“Financial models are a black art and don’t really reflect what is going to happen anyway,” says a typical entrepreneur! Well, true and not true. It’s not a black art, and your business is probably going to act differently than you expected. Nevertheless, you can’t run a business without a game plan. When an executive and founder put a business plan together, one of the exhibits is a financial model of the business. This is your financial road map. It is important to show an estimate of how the business is going to perform over the first three to five years. It is shown as balance sheet, cash flow and income and expense statements. These are created from estimates of costs, expenses and revenue that all feed the calculations in the financial statements.
But, where does the executive get the data? There are lots of ways to go about this, but here is an approach that works pretty well, and in this order:
Calculate the number of customers per month and multiply by your price assumptions. Then calculate the revenue based upon your collection assumptions. Since so much of the cost and expense item are determined by revenue assumptions, this is the first step in creating a financial model. No, you won’t actually attain revenue exactly as you planned. The important aspect of this exercise is that you make reasonable assumptions to convince yourself that the revenue plan can be achieved.
Getting your ideas across, helping your employees, and achieving your ambitions all come with effective communication. Even though you may already be a good communicator, everyone can improve on their current abilities and approaches to communications.
One way to improve your communications skills is to take advantage of local business organizations. Many business communities have organizations like the Council for Entrepreneurial Development (CED) which is housed here in Research Triangle Park, North Carolina. The CED is a place where entrepreneurs can gather to share ideas and gain training on business related topics. Take advantage of CEO gatherings, industry networking events, business seminars and communications coaching opportunities.
Other ways to improve company communications include implementing an aggressive program of Managing By Walking Around (MBWA). CEOs can’t communicate if they are stuck in their offices. Get out and walk the halls and visit the cubes of ALL your employees. Ask questions about how the employees are doing, what they are doing and how they are going it. Be interested or at least act interested in your employees and the teams they work within.
Share information about the company freely. If the CEO does not share the information, the employees will make up their own information. This is the dreaded rumor mill. Share information in person in company meetings on a monthly or quarterly basis. Implement a company newsletter/newspaper/e-letter and encourage every department and team contribute.
Be consistent in your communications. Many CEOs complain that they have set the company vision and shared it with the employees, but “everyone is going in different directions?” What they don’t realize is that each time they share the vision they state it slightly differently and the employees hear a different vision.
Be brief and only communicate the minimum required to get the message across. To elaborate and elaborate slightly differently each time just breeds confusion and lack of focus.
The most effective way of improving communications is to assess your situation, identify and improve on your areas of weakness, and capitalize on your strengths. Where do you start? Ask your employees.
Make communications a daily drum beat. Communications effectiveness starts in the CEOs office, continues with MBWA, and ends in the CEOs office. You can even get a coach, who can impartially discuss your communications needs and strategies.
I attended a very enlightening meeting last week of an organization called Men of Significance. It is led, along with others, by Fate Thompson, the CEO of iAdvantage Software in Cary, NC.
They bring to life another aspect of business vision and value proposition. When thinking about these two subjects, most of us think of the obvious observations about market size, customer value, revenue growth, profitability, marketing messages and sales traction. But, we don’t often think about our own fulfillment. That is, what of your own needs have been fulfilled by your business vision and value proposition. Often, the need is really not money or fame. Searching deeply into your own purpose in life, you perhaps will find a more fundemental and significant need that drives you. Entrepreneurs and business executives start businesses for many reasons. When you discuss with them why they are taking this risk, you will often find a deeply seeded and thoughtful reason that really represents their view of their purpose in life. Men of Significance is all about helping business people find that deeper need and to guide them to their significance in life.
This organization adds another dimension to the way we should think about our role in a business endeavor. I invite you to go to their website at www.men-of-significance.org and learn about their organization and the many resources they have available.
You are selling your product from the time you put together your first market study and every day thereafter. Actually, everybody in the company sells in one form or another; it’s not just the sales team’s role. You have to sell to your employees, stakeholders, investors, channel partners, alliance partners and customers. Let’s focus on selling the company’s products and services.
Over 80 percent of our waking life is spent either sending or receiving information. The ability to communicate effectively at work and in our personal lives is perhaps the most critical skill for everyone, especially the CEO. Poor communication leads to poor performance, yet it is common in the workplace. Luckily, communication skills can be improved and the more effective the communication, the better the overall performance and therefore the greater the level of business success.
Some CEOs don’t realize that communication is a two-way process. In addition to getting your own message across, it is also important to listen to and understand what others have to say, a technique known as “active listening.”
But an even more important communication skill that is often overlooked by CEOs was expressed best by Peter Drucker, “The most important thing in communications is to hear what isn’t being said.” Effective communication allows CEOs to use all the other skills they have to their fullest. The ability to motivate, delegate, organize, solve problems, and obtain information all rely on the ability to communicate effectively with others.
Evidence suggests that bad communication is probably the cause of most of the problems people encounter at work. It starts with an unclear company vision, gets worse because of ambiguous personal objectives, and is exacerbated by a company culture that evolves rather than being set by the clear communications of the chief executive. Jack Welch, the past CEO of GE said it best, “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.”
Effective communication can transform how well people work. Imagine an organization in which everyone is kept informed, knows exactly what to do, and has all the information necessary to do their job. The effective CEO fosters teamwork, empowers key employees with responsibility and authority, and communicates key information to the organization. These CEOs not only use effective communication, but they also gain employee buy-in to the vision and objectives, build employee confidence in the company and create respect for the management team.
Setting a culture of sharing knowledge is critical to business success. If, rather than keeping quiet, people shared their knowledge with others, and problems were solved using everyone’s knowledge, skill development of less experienced people would dramatically increase. It would also allow more delegation and facilitate problem solving. The CEO who operates this way creates cohesive teams and builds uniqueness of purpose
Think of the effect it would have on the performance of your organization if culture drove everyone to feel motivated and empowered.
I am starting a new series of articles called the CEO Coach. I plan to address the various aspects of the job of CEO. It will not only be useful to company executives, but to all people within the company in that they should know what to expect from their CEO.
Let start at the top. The first thing that a CEO has to do from day one, and for every day thereafter, is communicate the vision of the company. The source of the vision and the keeper of the vision is the CEO. The CEO is responsible for:
But, the task of being the keeper of the vision never ends. A vision is fragile. If the CEO doesn’t “walk the talk” every day, the vision will eventually erode away. The CEO’s consideration of the vision has to be visible to everyone. For example:
Managing the vision of the company is a full time job for the CEO. Not that it takes full time, but it takes constant awareness and discipline to ensure that the vision is well understood and being acted up appropriately.
Having worked with hundreds of business owners to help them put together effective business plan presentations, I often get asked about the things that can go wrong. They are interested in knowing what the major pitfalls are that could cause a disastrous result when presenting their business plan. Here are five of the most common shortcomings that could stand in the way of effectively communicating your business stories.
Having just attended a business show where investors meet great emerging companies, it occurs to me that not only do these entrepreneurs have to pull together a great business plan and make a compelling presentation, but they also have to answer hundreds of questions about their businesses. Entrepreneurs need an encyclopedia full of answers, all of which come from their business planning research and experience running their companies. Answers have to be responsive and right as well as positioned in the right context.
I just got through working with a team of business people that are coaching some of the entrepreneurs who are trying to get ready to make their investor presentations at an upcoming venture conference. It reminds me how important it is to be able to get your story across in just ten minutes and in a way that is compelling and complete.
Here’s a reminder of what you have to talk about in the ten minutes. You need to deliver twelve important messages:
You can get this across in ten minutes, but your goal is to generate tremendous interest by the investors so that they want to meet with you and learn much more about your company. In other words, this presentation is a tool to “get a meeting” with the investors.
I had the pleasure of attending a meeting of the Southeast members of the Angel Capital Association in Greensboro last week. We saw some very good start up company presenations and spent some time sharing war stories. More importantly was the clear interest in being able to more quickly and efficiently share investment opportunities amongst the member organizatons. Most angel organizations cannot provide all the financing that is needed for a start up company themselves. They often need to find other investors to share in the deal in order to come up with all of what is needed. This form of syndication is gaining interest and momentum not only in the Southeast, but across the country. There still is a lot to do to work out the details of how this works, but many angel organizations have already engaged others to make simultaneous investments in start ups.
This is good news for entrepreneurs, but a dual edged sword. When an entrepreneur presents to one of the angel organizations in the Southeast, most of the others will know about it very quickly. That means that entrepreneurs have to be well prepared to make their first presentation. The result is that, if it goes well, everyone will know it. If it goes badly, everyone will know it too. The message to entrepreneurs is, “be well prepared before you make your first presentation.”
We saw some very encouraging news about the outlook for angel investing for 2008. It looks like most angel organizations will be able to at least sustain their level of investing in 2007, despite the difficulties that are emerging in the economy. So it is still full speed ahead for entrepreneurs who need angel investors. Contact the Triangle Accredited Capital Forum for guidance.