One of the things I love most about my job is my opportunity to observe and work with creative, smart, dynamic CEOs. They are all successful; but, a few are wildly so. Below are the five “not so secret” secrets to their success. The secret to wildly successful success is the 6th secret. Perhaps, only 5% of CEOs are disciplined enough to play at this level.
Now you might think these wildly successful CEOs were successful because they happened to find a highly profitable market. But, in reality they found success in mundane mature markets. Harvard studies find that the ROIC within an industry varies more than the ROIC across industries. What Harvard is claiming, and my wildly successful CEOs have proven, is that exponential returns (margins exceeding 60%, recurring revenues exceeding 80% and free cash flow well above 20%) are the result of doing 6 things with tremendous commitment. We call these things “The Executive Group Checklist.”
The Executive Group Checklist
Is the Business Investor Ready?
As Michael Gerber teaches, my real product is my company. Its ability to attract investment and to be more attractive than other options to potential buyers is my responsibility. It must be RIGHT SIZED, which means every item on your P&L can be justified as customer centric. After all your customer is paying for every employee, every machine, and every expense or investment you make. Your company must be BANKABLE. This means you’ve crafted a business concept that, through the value exchange you’ve created with your customers, produces attractive EBITDA, bottom line and financial ratios. And finally, your company must be SALEABLE. You may choose to never sell it (as many as 80% – 90% of small companies just shut down when the owner dies or retires because no savvy investor will buy them), but that is different from not being saleable. To be saleable at top dollar your business must be designed to attract the highest bidder. At the very least, you’ll need a strong growth history which shows your leadership understands why your customers prefer buying from you. Histories of windfalls and lucky coincidences aren’t likely to be worth much to the next buyer.
I sit on the board of a company that enjoyed wonderful success for 20 years, but only because the consumer electronics world had never bothered to enter its market. The late Peter Lytle sat on that board with me. He regularly warned of brutal competition and financial Armageddon if we didn’t react now. Everything Peter predicted came true. Leadership realized too late that customers bought from us at attractive margins not because they loved our products and our commitment to the children with disabilities whom we served. They bought from us because Apple hadn’t bothered to turn their iPad into a communication device. A few apps later and our growth history was meaningless to a prospective buyer.
GROWTH POTENTIAL is equally valuable to a smart buyer. Why buy a company whose best days are behind them? If you follow sports salaries you know that the market routinely values young new talent with lots of potential over strong existing players. Potential is exciting. STRONG GOVERNANCE is a huge value driver and risk eliminator to a new buyer. Too many small companies have a talented founder or CEO who spends a part of each week doing other people’s jobs. When she’s not doing marketing and sales, she’s problem solving for operations or working with accounting to secure a bank loan and speed up receivables. What this means is that the team cannot function fully on their own. A good due diligence investigation will reveal a weak management team constrained or propped up by an overly talented or overly controlling leader.
Our Business Model is our Differentiator
Why is Southwest Airlines so consistently profitable? Why is there no viable competitor to Cirque de Soleil? Why are wildly successful CEOs wildly successful? I believe the answer for all three questions is the same. In each case the leader stopped thinking they were competing on quality or product or service. Nor were they attempting to compete for volume, or even margin (yes, I said margin!). They were too busy building a business model . . . whatever that is . . . that set them apart in their customer’s eyes.
Your competitors can steal your people, knock off your products and services and claim they are cheaper, but in the long run it is your unique business model and the unique activities you’ve created that produce a one of a kind value. A consciously designed business model positions you favorably amidst the forces of substitute solutions, new entrants into the market, overly strong vendors or customers who can steal margin and of course, those crazy discount giving, margin slashing competitors. A strategically sound business model is the antidote to competition and the best CEO’s have a clear understanding of how to create a model that is difficult to duplicate. In the war for profit, the best business model wins!
Our Key Processes are Optimized
Good CEOs focus on effective and efficient manufacturing and service delivery processes. They fully utilize IT and technology. They have strong financial controls, watch inventory turns, etc. Great CEOs pay tremendous attention to their customer acquisition process, their customer experience process, their people process (organizational culture), and their process for tracking and meeting the emerging needs of their customers. Most companies are quite good at delivering on their promises. Many have built a better mousetrap only to find that customers have not beaten a path to their door. The solution is likely to be found in some combination of the four key processes I’ve mentioned. Answer this question: “On a scale of 0 – 10, how happy are you with your customer acquisition process?” I’m betting you rated it rather low. An Inc. magazine survey found that 94% of executives rated sales as their number one issue. The brutal truth is, attempting to fix your sales issue without first fixing your business model will not likely give you the results you seek. Until you can effectively manufacture customers (and employees) who are guaranteed to have a great experience and until you can sustain that experience by learning and responding to their emerging needs, the sweet spot in the market will continue to be a moving target which announces itself in declining sales over time. When is the last time you documented your customer acquisition process and analyzed exactly what the customer was experiencing at every touch point?
We are a Best Place to Work
This core focus of wildly successful CEOs is a continuation of one of the key processes listed above. It is the rare CEO who started their business because they wanted to deal with lots of employee issues. But the best CEOs know they can’t delegate culture to HR, and they know an unhealthy culture will neuter any strategy they devise. As a result, great CEOs spend a significant amount of time ensuring that their company offers an employee value proposition that is every bit as compelling as their customer value proposition. With a clear vision, clear goals, clear accountabilities, and a culture of trust and high standards, a healthy organization with a so-so business strategy will likely beat the most brilliant and well-funded competitor with an unhealthy culture.
What the Enterprise Needs Most
Every company is complicated. Customers are complicated. Producing a quality product and delivering exceptional experiences every day is HARD! In the white water of activity it is easy to lose site of the main thing:
The main thing is to keep the main thing the main thing!
The problem is the main thing changes. Great CEOs equip themselves with a tool I call “Congruent Questions.” I will share a couple examples.
Q: Knowing what I know now, what decision would I make differently or what action would I undo?
This question is the abandonment question. We all make decisions based upon the information we have at the time of the decision. When facts change we must have the courage to abandon projects, goals and markets. (Wouldn’t it be nice if our government, abandoned projects that have outlived their purpose?)
Here is another example.
Q: If everything else remained the same and I could change only one thing . . . what would I change?
You get the idea. Over the years, I’ve compiled almost 30 Congruent Questions that CEOs use to cut through the noise.
Am I Playing at the Top of my Game?
Finally, the most critical determinant of success. The best CEO’s understand that “My business and my life are a perfect reflection of my thinking.” Compelling research undertaken by Inc. Magazine found that the best CEOs could be identified by how they answered one specific question.
“In the past year, can I name two ideas that I implemented in my company that meet the following criteria: 1) the idea came from outside the organization and 2) I evaluated the increase in business valuation of the idea before deciding to act on it?”
I like this research a lot because my company, Executive Group, works hard to help our members gain key insights into success and helps them prioritize and execute on those ideas. Busy, overwhelmed CEOs don’t have time to raise their game. Great CEOs have adopted what I call working half time. They lead and delegate in a way that provides a minimum of 50% of their time available to work on the six items of the CEO Checklist. They model rigor and discipline by making and keeping commitments. They hold themselves accountable to their word. They are calm and steady in the boat. They align their company around a vital few goals each year. They take the time to communicate fully and clearly their desires. They are authentic and transparent. They put the interests of the organization above their own. All of these traits of wildly successful CEOs are rather unsurprising, aren’t they? Most all CEOs do these things every year. The difference is the great ones do them every week.
This article was written by Bill Mills. Bill Mills is an award winning author and speaker on business innovation. He directs Executive Group Inc. an entrepreneurial think tank for almost 70 Minnesota business owners and CEO’s. www.mnexecutivegroup.com or email@example.com.