Friday, May 15, 2009

Axiom Quarterly: Second Quarter, 2009

The Qualitative Fundamentals for Building a Best-of-Breed Enterprise
By Gary C. Harrell

Not all that long ago, Mashoud Rashama was living the best life that a meticulous and successful, Wall Street quantitative trader could afford, but since the onset of the 2008 financial meltdown, that has not been the case. Mr. Rashama was among the thousands of financial workers who found themselves unemployed as their seemingly venerable firms either collapsed or were consumed in the closing months of the year. The aftermath of those events and his own layoff were beginning to take its toll on him. “I would only say that it’s been surreal,” he explained in a telephone interview. “I found myself waking up in the middle of the night, almost too scared to face the day ahead…” Fortunately, Mr. Rashama was not without resources, and that meant that he had options.

Said Mr. Rashama, “There was not really a question about capital—or one about talent…Once I finally realized that this was possible, I took a very deep breath, and I decided to start my own fund.”

Mr. Rashama is among the hundreds upon thousands of Americans who are pursing their dreams either as self-employed individuals or the owners of new, start-up ventures, a group that the Wall Street Journal fittingly calls “entrepreneurs by necessity”1. In 2007, there was an estimated 16 million self-employed individuals in the United States, and with them, there were also 21 million non-employer businesses. These numbers illustrate the strength of the entrepreneurial mindset in this country. To be sure, while two-thirds of all businesses do fail, the ominous statistics do little to discourage people from taking risks on their ideas. In fact, during the same period in 2007, roughly 48,400 more businesses began operating than the total number of those that filed for bankruptcy or shut down.2 And to date these small businesses still employ roughly half of the country’s workforce.

Though their businesses will differ greatly from one another, many of these new entrepreneurs will embark upon the same preliminary process of researching and planning, before they commence their first day of operations. This consultancy calls that process business modeling, and for the sake of brevity, we will only summarize the five, sequential components of this effort:
Ø Due diligence & market research
Ø Budgeting & business planning
Ø Hiring
Ø Marketing-plan execution
Ø Operational sustainability
Indeed, these progressive components are so important in today’s world that they represent a best-practices approach to the formation of any successful enterprise.* But knowing this, some entrepreneurs will easily overlook another important process. In fact, whereas the business modeling process is commonly integral, equally necessary are the efforts to build these new businesses into best-of-breed enterprises.

A best-of-breed enterprise is one wherein the managerial style, organizational structure, innovative product offerings, and responsiveness to the market cultivate an environment for success and make it a stand-out in its industry. Think of companies like Google, Apple, Toyota, and even Wal-Mart. The pioneering leadership in each of these companies is touted in B-schools and boardrooms around the world, their corporate cultures are often legendary, and their brash offerings allow them to consistently triumph over their competition. Suffice it to say, however, no one should assume that a best-of-breed enterprise can only be a large company. In actuality, any enterprise can emulate the best players on the block, and they would be well-served to do so.

The examples made by best-of-breed companies offer tremendous benefits to today’s small and mid-sized enterprises, as well as to new start-ups. By studying leading enterprises, new entrepreneurs and seasoned business owners, alike, can glean ways to harness existing creativity and build adaptive businesses. They can also learn more about evolving their own offerings, while enhancing customer relations. Taken together, all of these things can improve the health and performance of any business.

Immediately, one would ask, what affords a business the ability to become best-of-breed? As an answer, this consultancy believes that there are five factors to building a best-of-breed enterprise. These factors reside in the vision, the people, the culture, the offerings, and (of course) the customers of an enterprise. What’s more, in much the same manner that an entrepreneur undertakes the painstaking process of business modeling—so too should he adhere to a prescribed approach in this endeavor. Consequently, the entrepreneur should have…

…A clearly defined purpose and vision…

In order to build a successful business, let alone one that is best-of-breed, there needs to be a purpose for its existence. An entrepreneur would be dangerously remiss to presume that a desire to make money, alone, is enough to survive. In fact, in a turbulent sea of competition, he has to know what his business is bringing to the table and articulate that effectively to consumers, in order to attract customers and remain afloat.

From the outset, the entrepreneur should uncover ways to make his offerings unique and transformative. He should ask himself first, what sets his own offerings apart from those of competitors in the same market? Answering this question will help him establish his product or service differentiation, which is crucial when marketing to consumers. Next, he should ask himself, what advantages do consumers derive from the use of these offerings? That answer becomes the value proposition.

As the stream of options becomes virtually endless, most consumers simply recoil from the prospect of thorough research. Instead, they make buying decisions based on limited knowledge about the features and benefits of a product or service; these are the areas that a business should give priority. One entrepreneur who knows this fact well is Joseph Boudreaux, the CEO of Zack’s Famous Frozen Yogurt, Inc., in Houma, Louisiana. “Increasingly in the market, perceived value, rather than actual value, is what distinguishes a successful company from an unsuccessful one. In essence, a product is only worth what the consumer believes it to be worth, regardless of the actual value,” Mr. Boudreaux explained in a 2007 correspondence with this consultancy. He also went on to add, “Successfully maximizing the perceived value of our products is and always will be of highest importance. It's what keeps us on the competitive edge.”

Once an entrepreneur has effectively identified ways to set his business and its offerings apart from the fray, he should then establish a clear vision of where the business is headed. Though that might seem to be an obvious and rudimentary task for any business, the truth is, a sizable number of small and mid-sized enterprises ignore strategic planning, altogether, and for that reason, they lack the specificity of five-year plans, ten-year plans, or any other type of goals-driven roadmaps for growth. Unfortunately, in today’s competitive business climate, such myopia simply does not cut it for very long. As every entrepreneur should easily understand, vision without action may be a daydream—but action without vision is a nightmare, and it will penalize entrepreneurs with the constant need to reorganize, retool, and remake their businesses simply to keep up.

…The ability to attract and retain top talent…

Beyond crafting the vision that will guide a business forward, the most accurate indicator of its ability to perform is the team of men and women who operate it daily. Indeed, a business is only as good as its people, and so, it would behoove the entrepreneur to recruit highly-skilled individuals who best exemplify the credo of the business and who, most importantly, believe in its vision. Most entrepreneurs are typically not inclined to make such hiring choices, due to budgetary constraints or an aversion to prolonged hiring processes. However, there may be some benefits in going the extra mile to identify and hire the appropriate candidates. Wanda Ramsey, an independent, executive-placement consultant in Orange County, CA, explains it this way: “The right people will help a company to accelerate toward its vision, but problems with those who are not a good fit can linger long after their exit…Getting it right the first time will save you thousands of dollars.”

For some entrepreneurs, though, the trick isn’t recruiting talented workers; it is keeping them. Their companies, in fact, become plagued with high turnover rates, and much time and money is expended on new hiring efforts, retraining, and productivity losses. To quickly combat this phenomenon, these entrepreneurs must first accept that the majority of people, and particularly top performers, leave their jobs due to sheer dissatisfaction with their work environments. Hence, a considerable amount of attention needs to be given to what is going on in the workplace. In addition to that, any business seeking to be a best-of-breed contender will have to do its part to keep morale high. And of course, it helps when workers believe that they are valued.

At this juncture, perhaps it is only fair to warn entrepreneurs that simply paying lip service to employee needs will eventually get recognized for what they are—empty words. And that type of revelation could be even more damaging to the employer-employee relationship.

That said, addressing employee needs does not have to be a laborious feat for an entrepreneur. In fact, there are just a few basic rules on which he can get by:
Ø Reward employees justly
Ø Encourage the personal and professional development of employees
Ø Establish a strong support system
Ø Help to foster a sense of community
Ø Address and eradicate toxicity and politics as much as possible
Ø Be open to new ideas

…A culture of learning & operational improvement…

As the pool of talented individuals increases in size and coalesces to fulfill the mission and vision of the business, the entrepreneur must pay particular attention to the development of the organization’s culture. This is because time and growth can induce subtle but certain changes that ultimately impact the nature of the business. For the entrepreneur, these growth spurts become crucial times, and he must be certain that only positive changes are allowed to take their course.

Interestingly enough, we always hear the old adage: change is the only true constant. And while that might sound exciting and possible, the statement is not entirely true. In an advanced society, for example, the way we work may change, but the values that define why we work do not have to. Likewise, in a growing enterprise, the nature of the work may change, as well as the product offerings and the client base—but not the central tenets on which that enterprise was founded and built. The entrepreneur must do his part to sustain the founding principles of the enterprise, and to engrain them into others, lest at some point they will be lost. And that never bodes well for a growing enterprise, for history is replete with stories of reckless organizations that have lost their way and collapsed.

Of course, this is by no means an instruction for entrepreneurs to fear change. In fact, if nothing else, the entrepreneur should learn how to better discern the positive shifts from the negative shifts in the trends affecting his business—and embrace the positive ones. One way to come to this understanding is to foster a culture of learning and openness. When ideas from all corners of the enterprise are allowed to flow freely, the entrepreneur and his team is able to benefit from shared knowledge. To be sure, every idea will not be a good one; however, some of them may help to make the enterprise more adaptive, to cut costs and improve efficiency, or even to chart a new course for the enterprise. The entrepreneur simply needs to understand that the best ideas will not always come from the top, and he must be receptive when these suggestions are made.

Often times, many of these new ideas will not be revolutionary at all; rather, they will call upon the enterprise to do things in a different way. Such ideas for improvement can be no less vexing than wholly revolutionary ones, only because they, too, require members of the enterprise to scale a learning curve in order to remain relevant. For this reason, more so than any other, the culture of the enterprise should emphasize learning as an ongoing rampart, and the infrastructure for training and other support systems for these purposes should be made readily available when necessary.

As an enterprise improves the way it operates, the changes it experiences can afford it the rare opportunity to refocus on its core competence. In turn, creating a stronger core competence adds additional value to the enterprise’s offerings. A simple analysis of best-of-breed enterprises illustrates this point. Faster processing power and more intuitive software, for example, gave Google the ability to bolster its online-search capabilities. Smarter assembly lines and improved fuel-consumption technologies enabled Toyota to build better-quality, better-performing automobiles. Collectively, these positive changes helped companies like Google and Toyota to win over consumers again and again.

…A Commitment to measurable & consistent quality…

When asked about the quality of his company’s products, Daryll Antonishak said, “You cannot just get it right the first time. It has to be right every time.” Mr. Antonishak heads business development at Montreal-based BAMStrategy, an Internet marketing concern. Working directly with Fortune 500 clients, he knows exactly how important it is to stay on this aspect of their business. He added, “You have to put yourself into the client’s shoes. The dollars getting spent, no matter how small, are pretty important to him. So if what he’s paid for come[s] out less than par, it will be very discouraging, and there’s nothing quite like failing a client terribly, is there?”

Mr. Antonishak raises some very notable points. In fact, for consumers of every ilk, the relevance and intrinsic value of a product matters greatly, and quality is believed to be something of a birthright. However, when businesses fail to understand this, when they deliver offerings that are less than what consumers deem adequate, they set themselves up for punishment in the marketplace. To avoid these perils, entrepreneurs should look to the East, to some of the most prominent best-of-breed businesses on the planet. In Japan, corporations from Nakamichi to Honda to NTT DOCOMO commit themselves to quality through continuous and measurable improvements; the practice even has a name—kaizen. Studious entrepreneurs will quickly find that this commitment to quality control is usually a well-documented set of processes intended to monitor costs and minimize errors, and that many of these Japanese businesses deploy the use of groups like quality circles, which are committees formulated to review work-flow processes and quality statistics. These efforts enable some of Japan’s most enduring enterprises to consistently meet the expectations of their customers, and they provide an excellent example to entrepreneurs eager to win the same degree of favor in their own markets.

Building and selling a better quality mousetrap is only the beginning; entrepreneurs also need to focus on the experience consumers have with their offerings. That means businesses need to commit an equal amount of energy to improving service after the sale. By making customer service a priority, businesses can gather a great deal of information from buyers, and this feedback can help them improve their commitment to quality and their responsiveness to the market.

In his correspondence with this consultancy, Joseph Boudreaux also spoke about the roles that quality and customer service play in his business. “Every company must choose one or two core values that will separate them from their competition. While one may offer the fastest service and best price, another may offer a higher quality product and better customer service. Choosing which core values that the market holds most essential is what keeps a company competitive,” he explained, and went on to add, “In our business, our customers place greater emphasis on quality of product and customer service [rather] than simply getting a cheap product in 30 seconds.” Hence, Zack’s places a deliberate priority on delivering quality offerings and improving the customer’s buying experience. To date, that formula has helped rebuild the Zack’s brand and has made it into one of the fastest-growing franchises in its sector.

Entrepreneurs know that the marketplace is awash with businesses promoting quality and service-level commitments; yet, all too often those promotions turn out to be disingenuous. Even still, and perhaps precisely because of this fact, instituting real provisions to improve offerings and deliver an excellent customer experience can result in an upside for businesses. Indeed, from these things, businesses build a market reputation and a following, and it is that type of loyalty that sustains the top line.

…And the ability to secure & retain the best customers…

These days, it seems that businesses love to know that they were able to “hook the big fish”, and they are eager to show off their association with these notable buyers. For some entrepreneurs and managers, the line of thinking goes like this: if we can reference one notable customer, then that customer’s decision to buy with us strengthens our credibility in the marketplace, and that will encourage other notable customers to buy from us. Of course, the rationale does sound like a plausible one. Unfortunately, it is not necessarily a correct one, inasmuch as rarely do other notable customers ever show up just on the marketed reference alone, and often these notable first customers are left to walk away, because the relationship is not diligently cultivated.

Enterprises strive to increase their sales and grow their operations. It is an organic process. But best-of-breed enterprises strive to forge relationships with their customers and repeat those sales opportunities again and again. The latter type of enterprise understands that it does not matter if the business of a notable customer is secured only once; what matters is how to get that customer to become loyal to the brand and to buy over and over again. This, of course, requires quality offerings, but it also requires a customer-centric approach that manages each relationship and anticipates the needs of the individual customer before those needs are ever realized. Entrepreneurs eager to grow their customer bases would do well to adopt this engaging and proactive approach, one that places them closer to their existing customer base, while enabling them to understand and more readily meet the needs of those customers.

When enterprises consistently satisfy this objective, and when their customers are routinely pleased by the performance, the enterprise will benefit from a phenomenon that is far better than any marketing campaign. It is called buzz. In fact, word of mouth—positive chatter from one existing customer to a prospective customer—becomes one of the most relevant and, ironically enough, the least expensive references an enterprise can count on. Consequently, these satisfied customers become the best customers, because they will help to grow an enterprise’s book of business without costing it an additional dime.

For businesses aspiring to secure and retain the best clients, franchise broker Kathy Dannewitz Barthelemy adds these words: “Stay the course, but be agile. In essence, you must remain true to the mission statement, but you stay cognizant of your surroundings, as they are always evolving. And always remember that without your best clients you are as good as dead.”

To the “entrepreneurs by necessity”, those like Mashoud Rashama, as well as to the owners of longstanding businesses, all of this should stand as a very strong message. It is salient instruction on how to create a viable enterprise. To be sure, building a best-of-breed enterprise will not make that enterprise immune from the effects of this recession or the next, but it will give that enterprise a more principled foundation on which to operate and grow. By placing concerted emphasis on the vision, the people, the culture, the offerings, and the customers of his enterprise, an entrepreneur can gain a considerable advantage in the marketplace. Put another way by Daryll Antonishak: “Your people will follow because they believe in your vision; your offerings will stand out because you take steps to make set them apart—and when your customers feel satisfied, everyone will start to think of you as the best.”

Gary C. Harrell is the managing principal of Axiom Strategy Advisors, LLC. For additional information, please write
# # # # #

*Axiom Strategy Advisors, LLC, visits business-modeling more thoroughly during Launch, its executive-training seminar for new entrepreneurs.

1. “Starting Over As an Entrepreneur”, Wall Street Journal. Kelly Spors & Raymond Flandez. 11 May 2009.
2. “Frequently Asked Questions”. Small Business Administration, Office of Advocacy. September 2008.

The Axiom Quarterly is a product of Axiom Strategy Advisors, LLC. For more information, visit © 2009. All rights reserved; Axiom Strategy Advisors, LLC.


Mashoud said...

Thanks for making me look good there, Gary.

Digger in LV said...

What do you say to this? Oh, I know: send a copy to my boss. Doubt he'll read it though; it's more than two pages.

Taylor said...

I love how you have a knack for this and communicate it so well. I am so proud of you.

rasitha said...

Thanks for the sharing this website. it is very useful professional knowledge. Great idea you know about company background.
web application development

mike carson said...

I have to agree. This was a thoughtful article. I am already sharing the email version with a few people.

Anonymous said...

Thank you for this piece, Gary.

-S. Kellerman

Denton Services said...

Everyone here is grateful for your help. Thank you for instilling these ideals in our business months ago.

Anonymous said...

Wow! I know some people, who I won't mention, who must have spoken to you about this exact subject. The only problem is.....they did the exact opposite. No kidding.

Random Thoughts

Popular Posts

The Invisible Hand: Management, Economics and Strategy for the Thinking Person (Audio only)

There was an error in this gadget