Archive for the ‘Growth Intelligence & Profitable Growth’ Category

What Stands Between Private-Equity Firms and Their Companies, Part 2: Proliferating Control Systems

Wednesday, June 25th, 2014

Here is the next part of my short series about obstacles to growth between private-equity firms and their companies. They come from my presentation “Who Pays the Piper Calls the Tune—What Private-Equity Firms are Regularly Missing” as part of the German Private-Equity Conference 2014 in Frankfurt am Main.

So what does often stand in the way of the relationship between private-equity firms and “their” companies?

Part 2: Proliferating Control Systems

One of the fundamental competencies of private-equity firms is their virtuosity with numbers. It is not rare for a company that has been taken to benefit from this skill quite quickly. Indeed, a high degree of professionalization is often reached. Typical control systems established by private-equity firms—systems that we see in our consulting projects—make possible every kind of analysis imaginable, right up to simulation. No wonder! In the end, you want to report to investors and banks regularly and accurately.

Yet in this context, sledgehammers are often used to swat flies. Some control systems are simply so bulky that they discourage management from doing what they’re paid for: to steer the company toward growth. A great many meetings only about control poses the risk of forcing the topic of material progress into the background.

The pinnacle is reached when entire systems are changed—as we have seen, for example, in the context of “secondaries,” where one private-equity firm takes over a company from another private-equity firm. In this situation, a first-class, oversize control system is changed over to another first-class, oversize control system. More precisely: A project comes to life because in reality, there can be no talk of “changeover.” These systems, which are then called the “control tower” or the like, can hold back a company significantly.

Overcome the hurdles. Less is more. The control system must fit the company. And, if you set aside your ego slightly, a private-equity firm that takes over a company can also simply take over the world-class system of another private-equity firm. That also saves time.

 
© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

Don’t Take On Every Customer—and Also Not Every Project

Wednesday, June 18th, 2014

Dear sales professionals: There are bad customers, too. You know that. Customers who pay late or not at all. Customers who squeeze you to the bitter end over the last penny, but who aren’t prepared to acknowledge performance. Customers who, after a first-rate performance or delivery of a topnotch product, nevertheless try to find something to grouse about so they won’t have to cough up part of the final payment. Customers who believe that you are dependent upon them—and then play from this position. Dear sales professionals: You know this perfectly well.

Then why are such customers taken on? Why do you permit your company to develop business relationships with such undesirable customers? But, you protest, I can’t tell that right away. Although I am of the theory that there are already many signs at the beginning of a so-called partnership that signal a bad customer, you will concede that the following question arises: When you at last realize that you have a bad customer, why don’t you fire him? In my experience, that rarely happens, if ever.

In my experience, bad deals are too often made knowing that they will indeed be bad deals, and that too often, bad customer-relationships are continued in full knowledge that the relationship will not improve. But a sales department that is strong on growth—and that begins with the sales-department leadership, with the head of sales—finds ways to recognize bad customers and not take them on in the first place. If this mistake is made again, a sales department strong on growth finds the ways and means to quickly free itself from such toxic relationships.

What are your criteria for taking on a customer? How do you make sure that these criteria will also serve you well in bad times?

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

What if . . . You’ve Missed the Fact that Your Customers See You as Dispensable?

Sunday, June 15th, 2014

Some of our clients notice too late that, instead of having made themselves indispensable to their customers over the years, they have done just the opposite. This very often happens in the supply business. Under the assumption that you have developed a relationship of mutual trust with your customer’s decision-maker over the years, and that fas far as you are aware, the amount, quality, and price have been satisfactory for all concerned, you go into autopilot mode. An order comes in, you make an offer, you get the contract, and you deliver the goods.

But what happens if new competitors appear on the scene? What if your customer, through the convenience of globalization, gains access to markets that a few years ago seemed impossible to enter profitably. What if the decision-makers, with whom you had such a good relationship, are replaced by others? What if a committee—such as a product-line committee or a purchasing department, for example—becomes part of the process because of compliance or for some other reason?

We have often come across existing business relationships that have been destabilized by such circumstances and for other reasons. Often, the causes are right before your eyes: You stopped cultivating customer relations, or you would have anticipated these eventualities with your customers. You stopped innovating and did only what was required. You didn’t build an international network that would have allowed you to offer high quality—which is still in demand—under more advantageous conditions.

The bad news: Many lucrative customer relationships have been lost over the years. The good news: Recognized (just) in time, some of them can be salvaged. Or you can forge new, lucrative relationships. The key to all of this is a structured growth-initiative in sales. The more so, when sales isn’t exactly enamored of the idea.

 

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

Clean or Replace the Pipe, not Enlarge It

Friday, June 13th, 2014

When a water line or a drain line is plugged, there are two possibilities: Either the line is cleaned, decalcified or unjammed, or it is replaced. No one would think of encasing the existing pipe in a new one, with the expectation that flow in either direction would be improved.

But all too often, I see exactly that in business. Processes don’t run as they should. So instead of purging them, instead of defining new processes because the old “pipelines” are calcified, instead of reducing the number of procedures, additional loops are introduced, staff assigned, quality-control programs established—all of which are intended to assure that performance will improve. Instead of changing something structurally, “more of the same” is brought to bear. The result: The “pipes” become superficially wider, but at the same time, the internal diameter remains inadequate. It takes more effort to achieve the same performance. But even worse, the increased effort cannot prevent further clogging of the “pipes” (or processes, in other words), and performance actually declines. Sometimes, when accompanied by increasing pressure from the top, the whole thing becomes an explosive situation.

“But we’ve really done everything we can to increase performance!” I hear that all the time. No, you haven’t. You’ve only added to the problem. Intelligence about growth means intelligence about giving things up, not “more of the same.” Clean your “pipes,” replace them, build a new structure. But don’t expect to be able to generate better performance by simply adding things to the old one. As a rule, that doesn’t work.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

Growth Leverage for Private-Equity Firms and the Companies in Their Portfolios

Wednesday, June 11th, 2014

“Who Pays the Piper Calls the Tune – What Private Equity Firms are Regularly Missing”—this was the title of my VIP-dinner speech on the evening preceding the German Private Equity Conference 2014, in Frankfurt. Before an audience of decision-makers and CEOs of private-equity firms, I addressed five factors that, from our consulting experience, often stand in the way of even more effective cooperation between private-equity firms and their portfolio companies:

  1. Too much focus on money
  2. Oversize controlling systems
  3. Poorly defined roles, competences, and responsibilities
  4. Lack of interest in people and processes
  5. PI: “Project Inflation”

The intentionally provocative presentation (“Too much focus on money?? In the private-equity sphere??”) produced an animated response and offered additional topics for discussion during the subsequent VIP dinner. The general tenor: A good relationship between company management and its private-equity shareholders rests on mutual understanding and trust, which in turn forms the indispensable basis for profitable growth.

If you would like to watch the speech, you can download a video of “Who Pays the Piper Calls the Tune” (ca 800 MB) here.

Over the next few weeks in this column, I’ll address each of the five points.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

Sensitivities Can Derail Things

Friday, June 6th, 2014

When two of my colleagues and I were in Remagen for a client project, I looked down onto the Rhine from my hotel room window. Despite all the satellite navigation, radar, AIS, mobile telephones, and other technological marvels, ship’s masters on the Rhine still communicate with analog voice radio which, as much now as ever, permits ship’s masters who are friends with one another to greet each other and exchange a few words.

In one of our projects—with the leading urban courier service at the time—the issue was this very analog voice radio, which increasingly was being abandoned in favor of digital communications. What an outcry! Bicycle messengers as well as automobile messengers went to the barricades and found thousands of reasons why the company, in taking this path, could not become (more) successful. Our mission was entirely different, namely a really clear growth mandate. Be we had to take into consideration that the ruffled feathers were at least likely to drastically delay the project on the operational level, perhaps even defeat it. Because it couldn’t function without voice radio, or so it seemed.

Objectively, this was wrong. But perception is reality. So the first thing we did was to deal with these sensitivities, and then turn our attention back to the matter at hand. What does my wife always say in her projects? “First, calm the waters!” She’s right. It is not the matter at hand that decides the success or failure of a growth project. It’s the emotions. Keep this in mind when you start your next transformational change.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

Nespresso: Brand, Convenience, and the Effect on Price

Saturday, May 31st, 2014

It is widely known that Nestlé has created an impressive success story with Nespresso. Today, we’ll take a look at the impact of a strong brand—plus convenience—on price and (in-this-case-inevitable) profits.

OK, calculator at the ready.

  • After a pronounced rise in prices on the coffee market since the beginning of 2014, the cost per kilogram of coffee beans on the commodities market stands today (3/14/2014) at about $4.41.
  • Today (3/14/2014) on its home page, Tchibo is advertising a sale on its “fine-mild” blend: $10.38 per kilogram.
  • The “New York” coffee blend that we at Mandat purchase: about $42.00 per kilogram.

Now to Nespresso.

  • A single pod costs some where between 51 cents and 54 cents.
  • In each pod, there are about five grams of coffee. So, a kilogram would fill 200 pods.
  • According to Adam Riese, that comes to between $102 and $108 per kilogram. That’s a factor of ten compared to the Tchibo offer and still a factor of 2.5 against the “New York” blend.
  • In other words, for the price of a box of ten Nespresso pods, you can buy more than a kilogram of green coffee in South America.

Not bad.

We discuss with many of our clients the power of a brand on price and the advantages of convenience for price. The next time you find yourself in an executive meeting, bring up the subject of how you use the power of your brand and which convenience-advantages you can create for your customers—to the profit of both parties. You will encounter open doors to your customers. Whether this is also true of your team depends on their readiness to grow.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

Growth: When Sales “Has to Do” Something, then Something is Wrong

Friday, May 30th, 2014

Thoughts typically heard in the sales department:

  • “I still have to see this customer today.”
  • “I still have to do this evaluation.”
  • “I have to telephone the customer.”
  • “We have to sell more this year.”

They are, all of them, misguided.

No one “has to do” anything. To say “have to” means that you really don’t want to. It says that you’re doing something, that you think—or know—someone else expects of you, of yourself. “Has to” is passive. “Has to” means that you don’t have your heart and soul in it, that you aren’t committed. “Has to” is dutifulness.

Many people are stuck in “has to” mode. This is disastrous, especially in sales. Because there are other ways:

  • “I’m going to drive over to see this customer today because I would like to do something for him.”
  • “I’ll do that evaluation right this minute.”
  • “I’ll telephone that customer now, so that he’ll know what we have to offer him.”
  • “This year we will create even greater utility and, because of that, automatically increase sales.”

In our growth projects focused on increasing sales performance, we we are on the lookout for such nuances. If a salesperson is in “has to” mode, then perhaps—as we often see—the entire sales team is stuck there, and either the sales approach is wrong or, more probably, the sales manager is ineffective. Either is fixable.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

“It’s Miller Time, Let’s Have a Bud”—It’s Not Enough to be First.

Friday, May 23rd, 2014

As our Canadian colleague and friend told me, the Miller brewery created “Miller time” in an ad campaign much noticed at the time—a Miller beer as reward after a stressful day. “If you’ve got the time, we’ve got the beer.” A grandiose concept for the industry. “Miller time” was born. Unfortunately, Anheuser-Busch (A-B) wasn’t exactly asleep, because then came: “For all you do, this Bud’s for You.” A-B’s strength in the beer market gained its slogan gained even wider prominence at the time. Analysts quipped that it actually had to mean: “It’s Miller Time, let’s have a Bud.” A branding disaster.

It’s just not enough to be first. It is more important—and more difficult—to remain first. People sometimes ask market leaders how they have succeeded in remaining the market leader over the years. We get no answers such as these:

  • “We did the same thing, only more often and more quickly.”
  • “We started a large-scale sales offensive.”
  • “We simply always copied others.”

Market leaders with a long-term view of themselves reinvent themselves, dismantle things that aren’t working before others do so, and they are definitely not the cuddly sort. They never rest. Never. The not only dominate the market, they define it. Someone to whom that doesn’t appeal would be better off not trying to be a market leader at all.

Postcript: There is an outstanding article about Miller and A-B (“Busch Family Builds a Name”) in the Milwaukee Journal of 10/30/1988. You can find it on the Web.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.

“So, You’re Going to Set My Business on a Path to Profitable Growth?”

Tuesday, May 20th, 2014

The opening of a recent conversation with a potential client: “Professor Quelle, I have already heard quite a bit about you, among other things one of your speeches. So, you’re going to set my Business on a path to profitable growth?” – Me: “No, YOU do that.” A pause. Laughter. A lively discussion ensued.

This potential client had recognized the difference immediately. It’s not the consultant—and it shouldn’t be the consultant—who implements changes in the client’s company. Such steps have to come out of the company itself. We help companies to follow a different path. We impart necessary capabilities and skills. We guard against taking steps that, in our experience, regularly lead people astray. We see things in the company that otherwise are not seen or cannot be seen. We supervise the implementation. But the implementation itself must come from within. Otherwise, the entire concept will be built on sand.

Too many consultants regularly overrate themselves, and too many consultants are retained as overpaid advisers, day after day, for years. The impact of a good, experienced consultant lies in multiplication, in boosting the available energy, and in building know-how—not in taking over routine work. Clients should not become dependent on a consultant.

Growth consulting, as we understand it, is to translate our knowing into your doing.
And by the way, that potential client at the top of this post? He did indeed become a new Mandat client.

© 2014, Prof. Dr. Guido Quelle, Mandat Consulting Group, Dortmund, London, New York. All rights reserved.