In this Uncertain Economy, Performance Will Be Driven by Effective Management Science.
With today's sluggish economy, it’s more important than ever to refine your operating model, key processes and functions to match costs and decisions in real-time to protect your earnings and assets.
The majority of businesses, especially the small business sector which has historically represented the majority of the US workforce, faces many difficult management challenges:
- First, economic challenges like rising labor and healthcare costs, taxes and regulations continue to escalate, as well as competitive pressures from new entrants and new technologies.
- Second, there are major skill and leadership gaps in core areas such as sales and product management, brand management, and operational reengineering, which prevent effective management.
Overall, the small business sector is in “maintenance mode”. Growth will be anemic until companies effectively update their strategy and refine their business models to account for this new economic environment.
Economic Landscape:
While the administration has extended SBA recovery loans, the actual disbursements to small business has been minuscule and the deployment amount that has contributed to jobs or growth is even more insignificant.
- Economic Outlook: The Small Business sector will not recover rapidly and will not lead the economy to recovery as in the recessions 1985, 1991, & 2002.
- GDP growth is forecast at only a few percentage points in 2011.
- Bankruptcy rates have increased 4X since 2007. 1 out of 5 SMB’s will fail by the end of next year.
- Enterprise valuations will be suppressed in the near-term.
- Labor Outlook: Unemployment held at 10% through September.
- Only 15 percent of small businesses plan to create new jobs in the near-term.
- Big business and government will upset the labor supply for small businesses, requiring small businesses to change how they operate.
- Financing: Credit facilities will be limited and will be asset-based lending only.
- Capital must come from Equity Sources or Operating EBITDA.
- Operating EBITDA will be the Lowest Cost of Capital.
- Costs Outlook: Both employee total compensation costs and operating costs are rising. Executives must look to lower fixed costs and total employee costs.
- Healthcare reform of any kind will be costly to Small Business; healthcare costs have risen 129 perce
nt over the past decade. - Rising tax rates.
- Rising compliance cost: the average small business pays $11k annually per employee.
- Ability to market cost effectively is increasing.
- Competitive Outlook:
- Consolidation is changing the competitive landscape – for both your suppliers and your market.
- 1/3 of all executives say weak sales is their biggest problem.
- Leadership to perform on a daily basis outside of owners is largely cited as the largest people problem.
- Organic growth will not live up to expectations for the vast majority and needs to be coupled with additional expansion (products and/or markets) and/or augmented through acquisitions.
As a result of all of these uncertainties such as the economy, healthcare, tax policies, regulations, etc., decision-making for the majority around any hiring or spending is in “maintenance mode”. Until sales pick up, many executives are frozen. But, what executives need to understand is that only with a change to their strategy, offerings and business processes will they be able to unfreeze themselves.
Only the most efficient & most resilient business models will create wealth. To protect your business the majority of the following measures are required:
- Identify a Profitable Niche.
- Be #1 or #2 in each market or change. Only sell and deliver a value-proposition that the market will position you as the #1 or #2. There is no wealth or sustainability if you are third or below in your market.
- Repetition increases marketing response rates and effectiveness. We recommend that marketing and sales connect with your target audience at least eight (8) times per quarter with distinct, relevant and compelling impressions.
- Attract, Retain, and Grow Customers.
- Invest in Your Assets.
- Improve your product portfolio and marketing and customer assets. Build strong bonds with clients through recurring revenue model, portfolio management, cu
stomer lifecycle management, and brand equities. Create solutions and programs to ensure the business demonstrates strong ROI to customers and long retention tenure. - Leadership > Develop your Human Capital Assets.
- Scalability > Reengineer your processes to be 80% more efficient.
- Invest in and develop your management science so that your business has the ability to adopt and adapt.
- Outsource to reduce fixed costs, but also to learn best practices.
- Seek outside support, advice, and counsel.
- Have an Expert Advisor Quarterly Update Your Business Plan, Action Plan and Budget & Forecasts.
- Focus on only your top two (2) Differentiators, Priorities, or Initiatives at a time. i.e. focus on uniqueness: uniqueness of the business model, business processes, and offerings.
Success in this economy will be a direct result of increased skill and effectiveness of your entire executive team. Businesses must remove people dependency to create scalability, while simultaneously investing in your people to increase the probability of success.
While this uncertainty poses a challenge, significant opportunities do exist for growth through innovation and investment. Nimble businesses that can respond and change to effectively reposition and compete differently and better.
What can and will promote job creation and economic growth in 2011 and beyond?
- Businesses that combine technology and services create “stickier” relationships with customers and thus higher valuations.
- Promote services that increase value to their customers by integrating technology.
- Technology firms that ensure usability and implementation success by integrated services.
- Businesses that update their strategy and operating model to be more efficient than the competition with less people and less fixed costs.
- Focus on niches where you can be #1 or #2.
Implementing your strategic vision within the constraints of available capital and resources makes owning and managing a business a real challenge.
Today’s difficult economic climate and operating environment creates complex challenges to creating exponential growth. The current economic realities place more stress and new constraints on leadership to make the right decisions and adjust their financial models and business dynamics. In this new economic reality, it’s critical that leadership maximize the entire spectrum of opportunities, including those initiatives around M&A and Corporate Development.
By employing specific tactics, processes and best practices that mitigate both investment and execution risks, your business objectives can be achieved, even in this most difficult economic environment.
Assuming you followed our guidance in 2010 and indeed created new product offerings, improved your go-to-market tactics and operating efficiencies; our research shows that the top barriers to overcome in 2011 include:
- Lack of Brand Credibility: this is why your team is not selling more.
- Price-to-Value Perception: this may be why your margins are lower than competitors.
- Unengaged Workforce: a unmotivated and unfocused workforce causes quality and service issues. What are you doing to get their best efforts?
We trust these Economic Realities & Guidance for 2011 will provide insights and support as you plan your successes in 2011. The Ephor Team wishes you the best of luck in 2011!
“The goal is wealth creation by driving shareholder value through the use of efficient growth methodologies and experienced execution,” said Garry E. Meier, Chairman of Ephor Group. “Creating wealth is all about creating the qualities of right: the right strategy, with the right people, with the right model, and the right business process. Our approach provides the required operational execution support and risk mitigation strategies that every enterprise warrants.”