Prepare to Expand Right from the Outset
December 12, 2008 by office
Filed under Entrepreneurship, Strategy
(14502)
In theory, you should write your strategic plan before launching your first store. In reality, however, most people tend to open their first store, make mistakes, find an effective way to make their retail concept work and then start considering how to take advantage of the broader possibilities.
Regardless of the order, you’ll need a strategic planning process in place before you can experience substantial growth:
Annual Review
↓
Strategic Plan→ Operating Plan→ Budget→ Performance Review
Your strategic plan should confront all the hard questions you’ll need to ask. In it, you should briefly spell out:
Good strategic plans are brief–more a collection of bullet points than anything else. Write it to show how your retail concept will scale and what problems need to be solved before this can happen. You should also write the plan as if you are an outside investor approached to put capital into this idea. Anticipate all the hard questions a potential investor would ask, and provide all the answers.
Based on your strategic plan, you can then develop an operating plan, budget and performance review process:
Once you have your strategic planning process in place, you’re then ready to look at expanding your retail empire. There are now two key factors that will determine just how fast you can grow:
Future Growth
↓ ↓
The Right People The Right Investors
To build a strong retail business, you’ll need senior people who are experienced in a variety of areas–branding, marketing, operations, merchandising, finance, real estate, design and customer intelligence for starters. You’ll also need to add seasoned professionals with expertise in other skill areas that are specific to your business category. Build a management team with a diverse set of skills and who will have the expertise to take your retail business to the next level of growth.
These people can be phased in progressively as you expand:
The key to growing the business is to hire people who can make the step up as your operation grows. Hire people who have the skills you’re missing personally and who can grow to replace you in the future. The right people will have personal values and abilities that align with your organization rather than long resumes or impressive pedigrees. The right people will thrive in a high-growth situation rather than feel overwhelmed by all the hats they need to wear. Most likely, you’ll find these people individually rather than in batches. And once hired, you’ll also need to develop training systems that will educate new hires about the core beliefs and values of your company.
In parallel with building your management team, you’ll also need to be actively searching for the right investors. Most retailers start out mortgaging their houses and then draining their life savings before turning to friends and family for capital to grow. This is not a good approach, especially if your venture fails. You’re far better off if you can find private individuals to invest who in addition to money can provide additional expertise when required. Generally speaking, venture capitalists will be a little too aggressive and impatient for your requirements. Many cities have an informal “angel network” of wealthy investors who like to help start-ups get going. Potential investors usually won’t be hard to find, but figuring out who to go with will be difficult. While they are doing due diligence on your business, you’ll need to be doing some reciprocal due diligence on their track record as an investor. Obviously, you don’t want someone who will attempt to maneuver you out the back door once they come on board. Nor do you want investors who have objectives or values that differ from your own because this can lead to a catastrophe. Keep looking until you find an investor who is a good match and who simply feels right for your organization.
Always keep in mind that to keep growing, you’ll need to hire and find new investors ahead of the curve–before there is an actual need. If you wait until things are desperate, you risk making bad decisions because of the external pressures involved. Place yourself in a situation where you can make measured choices to be able to grow the business.
With the right management team and suitable investors in place, it’s vital that you have a thorough understanding of your concept’s economic model. In simple terms, if the economic model is robust enough to generate excess cash, you can finance your own expansion. Proving and fine-tuning your economic model are the key tasks in opening your first store.
The two key financial measures retailers need to focus on are:
1. Gross margin: total sales revenue minus the cost of the goods sold. A healthy gross margin allows you to survive even if make some mistakes or you have problems with a store.
2. Net income: the amount of revenue left over from the gross margin once operating expenses and depreciation have been deducted.
Broadly speaking, the industry average gross margins and net income for retail concepts fall into four broad groupings:
1. Food concepts–gross 70 percent, net about 20 percent
2. Specialty retailing–gross 60 percent, net 30 percent
3. Traditional retailing– gross 30 percent, net 15 percent
4. Groceries–gross 20 percent, net 10 percent
If your retail concept’s economic model projects much higher figures in either area, check that you’ve allowed for everything that will be required. It’s quite rare for a retailer to enjoy sufficient differentiation to generate a higher gross margin than all its peers, especially when the established players can access high-volume discounts from suppliers. In a similar vein, if your anticipated net income is much higher than everyone else in the same field is currently achieving, that should also ring some alarm bells.
Keep in mind your corporate running costs also need to be deducted from the combined net income from each of your stores. Experience has shown corporate general and administrative costs usually run at about 10 percent of net income. Those expenses have to be met before any profits can be contemplated. More than anything else, it’s important that you develop realistic numbers for your particular retail concept. With a little homework, you can flesh out what the industry averages are for your line of products, but the best quality financial information you have will be when you get your first store up and running.
From that experience, you’ll have a far more accurate idea of what your actual economic model will end up being.
Your economic model should be at the center of all your operational decisions. You should use it to negotiate your rent and other fixed expenses, to decide on your product mix, to set your budgets for advertising and marketing and to decide when and how quickly you can afford to open more stores. In practice, your economic model should be the growth engine for your enterprise. The more you understand the constraints and possibilities of your economic model, the better equipped you become to make good decisions going forward.
Once you understand your economic model in fine detail, you can then go about building your business with confidence rather than taking a stab in the dark and hoping for the best. Expansion can take any of several forms:
On balance, most retail entersprises end up growing by adding more company-owned. Just be certain you have all your existing open up new stores. Another point is to make your try and open up new stores. Another point is to make certain your service model doesn’t collapse when you spend resources on expanding. If you cannot maintain the integrity of your brand. put all your energies into enhancing quality rather getting distracted by the demands of running stores.
Don’t worry excessively about being the first to get to a new market. It’s more important that you move intelligently, with a well thought out and tested retail concept than it is to be fast. Growing just for the sake of growing is pointless. Let every new store enhance your brand. That will only happen if you get your infrastructure, your people, your business processes and the right systems in place first. Expand too fast, in the wrong location and with the wrong people, and you can undermine years of brand building efforts.
Culture—The Organization Must Have a Culture that Helps Employees Think and Feel Like Owners
December 5, 2008 by office
Filed under Entrepreneurship, Human Resources, Management
(14903)
A corporate culture embodies all the beliefs, values and expectations that govern how your people think and act while at work. It will be established through what’s said and through your standard procedures and rituals, the messages communicated through official and unofficial channels, and so forth.
Owners → Workers
In a conventional company, the workers do whatever generates income and creates wealth, but those benefits are enjoyed by an entirely different group altogether, the owners. In this hired-help environment, the culture will explicitly or implicitly suggest:
Owners: Workers
When a company is wholly- or partly-owned by it employees, the workplace will be organized and run differently. Instead of a business-as-usual mindset, an entirely kind of culture will emerge. In these circumstances, a corporate culture will emerge that is centered around four distinct messages:
1.Never forget that you are a part owner of the business as well as an employee: and therefore you have to look at the bigger picture and not just solely at how much you’re paid. To reinforce this message, different companies use different approaches. Some have elaborate induction ceremonies where new hires go from being just employees to fully vested part owners of the enterprise. Others work hard at using language that reinforces the concept. In all internal communications, employees are referred to as “employee owners.” Or people may have business cards printed with “owner” as their job titles. Or the company may run a monthly “employee-owner of the month” competition, complete with enticing and substantial prizes everyone wants to win. Irrespective of the specific mechanism used, all of these ideas are centered around the ideal of telling people often they are part owners of the business and this requires them to think and act differently.
2.If you make your career here, you will have great long-term opportunities: because employee owned companies almost always promote from within. Some make it a point to never hire outsiders and to grow their own leaders internally. That way, managers have credibility and established relationships with others before they get into action rather than as a result of being appointed. The implied assumption here is the company will invest in training and in rotating people through different departments so they have sufficient experience to become managers. This happens much more frequently in equity companies. It isn’t unusual for an employee owned company to have committees or councils who identify promising talent and provide career development guidance and support. In all, employee owners are more likely to build their careers with the companies they have an ownership interest in than with anyone else.
3.You will participate in the running of this company: by having input into the making of some meaningful decisions. Many high-performance companies have inclusionary and participatory management practices. Employees have the opportunity to put forward their ideas, express their opinions, make decisions and then evaluate the results of those decisions. When people have goals set for them and then figure out for themselves how to go about achieving those goals, this creates an entirely different environment. Most companies have found that the best way to do this is to create teams that, in effect, have responsibility for running one part of the business. The team can visit other companies to get ideas, develop new concepts and even put them into effect all without requiring anyone from management to sign off on the ideas.
4.We’re all in this together: so let’s make certain the very best ideas get used, regardless of who puts them forward. People in an employee owned company rarely if ever look at some problem and say, “That’s not my job.” Instead, everyone wants to get the problem solved because it will impact on how the company as a whole does. Many companies have social events that reinforce this message. Naturally, the real acid test of this “we’re-in-this-together” mind-set is what happens during a serious business downturn. Conventional companies lay people off. Typically, employee owned companies will have a strict no-layoff policy. Instead, it isn’t unusual in an employee owned company for everyone to take a 5-percent pay cut, or employees will be encouraged to take unpaid time off until the business environment improves. At the very least, everyone will know well in advance that layoffs which can’t be avoided are coming rather than simply turning up one day and being given the bad news out of the blue. To avoid this situation, it isn’t unusual for equity companies to be run lean with as few employees as possible.
Creating the kind of culture that enhances rather than detracts from the employee ownership ideal is not the work of a moment. It can be done, as evidenced by the vibrant cultures that exist at numerous employee owned firms. There are, however, some potential drawbacks to this kind of culture:
So how do companies build a culture that supports employee ownership? First and most obviously, they share large amounts of information about how the business is doing, right down to the exact information managers use to make their decisions. Next, they teach financial literacy by explaining what the figures mean an how they relate back to the basics of the company’s business model. These companies also develop techniques by which employees are asked what they think before decisions are made, and modify plans or processes to take into account some of the issues that get raised. A growing number of companies are simply entrusting their employees to make to make more decisions on their own. By giving employees complete authority to run their own operations and make decisions on the spot without requiring a supervisor’s approval, they find the right culture is developing naturally.
Equity companies have also developed a host of other techniques, at once symbolic and substantive, for breaking down hierarchy. The companies are much more likely to implement the host of ‘participatory management’ techniques that have become conventional wisdom (if not conventional practice) about how companies should be run. These include work cells, self-managing teams, cross-functional teams, open-book management, job enlargement, devolution of authority to lower levels, and other approaches to structuring—not just encouraging—employee involvement in workplace decisions. Some of the cultural changes have a direct impact on people’s careers and livelihoods. Equity companies make a point of cross-training people, encouraging career development and promoting from within. They also take a different attitude towards layoffs, the threat of which has become the bane of nearly every employee’s existence in today’s turbulent economy. They may let people go; no company that expects to survive can swear it will always maintain employment. But layoffs are a last resort, not a first.
–Corey Rosen, John Case & Martin Staubus
Culture—The Organization Must Have a Culture that Helps Employees Think and Feel Like Owners
December 3, 2008 by office
Filed under Entrepreneurship, Human Resources, Management
(14903)
A corporate culture embodies all the beliefs, values and expectations that govern how your people think and act while at work. It will be established through what’s said and through your standard procedures and rituals, the messages communicated through official and unofficial channels, and so forth.
Owners → Workers
In a conventional company, the workers do whatever generates income and creates wealth, but those benefits are enjoyed by an entirely different group altogether, the owners. In this hired-help environment, the culture will explicitly or implicitly suggest:
Owners: Workers
When a company is wholly- or partly-owned by it employees, the workplace will be organized and run differently. Instead of a business-as-usual mindset, an entirely kind of culture will emerge. In these circumstances, a corporate culture will emerge that is centered around four distinct messages:
1.Never forget that you are a part owner of the business as well as an employee: and therefore you have to look at the bigger picture and not just solely at how much you’re paid. To reinforce this message, different companies use different approaches. Some have elaborate induction ceremonies where new hires go from being just employees to fully vested part owners of the enterprise. Others work hard at using language that reinforces the concept. In all internal communications, employees are referred to as “employee owners.” Or people may have business cards printed with “owner” as their job titles. Or the company may run a monthly “employee-owner of the month” competition, complete with enticing and substantial prizes everyone wants to win. Irrespective of the specific mechanism used, all of these ideas are centered around the ideal of telling people often they are part owners of the business and this requires them to think and act differently.
2.If you make your career here, you will have great long-term opportunities: because employee owned companies almost always promote from within. Some make it a point to never hire outsiders and to grow their own leaders internally. That way, managers have credibility and established relationships with others before they get into action rather than as a result of being appointed. The implied assumption here is the company will invest in training and in rotating people through different departments so they have sufficient experience to become managers. This happens much more frequently in equity companies. It isn’t unusual for an employee owned company to have committees or councils who identify promising talent and provide career development guidance and support. In all, employee owners are more likely to build their careers with the companies they have an ownership interest in than with anyone else.
3.You will participate in the running of this company: by having input into the making of some meaningful decisions. Many high-performance companies have inclusionary and participatory management practices. Employees have the opportunity to put forward their ideas, express their opinions, make decisions and then evaluate the results of those decisions. When people have goals set for them and then figure out for themselves how to go about achieving those goals, this creates an entirely different environment. Most companies have found that the best way to do this is to create teams that, in effect, have responsibility for running one part of the business. The team can visit other companies to get ideas, develop new concepts and even put them into effect all without requiring anyone from management to sign off on the ideas.
4.We’re all in this together: so let’s make certain the very best ideas get used, regardless of who puts them forward. People in an employee owned company rarely if ever look at some problem and say, “That’s not my job.” Instead, everyone wants to get the problem solved because it will impact on how the company as a whole does. Many companies have social events that reinforce this message. Naturally, the real acid test of this “we’re-in-this-together” mind-set is what happens during a serious business downturn. Conventional companies lay people off. Typically, employee owned companies will have a strict no-layoff policy. Instead, it isn’t unusual in an employee owned company for everyone to take a 5-percent pay cut, or employees will be encouraged to take unpaid time off until the business environment improves. At the very least, everyone will know well in advance that layoffs which can’t be avoided are coming rather than simply turning up one day and being given the bad news out of the blue. To avoid this situation, it isn’t unusual for equity companies to be run lean with as few employees as possible.
Creating the kind of culture that enhances rather than detracts from the employee ownership ideal is not the work of a moment. It can be done, as evidenced by the vibrant cultures that exist at numerous employee owned firms. There are, however, some potential drawbacks to this kind of culture:
So how do companies build a culture that supports employee ownership? First and most obviously, they share large amounts of information about how the business is doing, right down to the exact information managers use to make their decisions. Next, they teach financial literacy by explaining what the figures mean an how they relate back to the basics of the company’s business model. These companies also develop techniques by which employees are asked what they think before decisions are made, and modify plans or processes to take into account some of the issues that get raised. A growing number of companies are simply entrusting their employees to make to make more decisions on their own. By giving employees complete authority to run their own operations and make decisions on the spot without requiring a supervisor’s approval, they find the right culture is developing naturally.
Equity companies have also developed a host of other techniques, at once symbolic and substantive, for breaking down hierarchy. The companies are much more likely to implement the host of ‘participatory management’ techniques that have become conventional wisdom (if not conventional practice) about how companies should be run. These include work cells, self-managing teams, cross-functional teams, open-book management, job enlargement, devolution of authority to lower levels, and other approaches to structuring—not just encouraging—employee involvement in workplace decisions. Some of the cultural changes have a direct impact on people’s careers and livelihoods. Equity companies make a point of cross-training people, encouraging career development and promoting from within. They also take a different attitude towards layoffs, the threat of which has become the bane of nearly every employee’s existence in today’s turbulent economy. They may let people go; no company that expects to survive can swear it will always maintain employment. But layoffs are a last resort, not a first.
–Corey Rosen, John Case & Martin Staubus
Equity
December 2, 2008 by office
Filed under Entrepreneurship, Human Resources, Management
Why Employee Ownership Is Good for Business
(14900)
Building a successful equity company, however, isn’t just a case of letting employees buy stock and then living happily ever after. To realize the true benefits of this concept, employees have to see themselves as owners and create a different kind of workplace that aligns with that perspective. That means the culture of the organization must change and evolve as well. Furthermore, employees have to learn how run the business differently if their ownership is to have any practical impact. Unless all three of these elements are present, employee ownership just won’t deliver any tangible benefits, employee ownership just won’t deliver any tangible benefits.
The three essentials of an employee equity business model
1.Size: Enough equity that it will impact on the employees’ finances.
2.Culture: Employees must be encouraged to think and act like owners.
3.Understanding: Employees must understand business disciplines and commit.
More than just another option in the human resource department’s kit bag of benefits, employee ownership has the potential to comprehensively transform ordinary companies. When employee ownership is combined with participatory management, businesses often move into and stay in high-growth mode. Employee ownership turns up in a very large number of influential and successful companies. Perhaps this isn’t just a coincidence.
Always operate your business as if your name is on the door
November 28, 2008 by office
Filed under Entrepreneurship, Leadership, Management
(14708)
Run your business as if it were family owned and people were going to judge your family that way. Live your values and don’t do anything you would be ashamed to see published in your community’s daily newspaper.
The best way to run a business is to make decisions as if you own it entirely and intend to stay in business forever. From that point of view, you would want your employees to be happy in their home environments first and foremost, since that will have a direct bearing on how productive they are at work. If you’re asking employees to put off their family interests in order to be good at work, you won’t be able sustain your company over the long haul.
Furthermore, in family businesses, everyone gets treated as equals irrespective of their position in the company. This is another principle you should follow. It means when times are good, you should share your company’s good fortune with employees. stockholders, the community at large and your customers. It’s vital that the compensation of your rank-and-file employees should be increasing at a much faster rate than do compensation packages for your top management.
Family business also don’t engage in unethical or immoral behavior. Instead, everything is done openly. Decisions are made consultatively with input from everyone being sought and respected. The CEO doesn’t make decisions unilaterally, but crafts decisions that everyone agrees with and then supports.
In life, there really is no such thing as a “Midas touch.” The reality is that to be a success, you’ll have to work hard, prepare thoroughly, negotiate fairly, and be determined, honest and charitable. The workplace should be an extension of your family environment where these values are encouraged, cultivated and practiced. Family businesses know this and create an environment where ethical behavior is brought to life.
If top executives fail to follow their moral compasses, how can one expect those they lead to adhere to moral values? And if employees in the workplace do not care about ethics or morality, how can they expect their children to be any different? Everyone loses. That’s why it is especially critical that employees understand the company’s values. Employees ought to know, for instance, that a corporation’s philosophy dictates that a sizable portion of the profits is to be returned to society, and why. They must understand the true measure of success, for them individually as well as the company, is not only how much one acquires, but also how much one gives back.
–Jon Huntsman
All companies–public or private–must create a culture in which employees come first and are treated royally. Believe me, they always return the favor.
–Jon Huntsman
Over the years, we have given out thousands of scholarships to the children of our employees. It has been a joy to meet many of these students and to receive invitations to their high school or college graduations. When we become part of the employees’ families, morale is at its highest. Who isn’t excited when their children succeed? And when someone is feeling good, his or her workplace productivity shows it.
–Jon Huntsman