By Dominic Monkhouse
What does the future hold for your business? Does everything feel different as we emerge from the pandemic? Is the ground shifting beneath your feet with none of the usual navigation points ahead of you? Maybe now is the time to get to grips with why you do what you do. And where your business is ultimately heading.
Over the weekend, I was reading a book by Greg Crabtree, ‘Simple Numbers’. He wrote the ‘Cash’ chapter of Scaling Up 2.0 and analyzed data on hundreds of client companies. Having crunched the numbers, he’s concluded that we’re far from recession. In 2019, growth was starting to slow as access to labor tightened. As we went through 2020, companies re-organized, slimmed down and focused on efficiency. Many of them finished the year having grown, with more cash on the balance sheet. And individual credit scores in the US have gone up by an average of three points.
It’s not as bad as the doomsters forecast. Yes, some companies have been hit harder than others. But many of them are already bouncing back. With governments pumping in unprecedented levels of cash, economies look set to boom.
So, if there’s no recession, what’s the real challenge as we emerge from the pandemic? I think it’s the inability to hire good people. Every one of our clients has open headcount at the moment. They’re trying hard to resist the desire to hire people who are less than perfect.
How do you attract good people? By having a great culture. And what’s the foundation of a great culture? Three words. A clear vision.
What is a Vision?
Mission, vision, core values, purpose – all this terminology can get confusing. Different experts use different words that often mean the same thing. I like to use Jim Collins’ ‘Vision Framework’ which he developed in his two best-selling books, ‘Good to Great’ and ‘Great by Choice’. For him, a vision encompasses three elements – a mission or as he calls it a BHAG (Big Hairy Audacious Goal), Core Purpose and Core Values. He believed that you can’t have one without the other – they all interlink to form the company’s vision.
I’ve written about each of these components before in previous blogs. In summary, a BHAG is your final destination, reaching 10 or even 20 years into the future. It’s where you want your company to get to when it’s achieved its strategy. Purpose is your ‘Why’ – the reason you do what you do. And values are behaviors and traits that drive and distinguish your business.
Start with ‘Who’
Ever heard the phrase, ‘Start with Why’? It’s the message made famous by Simon Sinek. But I don’t buy it. My view is you should always start with ‘who’ – mainly the identity of your core customers. After all, you want to build a successful commercial enterprise. So, you need to know who you’re selling to.
Back in 1954, Peter Drucker, one of the world’s most influential thinkers on management, said, ‘There is only one valid definition of a business purpose: to create a customer’. This still holds true and yet many companies struggle to understand this fundamental concept. There’s little point in finding your meaning for existence and working out what you’re going to do, and how, if it doesn’t appeal to the right customers.
Get laser-focused on building your tribe. Your guiding principle should be, ‘Who are the customers that will buy from us at maximum profit?’ Most of the time, our clients don’t have this. Since they started trading, they’ve attracted a broad array of customers, all looking for different things. This makes it hard to narrow down to the core customer that will ultimately drive their growth. But this is fundamental to a vision.
Develop Your BHAG With Your Executive Team
In his book ‘Business Made Simple’, Donald Miller puts forward a simple framework if you’re starting from scratch on a BHAG. It’s so useful that I’m using it now with all clients to help them crystallize their vision. The wording runs as follows:
‘We will accomplish ____ (goal) by _ (deadline) because of __(foreshadow the stakes).’
The last part refers to what will happen if you don’t achieve your vision. It talks to your ‘Who’. We’ll achieve this great thing otherwise our core customers will suffer something or miss out. I love that. It gets companies to think about the impact they can have on their customers.
Take Boeing’s transformation from military to civilian airliners. Using this approach, their BHAG could have been ‘We will become the world’s largest manufacturer of civilian airliners by 1970 because otherwise, people will never know the freedom of global travel.’ Or we could have used this framework for our BHAG when we scaled Rackspace to £30 million in five years. Instead of a simple statement of intent, we could have made it more specific by saying ‘We will become world-famous as the Ritz Carlton of IT Services by 2020 to save IT Managers from crap service.’
Understand Your Purpose
An inspiring purpose is all about emotional connection. To be effective, it needs to be felt deeply by all your staff. Daniel Priestly, best-selling author, speaker and visionary, has a great hack for finding your purpose.
There are seventeen United Nations sustainable development goals to transform our world. These were launched in 2016 with a 2030 agenda. Daniel suggests picking two, one practical and the other emotional – a head and heart decision. At the intersection of these, you will find your purpose.
The first should be obvious and fit with your business. In my case, that’s number 8 – Decent Work and Economic Growth. The second is something I feel strongly about, Quality Education, which is number 4 on the list. Some of the profits we make from our workshops help sponsor children through education in India.
The cynics amongst us would say the purpose of most businesses is to make as much money as possible. But this has little resonance with employees. Far more effective is to define your purpose around making a positive impact in the world. Properly articulated, this should be felt deeply by your staff, galvanizing productivity and engagement. And guess what? This also increases profit.
Find Your Profit per X
The missing part of the vision jigsaw is often your ‘profit per x’. It’s the third element of strategy from Jim Collins’ book, ‘Good to Great’. One of the three golden circles of his ‘Hedgehog Concept’, it’s something I refer to repeatedly with clients. He believes that a successful strategy is formed from overlapping 1) What you are deeply passionate about (your purpose) with 2) what you can be best at in the world and 3) what best drives your economic engine.
Collins explained that each of the ‘great’ companies he studied had a deep understanding of the key drivers in its economic engine and built its system accordingly. He said, ‘If you could pick one and only one ratio – profit per x – to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?’ This single question can lead you to profound insights into the inner workings of your company’s economics.
If it’s difficult to come up with a clear profit per x, I suggest to clients they default to Greg Crabtree’s labor efficiency ratio. There are two crucial metrics here. The first is gross margin divided by salary costs and any answer over 2 is good here. It’s an indicator of efficiency. The second is your management labor efficiency ratio – contribution margin divided by management/admin/sales wages. This will give you an idea if you are over or under investing.
Once you have a clear idea of your labor efficiency ratio, it segues nicely into talent assessment. Do you have any ‘7s’ in your business sitting in seats that could be occupied by ‘8s’ or ‘9s’? As Sarah Tavel discusses in a great podcast I listened to recently, ‘7s’ can kill companies. So, take the tough decisions necessary to ensure you employ good people. Once you have a clear vision, you’ll need these A-Players to get you to your final destination.