By Wayne Rivers

This article is Part 8 of a series outlining the 90 best practices of successful family and closely held businesses and the actions which allow companies to weather economic storms. The 90 best practices don’t necessarily appear in order of priority, and, due to your particular circumstances, some of the practices will be more or less valuable to your closely held company. They will not be presented as exhaustive analyses; rather, each article will touch on a few of the best practices with a very brief explanation. More depth on each of the topics is as close as doing internet research or making a phone call to The Family Business Institute. As you read the series of articles, please try to select the highest impact practices upon which to focus. Trying to get your mind around all 90 best practices simultaneously would be like trying to enjoy a drink of water through a fire hose.

The best practices will be concentrated in five distinct categories: 1. Cash flow, 2. Belt tightening & cost reduction, 3. Processes & systems, 4. Opportunities, and 5. What to avoid or of what to be wary. We hope this series is beneficial in helping you prosper in tough times.

36. Use “process maps” to streamline and gain efficiencies (Processes & systems)

In entrepreneurial businesses, processes are the least understood and least managed element of performance, and, therefore, represent the biggest potential for improvement. Experts estimate that about ½ of the typical knowledge worker’s time and energy is wasted. The biggest culprit in this waste is the poor engineering and management of processes. Processes are the beginning to end, left to right, horizontal flow of work that cuts across functional barriers. A process might involve everything from marketing through selling through purchase by a customer through paperwork and administrative processes through order fulfillment through delivery through customer satisfaction. Eliminating waste and increasing efficiency as this horizontal process cuts through all the vertical divisions of the company can add serious value.

Here’s the definition of a process: An activity or group of activities that takes an input, adds value to it, and provides an output to an internal or external customer. Processes are measurable, repeatable, and sustainable. Process mapping requires that an executive or work team take a fresh look at all steps involved. Processes have definable boundaries with specific starting and ending places. They also have an ordered, sequenced set of activities that have to be performed. They cut across multiple business functions which are the vertical silos of sales, manufacturing or production, customer fulfillment, and administration. Process maps are most valuable when a company is considering changing the way people do their work, when introducing new or revising old products or services and companies wish to understand the resulting effects on people, technology, equipment, and tasks, when undertaking initiatives to reduce waste, reduce costs, or improve efficiency, and when an executive or team is trying to get a handle with what is going on in an increasingly complex business or function of the business.

37. Select customers (much) more carefully (Processes & systems)

In tight times, customer selection takes on a more important role. When things are lean, having a bad customer or a bad job can mean the difference between positive and negative cash flow – or much worse. Family and closely held businesses are often seduced by the big, high profile opportunity that can add lots of money to top line revenue. For example, Wal-Mart considers placing a large home furnishings order with a medium size manufacturer, or a big name developer, think Donald Trump, approaches a contractor about a new hotel project. Family businesses also take on customers who are too small. Because they rationalize that they “have to keep the machinery going,” they’ll take almost any business that trickles over the transom. Often, small customers have a high PITA (pain in the neck) factor; even though the revenue from small customers is low, they require a great deal of hand holding and strain customer service. Whether a new customer is big or small, conduct yourself in a cautious manner. Require credit checks and deposits for new work. Collect money aggressively. Ask yourself whether or not the new customer is going to have a high PITA factor. If your entrepreneurial instincts are telling you that it’s probably not worth having this particular business, it’s probably not.

38. Reduce non-operating expenses (Belt tightening & cost reduction)

Non-operating expenses are expenses incurred by activities which do not relate to the core operations of the business. They can take a variety of forms. For example, interest charges or other costs of borrowing are non-operating expenses. Currency exchange, charges on obsolete inventory, telephone, postage, landscaping, and insurance all constitute non-operating expenses. You can segregate non-operating expenses from other SG&A costs easily enough for more careful analysis. In tight economic times, it’s often a necessity to carefully review and trim non-operating costs.

39. Hire sales fire power (Opportunities)

Tom Watson, Sr., the man that made IBM the international behemoth that it is, had an unusual philosophy. When times were tough, his mantra was “Hire more salesmen!” While it many not make sense for a medium size family or closely held business to go out and hire an army of salesmen, getting some sales talent in the door might be a great thing. Almost every family business owner these days is focused on preserving old business and generating new leads. In the years leading up to the current recession, often businesses didn’t need much of a business development function; there was plenty of money out there, and customers often found you. Now, however, competition is much more intense, and customers are holding on to their nickels and dimes while they wait to see what the future holds.

Hiring a salesman can be a great step. However, most family business owners go about the process in an abrupt manner which often dooms the new hire to failure. They look for a person who has experience in their industry, interview them over lunch, make a couple of calls to references (which may go completely unanswered), and make the hire. If the new person can pass a drug test, he is usually in. What the business owner doesn’t stop to ask, however, is what exactly will he do once he is in the door, and how he will be measured on his performance? Thinking through the salesperson’s job description carefully is a must. Designing appropriate metrics and incentive compensation plans are also important. Relating the strategy and philosophy of the company at length to the new hire is important; how is he going to tell your story and sell your product or service if he doesn’t know something about the history of the company and the core values and vision which drive it?

All too often business owners hire salesmen with a vague idea of what they want them to do. The salespeople attempt to do what they’ve done successfully in previous careers, and the two view points are oil and water. The salesperson does what she thinks is the right thing while the business owner is appalled at some of the techniques she uses and the stories she tells. Hiring sales fire power can certainly be a boost in recessionary times, but don’t cut the process short, and take painstaking steps to ensure that your investment is designed to produce a healthy return.

In every downturn, some companies not only survive but prosper. We earnestly hope this series will help you reach your fullest potential.

The 90 Best Practices for Recession Survival (and Maybe Prosperity): Part 9

Wayne Rivers is the president of The Family Business Institute, Inc. FBI’s mission is to deliver interpersonal, operational and financial solutions to help family and closely-held businesses achieve breakthrough success.
May 2009