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Hi and welcome to Be The Flagship with our podcast host Jeff Parsons.

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This is where we tackle the day-to-day talent management challenges you face.

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And now over to our host.

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Take it away, Jeff.

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Well, hello again and welcome to Be The Flagship.

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I'm your podcast host, Jeff Parsons, and this is episode five of the series, Finance

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and Operations.

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Our podcast, as you know, focuses on all things operations, including operations support group.

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So in this series, we're focusing on finances as a support group to organizational success,

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business success.

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And again, for episode five, we have guest speaker Jeff Smith.

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He has taken us on this journey.

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So Jeff, thank you so much for your time and contribution to this series.

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And I can't wait to get started again.

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Thanks, Jeff.

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Glad to be back.

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And before we get going, Jeff, I want to make sure our listeners know how to reach you,

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how to contact you, should they have any questions about any of the contact we're covering during

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this series.

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So the best way is through your email and that's Jeff.Smith.

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And that's Jeff, the Canadian spelling, G-E-O-F-F dot Smith at dynamic strategy LLC dot com.

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One word, Jeff dot Smith at dynamic strategy LLC dot com.

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Now, Jeff, when we left off last week, we were right in the midst of our discussion on strategic

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planning and finances role and strategic planning and we completed our discussion on suppliers

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and how to include suppliers into the strategic plan.

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And so today we're going to shift our discussion from suppliers to the customers.

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They're really two sides to the same coin.

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All the things that make a supplier influential are the opposite of what make a customer influential.

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And so factors that are used to measure the customer power is the number of buyers in

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the market.

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There's very few buyers for your product, then your customers have a lot of power.

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But if everybody buys your product, then the individual customer has very little influence.

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What are the costs of switching from your product to another product?

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Does your customer have to retool their factory in order to switch?

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If they do, then their influence, their ability to exercise power over you is diminished.

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Price sensitivity, how much do fluctuations in consumer sentiment, economics, all those

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sort of things impact the willingness for the customer to buy?

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And then how much influence does volume pricing have over your product?

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There's some products where if you buy a pallet of it, it's going to be much cheaper than

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if you buy an individual piece.

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Whereas other things, it doesn't matter how much you buy, the price is the price.

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Right?

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Right.

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Okay.

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So how do you approach the analysis of the threat of substitutes?

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Yeah.

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Well, the idea of substitutes is that if there's another product that would suit the same purpose.

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And this I think is one of the more interesting analyses.

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So hailing back to the pandemic, beginning of the pandemic, they stopped airline travel,

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people stopped staying in hotels, and a lot of vacation travel was heavily, heavily restricted.

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Right.

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And so did that mean that people stopped discretionary spending?

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It didn't.

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So our story is, we recognize that we weren't going to be going on that vacation this year.

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And so we bought a new set of backyard furniture.

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We said, we're going to be spending a lot of time in our backyard.

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Let's make it a part of our living environment.

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And so we bought new backyard furniture and a new barbecue and all that sort of stuff.

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And so the substitute to vacation travel was backyard furniture.

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Right?

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The substitute to hotel stays was Airbnb because you could travel to a place where

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you could have a house that was your own and the risk of running into somebody with COVID

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was greatly reduced if you stayed in a house that had no other guests.

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Right.

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Right?

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And so hotel stays went down, Airbnb stays went up.

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And so those are the substitutes that had influence over vacation travel.

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Okay.

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Okay.

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So you can look at other examples of threat of substitutes is the idea that as the economy

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gets tighter, people will stop buying brand name groceries, start buying the store branded

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stuff that's just that few cents cheaper.

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And it's nearly as good a quality.

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Right?

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And so things made by the same brands that you've been in packs from.

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Often made by the same brand.

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Right?

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Right.

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And so things like that.

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And so you have relative pricing, you have customer willingness to go elsewhere.

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So relative pricing would be the store brand versus the name brand.

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Customer willingness to go elsewhere would be Airbnb versus hotel.

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Right?

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Perceived differences in the product.

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Right?

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You look at Black Friday sales.

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You've got a TV.

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And the reason why that Black Friday TV is the price that it is, is because it's missing

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some of the features.

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Right?

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Right.

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But how much do those features matter to the consumer or does the price matter?

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Right?

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So those perceived differences in the product where you perceive it to be as good or almost

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as good and it meets your needs.

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And then availability of close substitutes.

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Right?

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If I go in and I'm buying a motor, does it matter if it's the original OEM motor that

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originally came with the piece of equipment or is it okay if I buy a different motor that

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has all the same dimensions and all the same specs but is 10% cheaper?

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Got it.

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That makes sense.

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So you've walked us through those Porter's Five Forces.

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So thanks, Jeff, for doing that.

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So what can you do to influence those five forces?

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What are some things you can do?

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Yeah.

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So the basic thing is that you want to increase the power or the influence that you have and

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decrease the influence that others have.

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And you do that by increasing the differentiation of your product or your offering.

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Right?

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So if you're a service business, what is your differentiating strategy?

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Right?

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To make you different than every other service provider out there.

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Right?

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Or if you supply products, what features have I engineered into my product that make it

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that much better than every other?

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You know, a chair is a chair, right?

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Right.

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Until you have to sit in it for eight hours a day and that lumbar support.

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Right?

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Yeah.

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So what are you doing to differentiate your product?

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Increasing barriers to entry.

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Right?

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And so things like licensing and regulations, capital investment, those sort of things that

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can really have a big influence on how easy it is to get into the industry that you're

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competing in.

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Okay.

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Increasing the number of supplier alternatives.

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One of the constant conversations I've had with engineering departments is, do we really

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need a proprietary item for something that we can buy off the shelf?

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Got it.

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Right.

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Why would we build something that needs to be custom made if we could insert something

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that's off the shelf that we can get from any supplier?

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Right.

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Increasing the switching costs.

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Get people embedded into your product or to your environment.

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So if you're selling a computer and selling it with software, they then have to get from

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you.

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You're making that cost of switching higher because then they would have to learn a new

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software package and they would have to retrain their people and they would have to go out

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and buy new technology.

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Apple is great at that.

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They are.

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They're really good at it.

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And then increasing the value to the customer.

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I belong to a group where one of the requirements to belonging to the group is that you add

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more value than you ask.

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Right?

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Okay.

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Why not?

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And so you can increase the stickiness of your product by making sure that the value

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that's perceived by the customer is greater than what they're going to pay for it.

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So those are the things you can do to influence the amount of power that you have and reduce

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the amount of power that those other five forces have over you.

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Got it.

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Okay.

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Interesting.

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I think this is a great place for a quick break, so hold your breath, let's take a

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quick break and we'll be right back.

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At Flagship Talent, we work with our clients to find and place the right talent.

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What do we mean by the right talent?

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We mean we find talent who will commit to your organizational goals and align with your

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values and behavior expectations.

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Talent who will perform to your expectations.

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Talent who will stay and grow with your organization.

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How are we different from our competitors?

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We offer the lowest fee structure in the industry.

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We offer the best talent guarantee in the industry.

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We provide selection and interviewing support to our clients at no additional fee.

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We want to save you money, deliver high quality talent, become an extension of your organization,

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and be your preferred provider of talent acquisition solutions.

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To learn more, contact Jeff Parsons by email at jeff at flagshiptalent.com or by phone

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at 1-800-530-4189, extension 101.

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So Jeff, you've taken the time to walk us through the parts of a strategic plan, the

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pieces and some tools you can use in strategic planning.

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So sell me on the value proposition for spending the time to do that.

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Sure.

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Well, you know, you think about the strategic planning process.

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What business do I want to be in?

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What product do I want to offer?

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Who do I want my customers to be?

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And how do I want to bring this to market?

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All those big questions, right?

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They come with some financial impacts, right?

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I worked for a company that their stated objective was to profitably double revenue every three

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to five years.

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Oh, okay.

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And so imagine, you know, if you wanted to double your revenue every five years, if you

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could actually do that.

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So let's say you're at a million dollars now, you want to go to two million dollars.

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48% of companies fail to meet at least half of their strategic goals.

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Right.

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I imagine if you could get that other 500,000 towards your goal, how much is that worth

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to you?

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And so the value proposition of doing a strategic plan and linking it to your operational plan

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is absolutely huge.

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You know, it's worth 500,000.

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And 500,000 isn't your only goal.

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So if you could meet more of your strategic plan, you've got yourself a really winning

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formula there.

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All right.

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I'm sold.

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Let's do it.

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Let's get started.

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So we've talked about, you know, the steps in doing the strategic plan and some of the

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tools that you can use.

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Let's shift just a little bit.

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It's actually a part of the planning process, but there's a little different slant.

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There are different ways.

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You mentioned growing your business and going through the strategic planning process to

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map out how you can do that.

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And when you talk about business growth and growing your business, there are a few different

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ways to approach it.

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So talk us through the different approaches, if you will, and let's talk about how you

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can get to where you want to be as a business.

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Sure.

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And that's a huge part of this, the strategic planning process.

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You know, business growth is ultimately what most companies look towards.

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And so there's three areas where you can look to for business growth.

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There's organic growth, which is kind of the growth of the industry.

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We talked about the silver tsunami, the baby boomers getting older.

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And so that industry is growing just by virtue of the aging baby boomers.

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Then you have new product introduction, right?

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Technology changes.

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And so things like self-driving vehicles or the newest, latest, and greatest phone or

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wearable technology, those things, new products are introduced that everybody never knew they

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needed, but now they can't live without it, right?

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Okay.

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Right.

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Right.

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And then you have growth by acquisition.

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So when I referenced the company that wanted to profitably double income three to five

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years, they recognized that organic growth wasn't going to do it.

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New product introduction wasn't going to do it.

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Those two were still a part of the business growth strategy, but business acquisition

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was the way that they were going to get all the way to profitably doubling revenue every

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three to five years.

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And so they were buying businesses on a regular basis, right?

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And so business acquisition strategy is a whole subset of the strategy conversation

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that's really important.

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And oftentimes it's a faster way to grow your footprint, right?

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So let's talk about business acquisition then.

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And so there's a life cycle associated with business acquisition.

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So how about talking us through that life cycle?

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Yeah.

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And it's really a continuous cycle, right?

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Especially if you've got a heavy appetite for business acquisition.

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And a lot of companies do.

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And so you have your strategy development.

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Where do I want to go?

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What market do I want to compete in?

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What environment do I want to compete in?

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And that really dictates what targets you're going to start to look for.

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And so you identify and evaluate target companies.

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If I'm an automotive manufacturer and I want to shorten my supply chain, I might buy those

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second tier businesses like a engine manufacturer or a drivetrain manufacturer.

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And then there's due diligence.

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Once you've identified and evaluated a company, you say, okay, I want this company.

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And so I approach them.

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I do what's called a letter of intent.

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And I enter the due diligence phase, right?

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That's where you determine whether the company is right for your business.

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You're basically looking for all the dead bodies that are buried in the basement.

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Yeah.

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That's where HR, if they're involved at all, that's when they typically get involved at

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that point, turning over the rocks, right?

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Exactly.

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Exactly.

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So once you've finished that due diligence phase, you've identified that either you know

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where the dead bodies are and you're okay with them, or you haven't found any, then

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you enter into the deal structure and negotiation phase, right?

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You think about it like buying a house.

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They offered the house at 500,000.

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You put in a contingent offer and then you did the inspections.

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And the inspections are your due diligence process.

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You found out that the roof is actually quite old and you might need to replace it in the

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next two years.

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And so your negotiation part of it is, well, I'm going to offer you now less than 500,000

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because I'm going to have to spend 10,000 replacing the roof, right?

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So I'm going to offer you like 490, right?

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And therein lies the negotiation.

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Exactly.

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Yeah.

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And so during that deal structure and negotiation phases, is there doing the dance of how much

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am I going to pay for it?

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And are the guarantees that are going to come with it, are the senior leadership going to

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continue on and help with the transition and stuff, right?

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Yeah.

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Right.

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Then comes the post merger integration, which is where you integrate your people, your processes

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and your technology into the parent company.

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We've talked earlier on in our conversation about changes in the environment and changes

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in what's required that cause angst amongst the individuals.

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And so it can be really stressful for your key people because a lot of people don't handle

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uncertainty very well.

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And most people.

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Most people don't handle change very well, right?

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Most people.

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Most people.

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And so when you're in a business that's recently acquired, it's uncertain and it's going through

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a lot of change.

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And so you're going to have an exodus.

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And unless you take a really proactive approach, your best people are going to leave and you're

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going to be left with the people that really, they're keeping their heads down and hoping

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nobody notices.

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Right.

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That's right.

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So you have to engage your workforce in order to maintain the value of what you just purchased.

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Yeah.

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I think it's, I guess from my perspective, but I'm an HR guy, right?

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From my perspective, that's the most important thing that companies often fail at is spending

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the time to effectively integrate the new business.

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They don't communicate well enough.

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And so if you don't communicate, then people will assume.

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They'll make it up as they go, right?

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If you don't tell them, if you're not open enough, run about it.

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And if you are going to go through some painful decisions, then you put together processes

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to hang on to those most talented people, at least to get you through the integration

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of the business.

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But you have to take the time to assess that risk in what you need to do to properly integrate

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that business.

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But I've seen integrations, I've seen acquisitions go south and experience a lot of difficulty

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because they didn't spend enough time on the integration part.

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Yeah.

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I know this might come as a surprise to you as an accountant, but you and I both agree

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on what the most important thing is, the most important thing is the people.

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I've gone through acquisitions, several of them in my career.

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And one of the things that I've found is that you're going to experience an exodus unless

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you handle the people thing first.

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And I'll go out on a limb and say that the time to put your post-acquisition strategy

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in place is at the time of due diligence.

335
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That's right.

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So when you're going through due diligence, you should be putting a structure in place

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for when am I going to do things, how am I going to do things, at what level am I going

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to integrate?

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That's right.

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And all that should be in place even before the deal structure and negotiations.

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That's right because sometimes businesses only integrate the financial processes, and

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then others, it's a complete integration where you're going to fall into our policies and

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all that.

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Some allow them to operate a new acquisition, operate.

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The other thing that I've learned through that process is that the longer you let a

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newly acquired business operate, continue to operate as an independent entity, the more

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difficult it is to integrate that business later down the road.

348
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Yes, absolutely.

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You need to do it quickly.

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You have to be deliberate about it as well.

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That it shouldn't be, oh, we're just going to let it run for a while and then we're going

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to see what happens.

353
00:26:16,560 --> 00:26:17,560
Right.

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Right.

355
00:26:18,560 --> 00:26:24,920
So, it should be, even if you are going to let it run independently for a while, that

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should be communicated as to what you're doing and why you're doing it and when that's going

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to change.

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Thanks so much for that contribution this week, Jeff.

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I mean, it's been a great discussion today.

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I can't wait for next week in episode six where we'll pick up our discussion and we'll

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start with talking about the types of acquisition targets.

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So for our listeners, if you're interested in M&A, hopefully today's discussion has been

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good for you and it's been good for me and next week should be even better.

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So again, Jeff, thank you so much.

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If you have questions, contact Jeff at jeff.smith, that's G-E-O-F-F dot smith at dynamicstrategyllc.com.

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And to our listeners, thank you so much for joining us this week and hanging in there

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with us and I hope you join us again next week for Be the Flagship.

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Thank you for listening to this episode of Be the Flagship with Jeff Parsons.

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We hope you enjoyed it.

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If you did like it, please subscribe and share with others.

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Until next time, take the step to become the flagship in your marketplace.