Great Strategic Leaders Always Think Twice

Most people let old ideas influence current decisions. But true strategic thinkers interpret situations from many angles and come up with better solutions. Every time.

Uncertainty can be scary – but what is even scarier is how insidious the human mind can be in the face of uncertainty.  To make sense of the continuous stream of data being pelted at us from every direction, our mind creates filters so that we can survive and function.
These filters are so effective that only about five percent of the stimuli trickle through. Your mind has become your worst enemy– it only lets through information that conforms to your current beliefs and expectations.  When faced with new data and important decisions, that can be really bad, deadly even.

Misinterpretation can lead to disaster.

Consider a classic example of misinterpretation at Pearl Harbor in 1941.  The captain of the destroyer USS Ward had just dropped depth charges on an unidentified submarine moving into Pearl Harbor, suspected of spying.  En route to port shortly thereafter, this captain heard muffled explosions and remarked to his commander, “I guess they are blasting the new road from Pearl Harbor to Honolulu.”  Operating from a peacetime frame of mind, the captain mistook the muffled explosions of the first Japanese air raids for road construction.  He failed to link his encounter with a suspect submarine that morning with the explosions he just heard.  His mind was insufficiently prepared to interpret the signals for what they really were all about, the start of the Second World War for the U.S.
Such misinterpretation, due to looking at new data through old lenses, is quite common in business as well. Instead of challenging our assumptions, we search for information that proves our old ideas right. Unfortunately, this confirmation bias further delays us coming to terms with a new reality. Instead, we should constantly test our assumptions and actively look for disconfirming information that would prove our old ideas wrong when they are in fact wrong.

Be a better interpreter.

Vigilant leaders must always be on guard for their evil twin who wants to interpret the world in terms of past realities rather than new ones.  For example, your competitor drops its prices – how do you view this and what would you do about it?  Your first interpretation might be that this is a desperate act to hold market share, a futile race to the bottom that will hurt all. But have you interpreted this situation correctly?  Perhaps you are basing this knee-jerk reaction on old knowledge. Here’s how you can tell:
1. Make a list of all the important things that have to be true for your interpretation to be correct. Arrange the list from assumptions that are easiest to verify information to hardest.  For example:

• Your competitor’s market share has been dropping.
• Lowering price can buy market share in this business. 
• The competitor cannot make money at this new price.

2. Look for disconfirming evidence starting from the top down. Finding market share data is relatively easy, but be sure to check trends within different customer segments and also consider lags or biases in the data.  Next, can you find examples where price drops did not result in higher market share?  Why did it not work?  Finally, challenge the assumption that your rival could not make money. Did it innovate its offering in a way that reduced cost?  Could it be using a lower price to generate volume for higher value parts of it business?
If you can prove any part of your interpretation wrong, you should rethink your view and response to the situation. A statue in Helsinki, honoring former Finland president J. K. Paasikivi (1870-1956), is engraved with his motto that “all wisdom starts by recognizing the facts.”

Three is the magic number.

When looking for evidence pro and con, try to find at least three sources for data about any new issue. Leonardo Da Vince believed that he would never understand a complex subject without looking at it from at least three angles (what we now call triangulation).
The Internet makes this rather easy, but don’t overlook traditional sources of information such as customers, competitors, suppliers, regulators, partners etc.  If there are differences in what you find, spend some time thinking about why those discrepancies exist and if they matter.  What other patterns can you see in the data?
Some organizations use scenario planning as a way to make sense of uncertainty and conflicting data.  The aim of this methodology is to generate competing views about the future and use a wide lens to capture new signals from the periphery.  Insights gained from this type of exploration and interpretation will not just help you avoid devastating pitfalls, but also highlight opportunities before your competitors see them as explained in our book Peripheral Vision or at our company's website.

Will 2012 Be the Year You Start a New Business?

When you're entering the fifth year of a grueling economic downturn, it's easy to get discouraged. But some would-be entrepreneurs aren't letting unemployment figures get them down -- they're seizing the chance to start their own business.

While the tough economy poses challenges, there are also some distinct advantages to starting a business now, including:

• Cheap real estate
• Affordable leases and cooperative landlords
• Weaker competition
• Vendors willing to offer generous terms
• Low-cost advertising options

Most importantly, there's the thrill of chucking a job you hate -- or maybe a floundering small business that's not working -- to try out a new idea.

The biggest hurdle to jumping into entrepreneurship usually isn't economic, anyway -- it's between your ears. On the new Halogen network reality-TV show Jump Shipp, author Josh Shipp (The Teen's Guide to World Domination) helps people who're stuck in a dead-end job (or relationship) to break free and pursue what they really want.

Many of the stories are about would-be entrepreneurs who're trying to get up the gumption to take the leap and start their own business. In a recent episode, graphic designer Debbie Lee longs to become a freelancer in her chosen field, but is stuck working in her family's jewelry business, now distressed by the bad economy.

With Shipp's help, she gets both a realistic assessment of her portfolio and how to get it in better shape to land gigs, and moral support for breaking the news to her parents that she wants to quit working in the family business.

In another episode, a talented graphic novelist gets a push from Josh to take the plunge and try to make a living from her art.

"Her kryptonite is lack of commitment," Shipp notes. Isn't that true of so many people who wish they were starting a business, but never seem to get around to it?

Stop Procrastinating - NOW!

It seems that no one is immune to the tendency to procrastinate. When someone asked Ernest Hemingway how to write a novel, his response was "First you defrost the refrigerator." But putting off tasks takes a big hit on our productivity, and psyche. Procrastination is not inevitable. Figuring out why you postpone work and then taking concrete steps to prevent it will help you get more done and feel good about yourself.

What the Experts Say
According to Ned Hallowell, a psychiatrist and the author of 12 books, including Driven to Distraction, delaying work is often a symptom of how busy you are. "We procrastinate because we all have too much to do," he says. And of course, we want to dodge things we don't like. "Many people procrastinate because they fear the drudgery or the difficulty of the task they are avoiding," says Teresa Amabile, the Edsel Bryant Ford Professor of Business Administration at Harvard Business School and coauthor of The Progress Principle. But, as you have likely learned, it doesn't pay to dawdle. "Putting it off doesn't make it go away. Getting it done does," says Hallowell. Here are five principles to follow next time you find yourself deferring important work.

1. Figure out what's holding you back
When you find yourself ignoring or delaying a task, ask yourself why. Hallowell points out that there are two types of tasks most often deferred:

• Something you don't like to do. This is the most common one. As Hallowell says, "You don't put off eating your favorite dessert."
• Something you don't know how to do. When you lack the necessary knowledge or are unsure of how to start a job, you are more likely to avoid it.

Once you've identified why you've put something off, you can break the cycle and prevent future bouts of procrastination.

2. Set deadlines for yourself
One of the simplest things you can do is create a schedule with clear due dates for each part of a task. "As soon as you get the project, chunk it down into a few manageable segments that you can complete in sequence," Amabile advises. Then, assign deadlines for each piece. "Put an appointment in your calendar to work on a small piece of the next segment each day to allow yourself to get it done a bit at a time," she says. These "small wins" make the work more manageable and contribute to your sense of progress. And achieving them is much easier than trying to barrel through a complex project.

Setting deadlines also makes sure the project doesn't get buried. For things that you are likely to put off, add reminders in your calendar or put a Post-It on your computer screen. Use whatever visual cues will ensure you don't avoid the project.

3. Increase the rewards
We often dally because the reward for doing a certain assignment is too far off. Regina Conti, an associate professor of psychology at Colgate University and an expert in motivation, provides the example of doing your taxes. "A person may want to complete their taxes to avoid the legal penalties of not doing so, but because those penalties are far in the future and the task is a boring one, they will not have much incentive to get started with the project," she says. To make a task feel more immediate, focus on short-term rewards, such as getting a refund. Or if there aren't any, insert your own. Treat yourself to a coffee break, or a quick chat with a co-worker once you've finished a task. You can also embed the reward into the task itself by making it more fun to do. Work with someone on a particularly difficult project or set up a game for yourself so that doing the task isn't so boring or onerous.

4. Involve others
One of the principles Hallowell often repeats in his work is "Never worry alone." If you don't know how to do something, ask for help. Turn to a trusted colleague or a friend for advice. Or, look for an example of the project you are working on to use as a starting point. "Others are a great source of extrinsic motivation," says Conti. Asking someone to review your work can spur you to get started knowing they will expect it. You can even enter an anti-procrastination pact with a co-worker: share what you are working on and hold each other accountable to set deadlines.

5. Get in the habit
"People throw up a hand and say 'I'm such a procrastinator' as if they have no control," says Hallowell. "You do have control over this and you'll be very proud when you change it." Hallowell says that he used to be a procrastinator but trained himself to stop. "I don't procrastinate at all now. I just do it," he says. There are immediate benefits when you start getting things done right away, and it's a habit you can cultivate. Amabile suggests tracking your improvement. "Spend just five minutes a day to note the progress you made, any setbacks you encountered, and what you might do the next day to enable further progress," she says. She recommends you do this in a work diary. Then see yourself, and talk about yourself with others, as someone who gets things done. "The most powerful event, for maintaining positive inner work life, is making progress in meaningful work," says Amabile.

Principles to Remember

Do:

• Identify which tasks you are most likely to put off
• Use deadlines to motivate you to get things done within a certain timeframe
• Reward yourself for reaching milestones

Don't:

• Call yourself a procrastinator as if it is an intrinsic part of who you are
• Tackle arduous tasks on your own — ask others to help you get over the hump
• Try to finish a project in one sitting — break it down into smaller, achievable chunks

Re-Build to Sell

It's sad to say but many small business owners who come to me wanting to sell are in a crisis. They haven't kept up with the times and have outdated equipment and pricing that is below industry standards, and are up to their eyeballs in debt. One thing to keep in mind is that when you do something to enhance your service, it will have an impact on the eventual sale of your business.

Here are a few things to consider when getting your business ready to sell:

1. Equipment: If you were six months away from putting your service on the market than I would not recommend purchasing new equipment or upgrading your software. You will not make back your investment in that period of time. The buyer may also prefer a particular brand of equipment or may buy only your accounts. You would then have to sell your equipment on the used market, which usually brings only pennies on the dollar. If you are two to three years from selling and have old equipment, then by all means buy newer equipment. This enables you to keep up with your competition by offering the same or more enhanced services.

2. Rate increases: Annual rate increases are recommended. One of the most important formulas I use in evaluating a business is determining profitability, which comes down to rate structure. I recently sold a medical service for more than 14 times its monthly billing and the reason it sold for that multiple was the way the services were priced. It was very profitable, averaging $365 per client. The service had only 140 accounts but billed more than $50,000 per month, producing a net profit margin of more than 38 percent. Do not increase your rates just before selling your business to boost your monthly billing. A potential buyer will want to see a reasonable conversion history for the rate increase. I would also recommend switching to a 28-day billing structure. This will give you an additional one month's billing per year, which should increase cash flow along with your annual revenue.

3. Automate: One way to cut down on your biggest expense, labor, is to automate some of the message taking and delivering functions. By delivering messages via email, fax, voice mail, pager, or cell phone, it will free up the time it takes the operator to deliver the messages in person. Some services offer an automated attendant feature, giving the caller a choice of where the call should be directed with instructions that if they have an emergency, the caller should press zero for an agent.

4. Cut the fat: Get your business lean and mean. Cut out all frivolous expenses and cut the dead wood clients. If you have clients who are non-payers or who do not produce a profit for your company, get rid of them.

5. Financial record keeping: Buyers are interested in businesses with a good profit margin of at least 20 percent, advanced equipment with updated software, solid management in place, and a history of growth. One of the first items buyers ask for after reviewing your listing information is a current financial statement, along with at least one previous year's statement. This shows the prospective buyer how your business has grown financially in the past and its likely future growth trend.

6. Clean your financial history: Make sure that you have clear titles to your equipment and other assets, and that all your federal and state taxes are paid, along with being current on your payroll tax deposits. Buyers will do lien searches on you and your business, so if you have any skeletons in your closets, clean them up before placing your business on the market.

Of course location, cleanliness of the operation, and a reliable, well trained staff, all have something to do with how salable your telephone answering service will be, but the above points are critical to getting your business ready to sell.

Factors to consider when preparing to sell your business.

If you want to sell your company, there are some “rules” that you should consider in order to have a successful transaction. Selling a business requires discipline, a sound strategy and strong advisors. While these ‘rules’ won’t guarantee that your business will be sold, they are certainly some key points to think about.

1. Prepare yourself personally for the sale
Think about the challenge that is involved in selling a company. The transaction is much different than a real estate deal and it does involve patience and perseverance. Are you truly ready for the work that is involved to sell your business?

2. Prepare your business for the sale
One of the biggest issues that befuddles business owners is that they do not properly plan a clear exit strategy from their business well in advance. Talk to your accountant and lawyer, get your financial documentation in order, claim all of your “cash” sales, renovate if necessary, and so on. Also, if you can implement some strategies to improve growth or profitability do so. It is better to show actual growth to buyers instead of simply talking about the theoretical “potential” of your business.

3. Don’t wait too long to sell a business
Selling your business while it is still growing or while it still has much upside left is advisable. Too often, business owners wait a few years too long, past the point that they “should have sold” and realize that the value for their business may have declined. Timing is everything – especially in a business sale.

4. Run your business properly
Don’t lose focus when you list your business for sale. Selling a business is a time-consuming process and it is possible to focus so much attention on the process and neglect the actual business that is being sold. Work with a business broker to sell your company so that you can focus on the operations.

5. Be reasonable about the selling price
It is one thing to get as much value as you can from your business when you decide to sell it – it is quite another to be unrealistic about the selling price. Talk to your advisors to get a sense of what a fair selling price is. .If you are unhappy with the recommendations of your advisors regarding your company’s value then implement steps to improve the business so that you can ask the selling price that you really want to. Simply setting a high price on your business and “waiting” for a buyer to come and purchase it is not a sound strategy.

6. Be flexible during negotiations
Selling a business means you will need to eventually enter into a negotiation with a buyer. Be flexible during the negotiation and try to compromise on the items that aren’t “deal breakers” to you. For instance, if the selling price is an issue then perhaps you can meet in the middle, or perhaps offer some additional vendor financing to make the deal more palatable to both parties. The point is, be prepared to budge on deal points that you are willing to bend on and offer creative ways to add value to your purchaser. Give and take is a good approach to take.

Business Buyer's Market?

With all of the layoffs from Wall Street and the Financial District, there are more buyers in the market looking for a business. This, coupled with the fact that some businesses are experiencing a downturn along with the market, prompts buyers to come in with an offer that is far below the listed price. Granted, some businesses are experiencing a drop in gross sales, and their original price may need to be lowered; however, there are still some local markets experiencing stability and some even growth. It is, therefore, important to not value or price businesses based solely on the current national economy.

Sellers often must face the reality of what their business is really worth, not what they would like it to be worth or even what they need to sell it for. When business brokers begin preparing businesses for market, they will typically look at the last three years tax returns, profit and loss statements, and balance sheets. They take this information and recast it, adding back items that the next owner might not run through the business since they aren't necessary to running the business such as country club fees, manager's salary, etc. Based on the recasted financials and comparative sold businesses, a multiple is arrived at for the Seller's Discretionary Earnings (SDE), i.e. 2.5 x $130,000 equals the listing price of $325,000.

The most important aspect of pricing a business is still the most recent historical financial performance and how the business is currently doing. For the businesses that are continuing to show strong financials even though their market area may have a high unemployment rate and other local economic downturn indicators, there would be no reason to decrease the purchase price of those businesses. In fact, businesses that are continuing to do well in current economic times may actually be worth more than originally thought.

Buyers should be on the look out for those businesses that are doing well in the current economy. A good case could be made for decreasing one's risk by purchasing a well-performing business instead of just rying to buy a business at the lowest price. In the long run, the buyer may see a higher return on their investment.