Hi and welcome to Be The Flagship with our podcast host Jeff Parsons.
This is where we tackle the day-to-day talent management challenges you face.
And now over to our host.
Take it away, Jeff.
Well, hello again and welcome to Be The Flagship.
I'm your podcast host, Jeff Parsons, and this is episode five of the series, Finance
and Operations.
Our podcast, as you know, focuses on all things operations, including operations support group.
So in this series, we're focusing on finances as a support group to organizational success,
business success.
And again, for episode five, we have guest speaker Jeff Smith.
He has taken us on this journey.
So Jeff, thank you so much for your time and contribution to this series.
And I can't wait to get started again.
Thanks, Jeff.
Glad to be back.
And before we get going, Jeff, I want to make sure our listeners know how to reach you,
how to contact you, should they have any questions about any of the contact we're covering during
this series.
So the best way is through your email and that's Jeff.Smith.
And that's Jeff, the Canadian spelling, G-E-O-F-F dot Smith at dynamic strategy LLC dot com.
One word, Jeff dot Smith at dynamic strategy LLC dot com.
Now, Jeff, when we left off last week, we were right in the midst of our discussion on strategic
planning and finances role and strategic planning and we completed our discussion on suppliers
and how to include suppliers into the strategic plan.
And so today we're going to shift our discussion from suppliers to the customers.
They're really two sides to the same coin.
All the things that make a supplier influential are the opposite of what make a customer influential.
And so factors that are used to measure the customer power is the number of buyers in
the market.
There's very few buyers for your product, then your customers have a lot of power.
But if everybody buys your product, then the individual customer has very little influence.
What are the costs of switching from your product to another product?
Does your customer have to retool their factory in order to switch?
If they do, then their influence, their ability to exercise power over you is diminished.
Price sensitivity, how much do fluctuations in consumer sentiment, economics, all those
sort of things impact the willingness for the customer to buy?
And then how much influence does volume pricing have over your product?
There's some products where if you buy a pallet of it, it's going to be much cheaper than
if you buy an individual piece.
Whereas other things, it doesn't matter how much you buy, the price is the price.
Right?
Right.
Okay.
So how do you approach the analysis of the threat of substitutes?
Yeah.
Well, the idea of substitutes is that if there's another product that would suit the same purpose.
And this I think is one of the more interesting analyses.
So hailing back to the pandemic, beginning of the pandemic, they stopped airline travel,
people stopped staying in hotels, and a lot of vacation travel was heavily, heavily restricted.
Right.
And so did that mean that people stopped discretionary spending?
It didn't.
So our story is, we recognize that we weren't going to be going on that vacation this year.
And so we bought a new set of backyard furniture.
We said, we're going to be spending a lot of time in our backyard.
Let's make it a part of our living environment.
And so we bought new backyard furniture and a new barbecue and all that sort of stuff.
And so the substitute to vacation travel was backyard furniture.
Right?
The substitute to hotel stays was Airbnb because you could travel to a place where
you could have a house that was your own and the risk of running into somebody with COVID
was greatly reduced if you stayed in a house that had no other guests.
Right.
Right?
And so hotel stays went down, Airbnb stays went up.
And so those are the substitutes that had influence over vacation travel.
Okay.
So you can look at other examples of threat of substitutes is the idea that as the economy
gets tighter, people will stop buying brand name groceries, start buying the store branded
stuff that's just that few cents cheaper.
And it's nearly as good a quality.
Right?
And so things made by the same brands that you've been in packs from.
Often made by the same brand.
Right?
Right.
And so things like that.
And so you have relative pricing, you have customer willingness to go elsewhere.
So relative pricing would be the store brand versus the name brand.
Customer willingness to go elsewhere would be Airbnb versus hotel.
Right?
Perceived differences in the product.
Right?
You look at Black Friday sales.
You've got a TV.
And the reason why that Black Friday TV is the price that it is, is because it's missing
some of the features.
Right?
Right.
But how much do those features matter to the consumer or does the price matter?
Right?
So those perceived differences in the product where you perceive it to be as good or almost
as good and it meets your needs.
And then availability of close substitutes.
Right?
If I go in and I'm buying a motor, does it matter if it's the original OEM motor that
originally came with the piece of equipment or is it okay if I buy a different motor that
has all the same dimensions and all the same specs but is 10% cheaper?
Got it.
That makes sense.
So you've walked us through those Porter's Five Forces.
So thanks, Jeff, for doing that.
So what can you do to influence those five forces?
What are some things you can do?
Yeah.
So the basic thing is that you want to increase the power or the influence that you have and
decrease the influence that others have.
And you do that by increasing the differentiation of your product or your offering.
Right?
So if you're a service business, what is your differentiating strategy?
Right?
To make you different than every other service provider out there.
Right?
Or if you supply products, what features have I engineered into my product that make it
that much better than every other?
You know, a chair is a chair, right?
Right.
Until you have to sit in it for eight hours a day and that lumbar support.
Right?
Yeah.
So what are you doing to differentiate your product?
Increasing barriers to entry.
Right?
And so things like licensing and regulations, capital investment, those sort of things that
can really have a big influence on how easy it is to get into the industry that you're
competing in.
Okay.
Increasing the number of supplier alternatives.
One of the constant conversations I've had with engineering departments is, do we really
need a proprietary item for something that we can buy off the shelf?
Got it.
Right.
Why would we build something that needs to be custom made if we could insert something
that's off the shelf that we can get from any supplier?
Right.
Increasing the switching costs.
Get people embedded into your product or to your environment.
So if you're selling a computer and selling it with software, they then have to get from
you.
You're making that cost of switching higher because then they would have to learn a new
software package and they would have to retrain their people and they would have to go out
and buy new technology.
Apple is great at that.
They are.
They're really good at it.
And then increasing the value to the customer.
I belong to a group where one of the requirements to belonging to the group is that you add
more value than you ask.
Right?
Okay.
Why not?
And so you can increase the stickiness of your product by making sure that the value
that's perceived by the customer is greater than what they're going to pay for it.
So those are the things you can do to influence the amount of power that you have and reduce
the amount of power that those other five forces have over you.
Got it.
Okay.
Interesting.
I think this is a great place for a quick break, so hold your breath, let's take a
quick break and we'll be right back.
At Flagship Talent, we work with our clients to find and place the right talent.
What do we mean by the right talent?
We mean we find talent who will commit to your organizational goals and align with your
values and behavior expectations.
Talent who will perform to your expectations.
Talent who will stay and grow with your organization.
How are we different from our competitors?
We offer the lowest fee structure in the industry.
We offer the best talent guarantee in the industry.
We provide selection and interviewing support to our clients at no additional fee.
We want to save you money, deliver high quality talent, become an extension of your organization,
and be your preferred provider of talent acquisition solutions.
To learn more, contact Jeff Parsons by email at jeff at flagshiptalent.com or by phone
at 1-800-530-4189, extension 101.
So Jeff, you've taken the time to walk us through the parts of a strategic plan, the
pieces and some tools you can use in strategic planning.
So sell me on the value proposition for spending the time to do that.
Sure.
Well, you know, you think about the strategic planning process.
What business do I want to be in?
What product do I want to offer?
Who do I want my customers to be?
And how do I want to bring this to market?
All those big questions, right?
They come with some financial impacts, right?
I worked for a company that their stated objective was to profitably double revenue every three
to five years.
Oh, okay.
And so imagine, you know, if you wanted to double your revenue every five years, if you
could actually do that.
So let's say you're at a million dollars now, you want to go to two million dollars.
48% of companies fail to meet at least half of their strategic goals.
Right.
I imagine if you could get that other 500,000 towards your goal, how much is that worth
to you?
And so the value proposition of doing a strategic plan and linking it to your operational plan
is absolutely huge.
You know, it's worth 500,000.
And 500,000 isn't your only goal.
So if you could meet more of your strategic plan, you've got yourself a really winning
formula there.
All right.
I'm sold.
Let's do it.
Let's get started.
So we've talked about, you know, the steps in doing the strategic plan and some of the
tools that you can use.
Let's shift just a little bit.
It's actually a part of the planning process, but there's a little different slant.
There are different ways.
You mentioned growing your business and going through the strategic planning process to
map out how you can do that.
And when you talk about business growth and growing your business, there are a few different
ways to approach it.
So talk us through the different approaches, if you will, and let's talk about how you
can get to where you want to be as a business.
Sure.
And that's a huge part of this, the strategic planning process.
You know, business growth is ultimately what most companies look towards.
And so there's three areas where you can look to for business growth.
There's organic growth, which is kind of the growth of the industry.
We talked about the silver tsunami, the baby boomers getting older.
And so that industry is growing just by virtue of the aging baby boomers.
Then you have new product introduction, right?
Technology changes.
And so things like self-driving vehicles or the newest, latest, and greatest phone or
wearable technology, those things, new products are introduced that everybody never knew they
needed, but now they can't live without it, right?
Okay.
Right.
And then you have growth by acquisition.
So when I referenced the company that wanted to profitably double income three to five
years, they recognized that organic growth wasn't going to do it.
New product introduction wasn't going to do it.
Those two were still a part of the business growth strategy, but business acquisition
was the way that they were going to get all the way to profitably doubling revenue every
three to five years.
And so they were buying businesses on a regular basis, right?
And so business acquisition strategy is a whole subset of the strategy conversation
that's really important.
And oftentimes it's a faster way to grow your footprint, right?
So let's talk about business acquisition then.
And so there's a life cycle associated with business acquisition.
So how about talking us through that life cycle?
Yeah.
And it's really a continuous cycle, right?
Especially if you've got a heavy appetite for business acquisition.
And a lot of companies do.
And so you have your strategy development.
Where do I want to go?
What market do I want to compete in?
What environment do I want to compete in?
And that really dictates what targets you're going to start to look for.
And so you identify and evaluate target companies.
If I'm an automotive manufacturer and I want to shorten my supply chain, I might buy those
second tier businesses like a engine manufacturer or a drivetrain manufacturer.
And then there's due diligence.
Once you've identified and evaluated a company, you say, okay, I want this company.
And so I approach them.
I do what's called a letter of intent.
And I enter the due diligence phase, right?
That's where you determine whether the company is right for your business.
You're basically looking for all the dead bodies that are buried in the basement.
Yeah.
That's where HR, if they're involved at all, that's when they typically get involved at
that point, turning over the rocks, right?
Exactly.
So once you've finished that due diligence phase, you've identified that either you know
where the dead bodies are and you're okay with them, or you haven't found any, then
you enter into the deal structure and negotiation phase, right?
You think about it like buying a house.
They offered the house at 500,000.
You put in a contingent offer and then you did the inspections.
And the inspections are your due diligence process.
You found out that the roof is actually quite old and you might need to replace it in the
next two years.
And so your negotiation part of it is, well, I'm going to offer you now less than 500,000
because I'm going to have to spend 10,000 replacing the roof, right?
So I'm going to offer you like 490, right?
And therein lies the negotiation.
Exactly.
Yeah.
And so during that deal structure and negotiation phases, is there doing the dance of how much
am I going to pay for it?
And are the guarantees that are going to come with it, are the senior leadership going to
continue on and help with the transition and stuff, right?
Yeah.
Right.
Then comes the post merger integration, which is where you integrate your people, your processes
and your technology into the parent company.
We've talked earlier on in our conversation about changes in the environment and changes
in what's required that cause angst amongst the individuals.
And so it can be really stressful for your key people because a lot of people don't handle
uncertainty very well.
And most people.
Most people don't handle change very well, right?
Most people.
And so when you're in a business that's recently acquired, it's uncertain and it's going through
a lot of change.
And so you're going to have an exodus.
And unless you take a really proactive approach, your best people are going to leave and you're
going to be left with the people that really, they're keeping their heads down and hoping
nobody notices.
Right.
That's right.
So you have to engage your workforce in order to maintain the value of what you just purchased.
Yeah.
I think it's, I guess from my perspective, but I'm an HR guy, right?
From my perspective, that's the most important thing that companies often fail at is spending
the time to effectively integrate the new business.
They don't communicate well enough.
And so if you don't communicate, then people will assume.
They'll make it up as they go, right?
If you don't tell them, if you're not open enough, run about it.
And if you are going to go through some painful decisions, then you put together processes
to hang on to those most talented people, at least to get you through the integration
of the business.
But you have to take the time to assess that risk in what you need to do to properly integrate
that business.
But I've seen integrations, I've seen acquisitions go south and experience a lot of difficulty
because they didn't spend enough time on the integration part.
Yeah.
I know this might come as a surprise to you as an accountant, but you and I both agree
on what the most important thing is, the most important thing is the people.
I've gone through acquisitions, several of them in my career.
And one of the things that I've found is that you're going to experience an exodus unless
you handle the people thing first.
And I'll go out on a limb and say that the time to put your post-acquisition strategy
in place is at the time of due diligence.
That's right.
So when you're going through due diligence, you should be putting a structure in place
for when am I going to do things, how am I going to do things, at what level am I going
to integrate?
That's right.
And all that should be in place even before the deal structure and negotiations.
That's right because sometimes businesses only integrate the financial processes, and
then others, it's a complete integration where you're going to fall into our policies and
all that.
Some allow them to operate a new acquisition, operate.
The other thing that I've learned through that process is that the longer you let a
newly acquired business operate, continue to operate as an independent entity, the more
difficult it is to integrate that business later down the road.
Yes, absolutely.
You need to do it quickly.
You have to be deliberate about it as well.
That it shouldn't be, oh, we're just going to let it run for a while and then we're going
to see what happens.
Right.
So, it should be, even if you are going to let it run independently for a while, that
should be communicated as to what you're doing and why you're doing it and when that's going
to change.
Thanks so much for that contribution this week, Jeff.
I mean, it's been a great discussion today.
I can't wait for next week in episode six where we'll pick up our discussion and we'll
start with talking about the types of acquisition targets.
So for our listeners, if you're interested in M&A, hopefully today's discussion has been
good for you and it's been good for me and next week should be even better.
So again, Jeff, thank you so much.
If you have questions, contact Jeff at jeff.smith, that's G-E-O-F-F dot smith at dynamicstrategyllc.com.
And to our listeners, thank you so much for joining us this week and hanging in there
with us and I hope you join us again next week for Be the Flagship.
Thank you for listening to this episode of Be the Flagship with Jeff Parsons.
We hope you enjoyed it.
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Until next time, take the step to become the flagship in your marketplace.