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We need more Sales! What a great place to hide the real problems.

July 30, 2012

It does not matter how big or small your company is, Sales serve as the fuel to get the engine running. Of course, an engine also requires oil, gears and many other parts that keep the engine together. This way, when the fuel runs through the engine, there are no false starts or stalls.

In my 25+ years working for both fortune 100 companies as well as small private entrepreneurs, the same words have been echoed … “We just need more sales.”

You have to admit, sometimes business is all about great timing. When the economy is strong, or you have a new product or are swimming in the wide open deep ’blue ocean’, as opposed to the ‘red waters’ that are shark infested with competition, (Blue Ocean Strategy, by W.Chan Kim)… Increased Sales appears to be the cure for all ills.

So many industry giants & adventurous self-made entrepreneurs fall into the “Top line” (Income Statement) trap. These folks are bold, positive people that act first & think later. Ain’t that the truth!

I am not against Action. I endorse Teddy Roosevelt’s quote: “It is not the critic who counts; not the man who points out how the strong man stumbles,… The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly; who errs and comes short again and again…”

My issue with many of these ‘know it all’ entrepreneurs is… they don’t utilize their team to protect them from themselves! Group think, power plays, my way or the highway, & only positive thoughts allowed, “Always with the negative waves Moriarty!” (from Oddball in Kelly’s Heroes)

You know what happens in good times right? How many of the following events have you personally seen in good times? (I will explain – PTM,PCC & NPA later.)

  • Hiring new employees – often without solid support, to fill a short term need. It happens at AT&T as well as Start-ups. (PTM, NPA)
  • Eased H/R management for performance reviews – “we’re too busy.” (PTM,NPA)
  • Policies & procedures are relaxed across the board. This ranges from Return Material Allowance, Credit memos & discounts allowed, Warranty & call back increase, & Overtime pay. (PTM, PCC,NPA)
  • Forecasts accuracy slides, Backlog & Quote logs are not scrutinized, resulting in overly optimistic estimates & quotes. (NPA)
  • A/P vendors are paid quicker. Sales are great, “Do you know how much business we do with this vendor. We need them.”  (PCO)
  • Less pressure on  A/R collection, “Let’s not piss off a happy customer.”(PTM)
  • Salary increases  & incentive plan adjustments are more liberal. (PCC)
  • Inventory grows in the name of quicker customer response/ order fulfillment. (PTM, PCC, NPA)
  • Expense Report control, Fleet Management, Telecom costs all increase. (PCC, NPA)
  • Training, trips, marketing expenses… all benefit from the increased sales boom! (PTM, PCC)
  • Office supplies, new office furniture & less than thorough Asset purchases get pushed      through.(PCC)
  • Let’s not forget – Pricing increases are taboo. “Don’t spook the fish. They are biting!” (PCC, NPA)

Freeze! As in the Economy turns cold. Then what happens… in big companies, it is generally knee jerk reactions, (generally 6-9 months too late.) Salary freezes, austerity plans, increased scrutiny looking at the past, what happened? Why did we issue that credit? Our warranty is too high! No more OT. Training & all travel is on hold until further notice. This is actually very easy for big organizations. Someone in a corner office that isn’t seen, simply orders the changes. “His will be done!” It is never that simple, but that is the most efficient task they know how to complete. It is easy to cut costs. It will never get you to the needed bottom line, but the task itself is simple, generally past due, and takes a big toll on employee morale.

Smaller companies & entrepreneurs should be more nimble. They are supposed to be able to adapt to change much more quickly. The tough part is… They are looking at their employees, family members, & vendors in the eyes while trying to make these changes. These folks generally think they can do it all. “I built this company out of my garage. I don’t need someone else telling me how to run my company.” You can’t imagine how often those words are uttered!

So what is usually the call for help!… We know the problem… We need more Sales! If we had more sales we wouldn’t need to take such actions.

I prefer the contrarian approach. When the market is down & companies are in the fetal position aimed at protecting themselves, making stupid short term business decisions from layoffs, turning off lights during working hours, eliminating the water bubbler, increasing the paperwork requirements for every transaction to make sure approvals are reviewed… Stupid! I advocate buying! This is the time to increase reward structures, invest in marketing, hire quality employees unhappy at the competition. I favor all these moves! … with 1 big caveat!

Preparedness is key. I would love to take the actions noted above, but  not because I’m fat dumb & happy. “Drinks are on me, I just got a bonus!” Then you wake up with a headache & ask, “What did I do?”  I am not a ‘Monday Morning Quarterback’. Whether you are a start-up, or mature small company or a big division of a Fortune 500 company… the past is exactly just that.  As John Wooden said: “Don’t let yesterday take up too much of today.” Those financial reports that you have ‘reactively been admiring’, we can use them to gauge where opportunity is.

Wake up Colonel! You are in boot camp! We can’t go ‘contrarian’ until we get you in shape. Old habits die hard, especially for entrepreneurs that are used to getting their own way. Let’s get proactive, increase efficiency, productivity, communication and share the load. That means you delegate but take responsibility. Don’t try to do it all yourself, & don’t try to heap the burden or blame on everyone else. Open your mind. Sales are not the problem. Don’t tell me your product or service or industry is ‘unique’. Please!

My results crosses many verticals in the finance & operations disciplines. Experience merely dates us, Results should garner the real attention. I have turned around mechanical contractors, labor service contractors, electrical contractors, a natural gas operation, non-destructive testing firm, a medical device company, multiple companies with consumer products sold via retail, on-line & distribution channels. I have consulted for websites, SAAS, & EHR software companies. I have worked in manufacturing & trucking companies. All these firm are very different, with the same uniform problem. They are mesmerized by Sales & Revenue, the Top Line Trap! I swear to you, every single company had little to no analytics, no proactive reporting, & they were running between 30-70% efficiency. Yes, even these Fortune 500 companies. Yogi Berra said it best; “You can observe a lot just by watching.”  I drive by a regional office of a national corporation every day. I see at least $60k per month (>$700k annually savings) wasted, sitting in their parking lot. This is just one office. They have similar locations all over the US.  I can’t get their attention. They think they have it under control. NO way!  All they care about is Sales.

Sales are all too often just a great mask & curtain for the real problems. The fact is Sales can become the true problem in some cases. Take for example you have not raised your prices in 2 years or longer! You do not truly know your burden absorption. Have your vendors held their prices? Are you a Union shop? Odds are they got their increases. Your market position may have moved from ‘Quality First‘ to “Low Price’ philosophy; from a niche quality, demand focused player… to a supply laden, volume reliant, ordinary joe, man in the crowd… unknowingly & unintentionally!

Remember, “Every Sale is a donation, until it is collected!”The best way to improve your cash flow & reduce your Accounts Receivable is not by dunning letters or calling customers with greater frequency. These are 2 traditional reactive postures. The best way to improve cash & receivables is timely order fulfillment & prompt accurate billing! This also helps your CRM. A great way to tick off a customer is sending them an invoice 60-90 days, long after they forgot the work was completed or product delivered… then follow up with annoying collection calls & dunning letters. These reactive methods are needed but become much less painful and more effective when they complement a proactive approach.

I was asked to help assess a company where the owner had not taken a paycheck in 2 years. I was told, he couldn’t reduce inventory, nor afford to raise prices. The family workers were however getting paid, Sales Reps were compensated for salary plus commission, and vendors were all paid ‘first’. They thought that they just need more Sales! The fact is – you not only create your own opportunities, but you are also your own worst enemy too!  I ask all my clients a simple yet deep question.  “Why are you in Business?”

As a fractional CFO/COO, I can lay out the strategic moves to turnaround an operation, but the sense of urgency is totally up to the leadership of the company. Some leaders don’t have very strong stomachs however. They think the economy is the rollercoaster, but they regrettably created the wild swings, curves & scary drops themselves.

The first required Remedial Action is always improved Communication. This is ‘not a clearing the air’, This is ‘marching orders’ & making sure everyone understands where things stand; what it will take to turn it around… & most important – What is in it for them! – starting with job security, increased accountability & incentive opportunity for team wins. (Start With Why, by Simon Sinek, a must read!)

I had a significant hand in leading the turnaround for company that grew 500% revenue in 5 years but no real cash flow & profitability was at less than 3% ROS. These folks could sell! When I arrived, the strategic role as CFO/COO was to improve Cash flow, Profitability & ROI / RNOA, while not inhibiting Sales. This sales team could “sell ice cubes to eskimos” & “talk a cat down a tree.The issue/opportunity was making ‘Profitable sales!’ In less under 12 months, Cash flow was among the best in the entire corporation (among over 100 subsidiaries), ROS Profitability had doubled, & Revenue did not suffer! Sales Backlog had actually grown in a recessionary period. Warranty decreased, Service contract cancellations decreased, GM% increased 50-500 basis points across product lines. There were several other notable internal improvements including a revised incentive plan, acknowledged accountability & improved communications across multiple departments. Silos were destroyed, teams were created. “The Devil isn’t in the detail, the Profits are!”

I’m not going to reveal the secret sauce (Carrots Bridges & Horizons!), but all financials originate from and run through the General Ledger & Balance Sheet, not the Income Statement. Over 90% of the time, the problems and thus opportunities are rooted in one/all 3 items:

  • Poor Time Management   (PTM)
  • Poor Cost Control  (PCC)
  • No Proactive Analysis   (NPA).

Perhaps your experience is different, but in the many companies that I have had the opportunity to step behind the curtain… quality, profitable sales are a result of ‘Smart Work.’ Hard work is way overrated. That Smart Work starts within your organization. Don’t think you can Sell your way out of a problem if you don’t have a lean mean team supporting you every step of the way. The Engine will not run smoothly if it is not properly aligned, regardless of how much fuel (Sales) you pour in it.

Prepare for Boot Camp in the good times & you won’t have such angst on your rollercoaster rides! Be passionate, have a sense of urgency, delegate and trust your team & have an open mind. In closing, I’m a huge John Wooden fan, “It’s what you learn after you know it all that counts.” Truer words were never spoken … more entrepreneurs & leaders should read and heed the words of John Wooden!

Continued Blessings!

Chris O’Connor

President – ProCFO4U, Inc.

“Your Trusted Alternative to a full time CFO”

www.ProCFO4U.com

chrisaoconnor84@gmail.com

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