changers, but they will not be building capacity for sustainable future growth.

Unfortunately, everyday chaos often pulls individuals away from accomplishing higher level, game-changing initiatives. Many business owners have been successful because of their ability to live in this chaotic state, but chances are they can’t maintain that pace over the long run without causing harm to themselves, their family and their team.

The ability to implement new projects is dependent on conducting an honest assessment of what to stop doing in order to free up capacity.  

Once the game changers have been identified, the hard work begins: prioritizing the timing of their implementation. There usually is no shortage of good ideas for what needs to get done in a business. You can do it all, but you can’t do it all at once!

Once the next year's worth of projects have been prioritized by quarter, the next step is creating project plans for each of the initiatives. A good project plan assigns target dates for each incremental step of the project to be completed and clearly identifies the individuals who are responsible for hitting those milestones.

Well-defined project timelines and clear assignment of responsibilities avoids finger pointing and misaligned expectations later.

Clarifying Roles

Identifying the important work that needs to get done also provides an opportunity to re-evaluate the roles and responsibilities of family members.  

Family members often end up working in roles more out of happenstance than as part of a deliberate plan. When a key position needs to be filled, a family member steps in. The planning process provides an opportunity to look at whether family members are in a role that they’re best suited for or one that happened by default.

Personal assessments are helpful tools that can be used to guide this analysis. Assessments can shed light on how individuals naturally solve problems, what motivates them, how they respond to rules, and perhaps most importantly, their communication preferences.  

Although an advantage of family businesses is the flexibility of family members to fill in where help is needed, it’s also a waste of resources for them to be in roles that don’t capitalize on their natural abilities over a long period of time.

Now you’ve identified your high level strategies, determined the game changing projects that will take your business to the next level, and created implementation timelines.  

However, in order to successfully execute your plan and see changes in your business, there must be a way to evaluate whether or not people are focusing on the implementation of the plan and changing habits that will produced the desired outcomes. 

Leading by The Moment; Moving by The Metrics

This part of the plan looks to measure those activities that need to happen consistently over time.

Ask yourself: “What are the activities, or the day-to-day habits, that need to change, in order for the plan to be successful and what are the indicators that will reveal progress?”  

Challenge yourself to think beyond the usual business metrics. Consider activities or habits related to building a sense of team, encouraging innovation, improving communication, or building better relationships with key vendors.  

Key metrics could be leading indicators, such as number of meetings with potential new customers, or they could be lagging indicators such as on-time deliveries. Again, you can use the framework of the Balanced Scorecard to prompt your discussions in this area. 

Focusing behaviors in a family business can be challenging. Relationships are hard enough in business, but when disagreements about performance occur in family businesses, the impact inside and outside of the company can be devastating.    

Creating a business plan which Focuses Behaviors in a family business produces a feeling of direction and purposefulness for family members. Identifying the high level strategies, prioritizing projects and figuring out what to measure, gives everyone on the team a sense of confidence because they can see the path forward and what it will take to get there.  

 

This is the second article in a three-part series. View the first article: Close to Home: Clarity, Focus and Results for the Family Enterprise and the third article: Close to Home: The Measurement Imperative in Family Business Planning.

Close to Home: Clarity, Focus and Results for the Family Enterprise

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For short-term gains and long-term sustainability, family businesses need clarity of vision, mission, and values. It starts with asking the right questions.

At least half of all companies in the U.S. are family businesses, and family enterprises are the most common form of business entity in the world.  

Yet, their ownership, management, and family composition create a unique type of business that requires special knowledge and skills in order to effectively grow. Planning is important for all businesses, but it’s even more so for family businesses because personal relationships are at stake.

I grew up in a large family with six siblings, and the most enduring lesson my dad taught us was, “If you never have anyone else in this world, you have your family.” To this day we are a close knit family, though we have typical large family dynamics. As one of my brothers likes to joke, “We put the fun in dysfunctional.” 

This value of ‘family first’ has endured for me, and has been my inspiration for seeing family businesses grow and thrive. My mission is “to be a catalyst for the prosperity and success of privately held and family businesses,” and I have had the privilege to consult with many truly inspiring families over the 23 years that I have owned my company.  

The Importance of Planning

My experience working with family businesses has shown me that for many owners, it is the sense of connection and identity with family that drives their motivation for growth and prosperity. This can be an advantage when it comes to planning, since family businesses often have a long-term strategic outlook due to their owner’s motivation to create a legacy for generations to come.  

However, many family businesses lack the formal planning processes that other companies may embrace. They often assume the comfortable and personal nature of the family relationships enables them to ‘figure it out as they go.’

In reality, planning is even more important in family businesses because personal relationships are involved. Many disagreements in family businesses arise from a lack of clarity between family members due to poor communication or misalignment of expectations. This can become especially pronounced when there are multiple generations and each has a different idea of what they’re building or the best way to get there.  

One of the biggest challenges many business owners experience when they embark upon the planning process is a feeling of being overwhelmed and intimidated. Creating a plan feels a bit like writing a term paper in school. How many of us enjoyed that process?  

A point of confusion is often the complete lack of consistency in how planning terms are used. One business book describes something as ‘vision,’ but it sounds strangely like what another author or consultant calls ‘mission.’   

With planning, the process can be simplified into three steps; Creating Clarity, Focusing Behaviors and Measuring Results.  

Creating Clarity: Three Questions to Get Started

Clarity feels good—it’s light, clear and focused. It serves the very important purpose of providing all family members a mental picture of where they’re leading the organization. Painting that clear picture is important to non-family members too as it keeps them engaged and demonstrates that the business’ future plans are not a ‘family secret.’  

Studies have found that the number one motivator for employees is feeling involved and engaged in the business, yet most leaders assume that everyone knows what’s happening. In reality, most employees say they feel ’left in the dark,’ so clearly identifying and communicating future plans improves engagement throughout the organization.

I’ve found the planning becomes much less intimidating when you approach it as a series of questions.  We all like good, provocative questions—they get us thinking which is fun and helpful. Creating clarity comes from answering the three questions:

  1. Why does this company exist?

  2. What are our core values?

  3. What are we building?

The first question is all about getting clear on your ‘why.’  Simon Sinek does a great job of laying this out in his revered TED Talk: “How Great Leaders Inspire Action.”  In his talk, Simon delves into what he says is a naturally occurring pattern, grounded in the biology of human decision-making, that explains why we are inspired by some people, leaders, messages and organizations over others.

To identify your ‘why,’ consider your response to the following questions; “what’s your purpose, what’s your cause, what’s your belief, and why does your organization exist?”

After answering the question: ‘why does this business exist,’ family members need to identify the values that tie the ‘why,’ and the family, together. The values in a family business are especially critical as they marry the values of the family and the business.  

The link to values is part of what can make a family business culture so rich.  Ultimately, a business’s success should be evaluated not just by what is being accomplished, but by how it’s operating according to the values that have been established.

The third question that needs to be answered is ‘what are we building?’ 

In other words, if we had a crystal ball and could see three to five years into the future, how would the business look?  

What qualities would the business have in terms of size, geographic scope, and/or number of employees?  What new markets or products offerings would be in the picture?  

Many business owners have a clear picture of their preferred future—they don’t need a long drawn out planning exercise to figure it out. Unfortunately, most of the time that vision isn’t written down.  It’s dangerous to assume everyone in the company knows what they’re working towards.

Growing Your Vision

Business planning doesn’t need to be overwhelming or complicated, and it’s critical to the success of any business. A university study revealed that you are twice as likely to grow your business or acquire funding if you have taken the time to write a business plan.

Creating a plan is even more critical to the future of family businesses considering that 30% of all family owned businesses continue into the second generation, twelve percent are viable into the third generation, and just 3% survive to the fourth-generation level and beyond.

Having a clear focus on the future and a shared understanding of core values helps keep everyone in the company focused and provides clarity. Creating a plan for the future helps to guide decision making in the present, and perhaps more importantly provides an opportunity for family members to maintain positive, lasting and productive relationships.

 

This is the first article in a three-part series. View the second post: Close to Home: Focusing Behaviors for Family Business Planning and Protection and the third article: Close to Home: The Measurement Imperative in Family Business Planning.

Focusing Behaviors Is All About Decision Making

You’ve heard the saying, “if you want different results, you need to have different behaviors.” But how do you make that happen?  If you ask most people they will tell you they struggle with focus because at any given time there are a multitude of things they could or should be doing.  Adding to the challenge is that all of these things are often important.  

One of the best ways to focus behaviors is to create a business plan.  That may sound counter intuitive to people who think of a business plan as guiding future decisions.  In reality, a well written business plan helps guide day-to-day decisions now, by providing a roadmap for where you’re headed.  Your life today (business and personal) is the sum total of all of your choices up until now.  There will never be enough time to get all the possible ‘important things’ done, so it’s critical to make sure you’re choosing the right ones.

This post is #3 in a series of 4 specific to the GG one process. View the full series: