The WSJ did a great book review last week blowing up the myths surrounding brainstorming and innovation – Inside the Box: A Proven System of Creativity for Breakthrough Results. The authors are professors at the University of Cincinnati and Hebrew University of Jerusalem.

The summary of the thesis is that we are better at finding problems to a new solution (that we have innovated and tweaked from an existing solution) than we are at finding a new solution to a problem. This was actually proved by the work of Richard Finke in 1992.

Take the example of baby milk. You tweak an existing baby bottle to ensure it changes color when the temparature of the milk changes. The problem it solves is obvious. Who wants to burn their baby’s mouth? But look at it from the other direction. How do we solve the problem of a baby burning her mouth with hot milk? Would you come up with a bottle solution that changes color?

The book identifies five techniques for in the box innovation:

Subtraction – Take features away from an original solution to find a new solution. e.g contact lens – glasses without frames, or ATMs – cashier without a human.

Task Unification – Samsonite the leading luggage company realized that students carry around serious weight in their backpack. Using that fact they designed straps that softely press into your shoulders at strategic shiatsu points to deliver a soothing sensation!

Multiplication – Copy a basic component then add to it’s functionality. Gillette introduced in 1971 the TRAC  II a razor with two blades not one. The functionality of each blade was different. First blade pulls up the hair and the second cuts it giving a closer shave than one blade could.

Division – Separate the components of a product and service and rearrange them. Air conditioning units originally had all the parts in one box. By separating them into cooling units, thermostats, fans, etc, some of the units could be placed outside the house, thus reducing noise and heat.

Attribute Dependency – Make the attributes of a product change with changing conditions. Windscreen wipers that get faster with heavier rain is a great example. (I wish I could install a device in the brains of sales professionals that forces them to double their workload when they miss targets!)

As we say to clients – innovation and execution requires a contrarian mindset.

Related Posts – Tweaking, Execution.

One of the most difficult aspects of scaling a business is alignment. You could be the head of a $500m division or the leader of a 25 person manufacturer but you will struggle with alignment. Getting different departments on the same page, getting people pointing in the same direction is the essence of leadership. And the biggest win often comes from aligning those talented marketing content creators and those pesky sales professionals!

So here are 15 simple actions that work.

15 Tips

1. To create alignment the order of events is crucial. You start with defining your compelling story. Articulate your unique positioning. Create a memorable and inspiring  boilerplate. This covers what you do and the big business results you deliver for clients supported by authentic evidence that makes your claimed results credible. Teach this boilerplate to both the marketing teams and the sales teams. Explain why it plays to the central history, DNA, culture and skill-set of your company. Make them believers.
2. This story then drives and aligns all marketing activity. This includes all campaigns, collateral and web site copy. All focused on telling the story and designed to drive relevant prospects to the web site to read more, or to engage in conversations. Focus stories, case studies, how to use your product or service, any type of collateral on OUTCOMES. What are consequences of using your service. The consequences for specific prospects.
3. Now this next piece is key. You don’t just want to create general sales prospects with your marketing campaigns you want to create specific, high quality leads. This means your story needs to be written to appeal to a specific section of the masses not the masses. If you write for the masses then you are talking to no one. If everyone is responsible for a task no one is responsible for that task.
4. We need to acknowledge that Attention is now the huge rarity factor. We need to realign our thinking around attracting attention with remarkable content. We need to translate our inspiring story, our boilerplate of who we are and the business results or value we deliver for our customers into marketing collateral that compels prospects to act.
5. Identify the Persona that represents the likely user of your product and tell their story. Make it feel that you are directly talking to their world. An example might help. Imagine a software group focused on managing digital content wants to launch a new product to monitor breaches to web site policies eg your web site has broken links, or contains out of date material or it breaches your web site policy for the visually impaired. Who cares about these issues within your prospect, who loses sleep if the link on the web site doesn’t go to the white paper? Perhaps the content on the web site say in the pharmaceutical sector contains misleading instructions. Who gets the call? Who would really appreciate a software product that automatically alerts for breaches? That’s Persona thinking. Identify not just the target company but the managers within it who care about the issues you are solving.
6. Identify the sectors you want to dominate. Sector thinking brings a focus to your story telling. Our client ADMET is a manufacturer of materials testing equipment. When dealing with the Biomedical sector the vocabulary of bone screws is totally different from a discussion of foam properties for the automotive industry.
7. Create Business Results Sheets that translate the story into specific results you can achieve for customers. Separate sheet for each product or product range. These sheets need to be created with deep knowledge of the customer’s world. You want to articulate the symptoms that will be present on your customer’s site that indicate your solution is relevant e.g.
• Symptom -Supply chain costs are rising – you offer a service to review the product lifecycle to take costs out of the system.
• Symptom – Software bugs are causing huge cost over-runs and deadlines to be missed – you offer an intuitive code analyzer tool to trap bugs earlier in the process and allow corrections.
• Symptom – Your mobile workforce are operating inefficiently trying to process paperwork in the field – you offer mobile software and services to allow cell phones to become transaction processors. Please note these Business Results Sheets will not only identify the symptoms but importantly the consequences of these symptoms persisting e.g. fines, loss of business.
  
8. All marketing collateral needs to articulate how the prospect could use the product in their business today. Instant gratification. Use videos, case studies, blogs, white papers, whatever it takes to make it clear how a prospect derives value from your product. So many products fail the compelling usage tests. Having great capabilities is not enough.
9. Also because of their deep knowledge of the market the marketing team will produce excellent competitor cheat sheets highlighting why you are unique. The key is to identify the essence of your competitors and why your solution solves a problem that their solution does not.
10. Audit your SEO results and drive strategies to improve your rankings. Engage an SEO consultant for top results.
11. Marketing departments are lead generation machines. They need targets, metrics, and driven to achieve them. Use Google analytics, HubSpot type metrics management tools to measure your success and continue to drive improvements.
12. Sales Teams can now craft their engagement strategies with your unique positioning in mind. Scripts should be framed around insightful questions that demonstrate your understanding of your unique market and the issues faced by your prospects. The key for sales professionals is to find the RIGHT problems. Right means they must be a high priority and be able to be solved by you.
    
13. Hold regular review meetings between sales and marketing to make sure the language of marketing is resonating in the marketplace. Do the prospects really understand that last blog post, white paper, product announcement?
14. Trade shows are a great place to get face to face feedback on your story. Sales teams can add a lot more value than just close deals. They can validate your whole strategy with the key stakeholders – the customers!
15. Graph sales leads generated by marketing by sales professional. You will soon see where the lead generation machine is struggling. Hint: We find it very effective to structure sales teams around the way my marketing team comes to market. For example this could be around NAICS codes, or Product families, or geography. The point being you want to know what part of marketing is working and what campaigns are just not resonating.

Way back in 1987 when I leapt from Thomson the publishing giant after a fantastic 5 year spell, to join Barrie Pearson, a one man band, M&A guru who was charging $1000 per hour (that’s $2440 in today’s money), I always believed the small guy could win. Today the evidence is overwhelming that if you own a small company you can take on the market leader and win.

Examples

All of these companies have focused on a specific niche, are growing at 20% to 100% plus, and are beating the big guys:

1. Cakes For Occasions – Danvers, MA based, is a nut-free, boutique-style gourmet cake and pastry shop where creativity and passion is the recipe for our products. Check out their website.
2. Nicira Virtualizes the Network. Industry leaders AT&T, DreamHost, eBay, Fidelity, NTT, Rackspace and Schuberg Philis transform their businesses with Nicira. VMWare acquired the company last year for $1.3Bn. Lifetime revenues of Nicira were apparently $5m! Website here.
3. ADMET is a leading global manufacturer of innovative material testing systems. It continually wins against the big boys. Norwood, MA based, it has a customer list to die for, is growing at 25% and has a compelling business model. Check out the web site.
4. Dualit is a UK manufacturer of retro toasters and coffee related accessories, specifically Nespresso like coffee capsules. The company just won a UK High court ruling against Nestle’s Nespresso to allow it to sell their competitor coffee capsule offering, It cost them around $1.5m but they won. Dualit’s website is here.

Why Have The Odds Improved?

1. Secular change in IT. Small companies can perform at big company speed and performance, on a project-by- project basis. Access to the right technology and just enough capacity is possible with cloud technologies whether through access to apps or infrastructure.
2. Customers recognize that the small guy can offer a flexible and effective product at a reasonable price. Vanguard Health Systems spends $100m on technology and buys from the Big Guys. However they chose Explorys Inc, a start-up to help spot trends in clinical data. Why? Costs were less and the software could get up and running faster. (WSJ)
3. Many CIOs with large tech budgets say smaller companies are now quicker to embrace new computing models, have products that are easier to deploy, and tend to respond better to customers than the giants. (WSJ)
4. CIO Executive Council gave their top vendors a score of only 3.23/10 across 20 categories. I call it the complacency of the big boys. (WSJ)
5. Small guys tend to care more. They listen to the specific issues and are willing to configure to satisfy the need.
6. Smaller companies have a greater chance of creating a compelling, fun place to work. By allowing workers to own their roles, master their roles and understand the context of their roles in the grand scheme of things, staff are far more engaged than the average big company employee. (Social science research on why we come to work: Daniel Pink’s Drive)
7. As Seth Godin put it recently – “The Weird Tail Continues” and “If you’re chasing the masses, you’re almost certainly heading in the wrong direction. The masses are ignoring you. It’s the weird who are choosing to pay attention, to seek out what they care about.”
8. Finally I believe the secret to success is almost always alignment. A small focused team who are aligned on all the key objectives is a formidable opponent. We see it again and again in sport as well as business.

You have a choice. Be remarkable or invisible. But make no mistake it is a choice.

It is never easy raising money. There are clearly more options today than ever before but it’s still very tough. Are there tried and trusted techniques to turn investors on? Well over the years we’ve raised a lot of money for shareholders and made many mistakes on the way. Here are 15 big mistakes most teams make in their presentations.

15 Big Mistakes

1.  Your leadership of the team and the opportunity is not credible. You don’t truly believe in your product or service and it shows. The passion is missing. Perhaps you are self conscious of your shortcomings as a leader. Perhaps you need the money too badly. Whatever the reason, your energy levels are off, your narrative is way too long, your belief system is not carrying the audience.
2. You have failed to reconcile the amount and type of money you need with the correct funder. For example you are trying to raise Angel Money in front of a VC. Or you are trying to raise $10m from an Angel Group.
   Or the funder has little interest in your sector.
3. You have failed to define the big opportunity. Specifically you have failed to define the “right to exist”. What space in the prospect’s head are you filling? What itch are you scratching? And if there is no competition why would anyone want to buy the service/product? And if there is competition, why you not them?
4. There is no credibility statement reconciling the 5 big reasons linking the early losses with the first profitable year. Volume, yield, overheads, marketing, people, etc. You didn’t convince the funder you could make money. Give 5 or more big reasons why a loss from one year can turn into a profit by the end of the next year. One column from A to B.
5. You failed to explain why the resumes of your top team could execute in this specific market. What is the credibility of your team? Link this credibility to the specific need for money, eg start up, growing capital, acquisition etc.
6. Your business model is not scalable. Hint: Scalable businesses have high variable costs and low fixed costs.
7. You fail to build the downside arguments, eg competition, technology changes, product launch failures, time to win new business and what you would do to recover.
8. You fail to define in detail how you would spend the money.
9. Your IRR% calculation using reasonable exit assumptions for the funder was flawed from the get go.
10. There is no external validation of the market from various credible sources.
11. Your presentations are not compelling and you have failed to engage the audience. Your storyteller is weak, the story unremarkable and the context of why now is missing. The research on “Pitching” as highlighted by Daniel Pink’s latest book is clear. Allow time for the audience to ask questions and get answers. Let the audience shape the story and that engagement will change the odds in your favor.
12. No urgency was created throughout the process. It became a rolling and constant fund raising exercise. There was no process map with deadlines. (See our process map here)
13. The personal chemistry between the lead funder and team was missing and got worse as the process unfolded.
14. Key facts and figures were not memorized. There was a lack of rigorous preparation and it showed.
15. The team was not allowed to speak fluently in the presentation. It looked like a one-man show.

On a very selective basis TPP will consider assisting management teams build their case for fund raising. Please use the search box to find many posts on the techniques of raising finance.

Sales professionals are always under pressure to build their pipeline and then crush it! But what’s working to really progress leads all the way to the bank? How do you progress deals in today’s uncertain environment. This is what’s working in the teams I’m driving:

10 Moves

1. Just because the prospect fills in a form does not mean the prospect is serious. It means they filled in a form. Have your diagnostic questions ready to understand their personal issue. Determine why the issue is happening. History is important. Have they tried to solve the problem before? How did that work out?
2. Establish consequences to events and you establish priorities. Weak consequences – weak priorities. Scary consequences (jail, fines, high costs, embarrassing errors, professional incompetance) then magically you get high priorities. Weak priorities will never find approval.
3. “No budget” is not a believable excuse until they’ve heard the Return On Investment % your solution delivers. Money can be found just as easily as Budgeted money can be frozen.
4. Finding the right problems is the key today. Right = High Priority, Solvable. Then you can decide whether you can solve it. If not, leave the stage politely.
5. Every single interaction from early discussions to happy customer is a negotiation. That is why every interaction must end with “Clear Next Steps”. (courtesy of Sandler)
6. Build project management time lines and vocabulary into the discussion as early as possible. ie so when do you expect to be using the product/service/machine with your team?  You’re not in sales. You’re in the “right problem solutions game” Focus on converting the prospects dream into a reality and you will have a customer for life.
7. Only articulate a specific solution when you are clear you understand the specific success criteria required. At this stage you need to be really clear on four things. Does the prospect really believe he has the problem you are about to solve? Is it a high priority? Does he have any money? Does he believe your solution works? (Small guys can win, as a recent FT article stated: “You never get fired for buying from IBM has been the slogan of generations of IT purchasing managers. That conservative mindset is bending, however, as new technologies such as the one championed by Nicira break through.”)
8. When it gets to the quote/proposal stage – stop and ask, let’s assume I send you this quote, let me understand in detail what happens next?
9. As you send the quote, confirm by phone with the prospect, let say it’s a Friday. “before I send this quote now, can I book your calendar for Monday to touch base with you, make sure you are happy with the details, say 4pm etc ?”
10. Confirm with your prospects that “after the quote goes out our protocol is that the Production Director/Sales Director/COO is informed. This means the quote has visibility at a management level and so you’re ok keeping me in the loop of progress, right? Seem fair?”

Scaling a business gives you options. The more you scale the more options you have. You attract better qualified candidates for openings. You attract better prospects and close bigger sales deals. You create a more robust business, better aligned and certainly more predictable. Your story becomes more confident and compelling. This drives further options that you can execute if you choose, like acquisitions, or raising finance. And of course with scaling you will attract the attention of acquirers which you can ignore or not. So scaling a business is about having more fun not less. It’s about building a business with high growth but with safety. Can we measure scalability over time? Review these 15 questions and give yourself a score.

I’ve used this test to understand how well a business is scaling. Those companies scoring 60 or above were almost always creating a remarkable business, that was growing safely, measuring the right stuff, had alignment across departments and was a fun place to work. I would say they had created rarity value in their marketplace and had established a platform company, admired by their peers.

Give yourself a maximum score of 5 if you strongly agree with the assertion and zero if you totally disagree.

        © The Portfolio Partnership

Conclusions

1. A score of 60 or above implies you are scaling and creating a remarkable business that is aligned and that is growing in value.
2. A score below 60 but above 46 implies a quality business but there is doubt whether you are scaling. There are likely to be issues worth addressing now before the business gets any bigger.
3. A score below 46 but above 30 implies a good business but which contains essential operational issues that need to be addressed. You are unlikely to be scaling and there is a serious risk that your results are not sustainable.
4. A score of 30 or below implies you are in early start up phase which means if you work on the right stuff your score could improve quite dramatically. If you are a more mature business with a score of 30 or below this implies some urgent measures are needed to create a safer environment.

Addressing scaling issues can take years to achieve but the prize is a more predictable, successful business which is growing in value every year.

The Portfolio Partnership offers a unique service in this area. Our Scalability Report Service delivers:

1. An objective Scalability Score with 15 separate scores for each issue.
2. A detailed conclusions section explaining what affected the score.
3. A set of measured actions you can take with your team to dramatically change your score. These actions are laid out in 60, 90, and 120 day action plans.
4. Our protocol is discrete, quick and effective. Prices range from $5000 to $15000 depending on the size and complexity of the business.

In a remarkable announcement covered by the FT, Mondelez International, the former Kraft snack food group, is changing its payment terms to 120 days. Wow, there’s some real arrogance right there. Cash hoarding by large groups has caused the percentage of cash relative to total assets in their balance sheets to be at the highest level in history. Great for them but what about the 99% of companies that aren’t large public companies?

To put this into context for a smaller company (relative to large public groups), let’s say you have revenues of $36.5m or $100,000 per day. Let’s assume your cost of borrowing is 5%. By allowing your accounts receivable to slip just one day, costs you $5000 per year. That’s right off the bottom line. Imagine a big company moves you from 30 days net to 60 days! That’s an annual cost of  $150,000 right off the bottom line.

So you really need to watch your cash ratios very carefully! – Some further thoughts on cash protection:

 Cash Tips

1.  Review every procedure connected to cash generation. Queries hold up cash. For example, a $100k invoice with a $20k query is holding up $80k needlessly. Don’t let it happen.
2. Design efficient query resolution systems. Use calendars or diaries relentlessly to document cash promises made by customers.
3. Incentivize your credit control department with bonuses but set the ground rules for chasing!
4. Move to an online payment system. Look for more stage payments.
5. Build payment terms into sales negotiations. Ensure commission structures reflect cash received.
6.  Build sales teams into credit control strategies.
7. All essential CAPEX should be leased to conserve cash.
8. Understand your outstanding days payable and graph all trends.
9. Monitor cash generation % = Increase in monthly bank balance divided by monthly profit (In any business where cash is paid up front, this ratio can be greater than 100%). As always with ratios, trends are key.
10. Build the most robust cash flow forecast possible by building a formal sales pipeline with weighted percentages, factoring in the real accounts receivable days and accounts payable days and being conservative on overheads.

Metrics implementation around all balance sheet ratios is key. Check out our Metrics Implementation Service offering here.

RSVP to boston@investni.com We need to know you are coming for security reasons!

You are cordially invited to attend a fun breakfast briefing with me your favorite award-winning author, blogger and entrepreneur at

Choate and Hall and Stewart, LLP
Two International Place, 35^th Floor
Boston, Massachusetts

Wednesday June 5, 2013 – 8.00 am to 9.30 am

I will discuss the key playbooks you need to execute to scale your business. I will landscape the world of private companies and demonstrate the secret to building value for your business. Using relevant case studies, I’ll provide measured actions to help you transform your vision into a remarkable business. I will show you what rarity value looks like.

For your friends, this will explain who the hell I am - Ian is the author of Fulfilling the Potential of Your Business: Big Company Thinking for the Mighty Small Business, which won the Small Business Book Awards for Management in 2012. His blog, The Smith Report, focuses on ways to build business value. In 2010 he founded The Portfolio Partnership to help CEOs fulfill the potential of their businesses. As an ex-CFO, investment banker, venture capitalist and CEO, Mr. Smith has realized more than $400 million for shareholders over the past 25 years

Attendees will walk away with insight on building a compelling story for their business and an operational blueprint to make that story come alive. I will take as many questions as possible.

I will be joined by my business partner Martin Kelleher, a highly experienced COO/CFO who has helped many companies scale. Also attendees will meet senior members of Silicon Valley Bank and of course senior partners from our hosts at Choate and Hall and Stewart, LLP.

RSVP to boston@investni.com We need to know you are coming for security reasons!

Please note that space is limited.  Registration required. First 20 receive my latest book and I will sign it!

 The event is sponsored by:

Successful execution requires a contrarian mindset, otherwise we would all be great at it! What do I mean? To successfully complete difficult tasks requires a different approach, a unique perspective, a contrarian mindset:

1. Talent development – Container Store invests an average of 263 hours in employee training, compared with eight hours at most retailers – turnover rate is 5.7% (WSJ).
2. Acquisitions – Google has completed nearly 130 acquisitions since 2001. They put enormous focus on retaining the talent they acquire. Most companies push acquired talent out the door. Google retains approximately 67% of entrepreneurs who sell to it. That is a remarkably high %. HP on the other hand doesn’t come close to that %. Google is worth $287Bn. HP is worth $48Bn (WSJ).
3. Meetings – The success of a great meeting rests with the protocol for preparation covering, who attends, the agenda and the facts circulated beforehand. The success is rarely hinged on what goes on in the room (Source – my own painful mistakes).
4. Incentives – Money as an incentive is just NOT supported by the research. On the other hand clarify someone’s role, give them the resources to master their craft and explain the significance of their work and you will have a very worker making money and having fun (Drive – the brilliant Daniel Pink).
5. Exercise – Getting fit at whatever level makes sense, is nothing to do with the laps of the pool, the miles on the bike, or the intervals on the track. Getting fit is all about time management. Make a special time available every day, protect it aggressively and fill it with the appropriate intensity. You will become remarkably healthy. It allowed me to run 400m indoors last year in 55 secs, age ranked #2 in the world (Source – again my own painful experiments).
6. Customer Experience – Many years ago Commerce Bank wanted to re-create the retail experience. Which banks did they look to? None. They looked to Starbucks, Target and Best Buy. Commerce grew from a value of $400m in 1997 to $8.5Bn in 2008 when it sold to TD Bank (Mavericks at Work by the compelling Bill Taylor & Polly LaBarre).
7. Process Management – Great Ormond Street Hospital for Children was underwhelmed by their hand-off procedures. This occurs when one doctor goes off duty and transfers responsibility of a patient to another doctor. Too many errors, too many sad consequences. Which hospital inspired change? None. They worked closely with Ferrari’s Formula One pit crew to produce a quantum leap in performance. (Bill Taylor again, Practically Radical).
8. Sales – Sales is not about telling your story. Marketing is about telling your story. Sales is about letting your prospect tell their story. This is best done by training sales professionals to be really good at finding the right problems. This requires sales professionals who can diagnose (The most recent research proving this theory is summarized in Daniel Pink’s book To Sell Is Human). Since 2005 I’ve been executing a version of Prime Process by Jeff Thull which specializes in a diagnostic approach. The results have been impressive across many sectors.

Focus on what you’re trying to achieve with your actions and keep an open mind to where your inspiration may come from!

On May 15th the WSJ posted a piece called Wanted: More Directors with Digital Savvy. The first line read: “Nearly every facet of corporate life has gone digital. But many public-company boards remain stuck in analog mode.” Forget public companies, what about all companies.

I’ve pulled together a little checklist of stuff we have been working on with private companies to capitalize on this new hyper-connected digital world we live in. All of these businesses are in the Inc 5000 fastest growing companies in the US and they continue to scale, profitably with no outside equity funding. All of these actions have worked remarkably well:

1. Migration of old web site content to new WordPress platforms. All old content was rewritten to include keywords which could then be picked up by the search engines. New images were created to reflect a fresh picture of products and services. Much stronger stories were created to reflect the mission and purpose of these companies.
2. The new platform allows content to be updated every day as if you were tweaking a word document.
3. Social media campaigns were created around blogs, Twitter, and Linkedin. An editorial calendar was created to ensure quality content was published on a daily/weekly basis. The content is always technically impeccable, sometimes a little controversial and always written with our audience in mind.
4. Specifically we found campaigns particularly successful that addressed issues our prospects were suffering and taking them to landing pages specially created to explain our solution.
5. Use of you tube videos that attracted a strong following were also easy to produce and generated productive leads for our sales teams.
6.  Metrics were created for some clients that would not have been possible to be measured 5 years ago. These included retention rates of renewals, popularity of certain blog topics, the elements of our sales process that were causing delays, cloud utilization rates of SaaS products, why forms on line were completed more often than others.
7. Mobile strategies were created to ensure we were capitalizing on the behavior of our prospects. (Hint mobile websites are not smaller versions of your main website)
8. We invested in cloud based software (or used free versions) across all aspects of these businesses from Dropbox to store stuff, to 37 signals software to manage projects, Google docs to build content, HootSuite to manage Twitter streams.
9. Product strategies were revamped to ensure that digital FAQs, video instructions, video blogs and webinars supported new product launches.
10. Linkedin was used to promote new job postings and research prospective candidates who were not looking to move.