The 23 Most Important Questions In Business Pt 2

by: Brett Nelson,

11. Am I outsourcing the right tasks?

Charles Wheelan , public policy professor at University of Chicago, elegantly captured the concept of comparative advantage. In his excellent Naked Economics: Undressing the Dismal Science, Wheelan wrote:

“Many engineers live in Seattle. These men and women have doctorates in mechanical engineering and probably know more about manufacturing shoes and shirts than nearly anyone in Bangladesh. So why would we buy imported shirts and shoes made by poorly educated workers in Bangladesh? Because our Seattle engineers also know how to design and manufacture commercial airplanes. Indeed, that is what they do best, meaning that making jets creates the most value for their time. Importing shirts from Bangladesh frees them up to do this, and the world is better for it.”

But sometimes “what you do best” isn’t the only criteria for choosing which tasks to keep in-house. Consider Crestron Electronics, maker of automation devices (light, sound and temperature controls) for homes, offices and yachts. Four decades after opening above a delicatessen in Rocklegh, NJ, founder George Feldstein’s company pulls in $500 million in revenue. Soldering components onto circuit boards isn’t terribly difficult, yet Crestron still manufactures 80% of its 1,500 products in the U.S. Why not save a few bucks and send much of that work overseas? “When the economy went south we brought everything in-house and paid more for it, rather than lay people off,” Feldstein told Forbes last November. “People don’t realize the importance of continuity of labor.”At Crestron, experienced assembly-line workers earn $17 an hour, more than double the state’s $7.25 minimum wage and better than the $14.90 State of New Jersey average for electronic-equipment assembly jobs. Translation: Building in-house was about strategy, not labor rates. (For more, see “Crestron Electronics: A Made-In-America Success Story.”)

On the flipside, you might think peddling new technology requires a gifted in-house sales staff. Robert Pera, founder of Ubiquiti Networks, maker of wireless-networking gear, takes a far more stripped-down approach. When Forbes checked in with Ubiquiti in January, the company boasted 26% net margins, the highest of any publicly traded computer hardware firm; Apple, Pera’s former employer, came in second at 24%. How to get fat margins in a commodity-like manufacturing business? Outsource the sales function.“In Pera’s view, star salespeople have their own interests at heart, not their employer’s,” wrote Forbes Senior Editor Kerry Dolan. “Ubiquiti instead leans on some 50 distributors and hundreds of smaller re-sellers around the world. That’s right: Pera carries no direct sales force and he operates globally.” He’s made a mint, too: Ubiquiti’s share price has doubled since the company’s IPO last October, making Pera’s 64% stake worth a recent $1.9 billion on paper.(For more, check out “Silicon Valley’s Newest Billionaire: Wireless Wonder Robert Pera”.)

12. Who is my role model?

Somewhere, someone is “doing it right” in your industry. Investors (and employers) want to know you’ve thought hard about whothose companies are and why specifically they are setting the standard you aim to beat.

Eyes On The Road

13. Am I measuring the right things?

Sales growth, gross margins, inventory turns and cash flow capture the status of an enterprise. But to understand how to improve a business you have to look beneath the financials—and no one cheat sheet of metrics works for all industries.

In late 2009, Lumber Liquidators, vendor of hardwood flooring for homes, was weathering the housing crisis in surprisingly fine shape. One reason: It kept a close eye on customers who requested product samples—they proved 30% more likely to buy flooring within the following month. This metric was so crucial that store managers received annual bonuses based in part on how many samples they distributed. (For more,see “Hardwood Hero.”)

Marc Lore, co-founder of Quidsi, the company behind online retail sites Diapers.com (baby gear), BeautyBar.com (cosmetics) and Wag.com (pet care), mines scads of data. To improve customer service at Diapers.com, Lore tracked hourly call and e-mail volume against the time it took his service reps to respond (see “Diapers.com Rocks Online Retailing”). He found that too few reps were on-hand during off-hours—basically, he was giving money away. It’s those kinds of discoveries that eventually enticed Amazon.com to buy Quidsi for $545 million in 2010.

Sometimes it’s not easy to know which metrics you should be measuring—or how to make use of them. Publishers can attest to that. As the supply of content has exploded online, the price even well established brands can charge to corral an audience has plummeted. (That’s the problem with infinite inventory—price eventually goes to zero.) Worse, advertisers now can finally see what they’re getting—or not getting—for their ad budgets. While the ostensible audience for their ads might be large, the percentage of readers who click on them is still paltry. Hence the publishing industry’s current scramble to come up with a compelling metric that captures readers’ “engagement” on their sites—an amalgam of benchmarks including the number of pages visited, time spent on the site, etc. The more engaged readers are, the more likely they’ll absorb an ad’s message, and the more money advertisers might pay to run it—or so publishers hope.

Say you want to learn more about what your customers like or don’t. Online surveys are cheap, but gathering meaningful data is tricky. The difference between good data and bad is in how you ask the questions, says Kern Lewis, owner of GrowthFocus, a small-business marketing consultancy in Castro Valley, Calif. For example, if you ask people if they prefer great quality at a low price, of course they’ll say “Yes”; in reality, though, they may be willing to accept lower quality at a price that still keeps your business in the black. (Crafting surveys is a discipline all its own: For a clear case study in building one that yields actionable data, check out Lewis’ column“Mastering The Art Of The Online Survey.”)

14. Do I have the right people?

If the questions had to be ranked, this one would make the top three.

Bruce Poon Tip built a $160-million (sales) adventure-travel company by learning how to give up control and let his lieutenants lead. That meant looking beyond his network of pals for help and recruiting people who knew how to mind the metrics—“people I hate,” he quipped. The search was painful, the tweaking constant (see “Cracking The Founder’s Dilemma”), but there’s no substitute for having the right people.

And the right mix. Tom Ryan and Dave Prokupek, founders of fast-growing patty chain Smashburger, are a rather complementary pair. Ryan is the product guy, with a masters degree in lipid toxicology and fragrance chemistry. “There’s so much technology behind ketchup and mayonnaise…I was always fascinated by that,” he told Forbes last November. Propupek looks after the business side: He susses out new locations, deals with the back-office and tracks customer feedback. The result: “Meet America’s Most Promising Company: Smashburger.”

Sometimes you have to ax a smart employee who constantly complains about how management is messing up, notes Ben Horowitz, co-founder of venture capital firm Andreessen Horowitz. “Often it’s very difficult to turn these kinds of cases around,” he wrote (see“Time To Fire The Talent?”). “Once an employee takes a public stance, the social pressure for him to be consistent is enormous.”

Having the right people also includes cultivating outside advisors whose opinions you respect and who aren’t afraid to share them—assuming you’ll listen. “Entrepreneurs by nature are anti-authoritarian juvenile delinquents,” points out Steven Berglas, psychologist and executive coach for 30 years. “Taking advice isn’t their thing.” The selectively deaf might want to read “Learning The Art Of Listening.”

15. Are incentives aligned with business goals?

For good or ill, you inevitably get what you incentivize. If you want repeat revenue, tie bonus pay to customer-satisfaction forms. If you want to crank up mortgage-processing fees, don’t ask borrowers for proof of income.

Good pay for good work is still a good formula. In the mid-1960s, Nucor Corp., then a struggling manufacturer of nuclear instruments (it twice went bankrupt), decided to make steel using smaller, electric-powered mills fed by scrap metal. Central to its strategy under new chief F. Kenneth Iverson: a bonus system based on weekly production—up to 60% of employees’ base pay. That was quite a change from Nucor’s established, union-heavy competitors. A half-century later, Nucor is one of the largest steelmakers in the U.S., with $20 billion in annual revenue, thanks in no small part to its compensation strategy.

Joe DePaolo built Signature Bank, in New York City, to $12 billion in assets in 13 years by poaching talented bankers with fat client lists (and by refusing to carry too many dicey mortgage-backed securities on its balance sheet). Their comp, too, is based on productivity measures, such as profitability of accounts and customer retention. In 2010 DePaolo told Forbes there are years when his best lieutenants take home more than he does (see “What It Takes To Run A Sound Commerical Bank”).

Recognition doesn’t always have to come from the top. Google employs a “Peer Bonus” system. Five times a quarter, Google staffers can award one of their colleagues a $175 bump for a job well done. That’ll build a bond or two.

Of course, plenty of companies can’t afford to shower their people in cash. That’s why, in 2010, Zao Yang walked away from an eight-figure restricted stock package at Zynga (the social gaming outfit) to launch BetterWorks. The company develops employee-perk programs that combine the buying power of Groupon, the recommendation engine of Amazon.com, and the communal nature of Facebook. With a few clicks, small companies can put money into an employee’s account to be spent on everything from sushi to dry cleaning—stuff that employees actually want. “Pay only goes so far,” John Foster, a senior VP at Hulu and BetterWorks’ first client, told Forbes last August (see “Perked Up”). “Perks and benefits are a great way to scale value.”

A closing dose of Duh!: If you want to get the best out of people (employees and colleagues) tell them “Thank you.” Maybe even ask how they’re doing and actually listen to the answer. It doesn’t cost a penny and yet it lifts spirits and builds trust.

16. Do I have the right customers?

The best clients aren’t only the paying kind. Like employees and vendors, some are better fits than others. Trying to make a few troublesome customers happy at the expense of many is a sure way to bleed cash.

Every company should have its own criteria for what makes a good customer. Jason Elkins, owner of Transparent Social Media, an online-marketing firm in Nashville, Tenn., started out (as most entrepreneurs do) working  “with anyone with an idea and a budget. ”A few years in, though, Elkins now looks for clients bearing four specific traits:

–They are “entrepreneurially minded” (because social media marketing is relatively new, and customers have to be comfortable trying new ideas).

–They have a “serious commitment to customer service” (because social media, at bottom, is about building relationships).

–They have to value the notion of “giving back” (if not by funding a non-profit, then to some community cause or church).

–They have to be the “best in their field, region or industry” (no matter what industry they’re in).

Demanding as that sounds, P.E.S.T. Inc., a pest control company in Springfield, Tenn., fit the mold. Not that Elkins aims to dominate the pest-control niche: “We could leverage the success with P.E.S.T.,” he says. “but other pest-control companies aren’t P.E.S.T.”

Paying customers make life easier, of course. If you need help collecting from deadbeats, check out “Make Them Pay” from Robert Bovarnick, of Bovarnick& Associates, legal counsel to small and midsize businesses for nearly 30 years. One hardball trick, he offers: “Taking a security interest (in a business or personal property) may not get you paid today, but it may give you enough leverage to extract payment in the future. Example: Say a customer is six months behind. In exchange for not suing him today, you might agree to take a junior mortgage on his house.”

17. Are my assumptions still reasonable?

When an equity analyst, money manager or chief exec says something like “Sales at ABC Widgets will grow 20% over the next three years, ”they don’t really know if customers will keep lining up. It’s a guess—one based on a battery of assumptions about ABC, its competitors and the overall economy. If ABC’s new widget takes off, sales could soar; if interest rates rise (leaving less cash to reinvest in equipment or people), growth could sputter. Buying stocks, hiring employees, taking out a mortgage: All those financial decisions are based on assumptions about how the world will look in the future.

The best planners constantly reassess their assumptions—especially in tech-startup land, where every week is an eternity. At Y Combinator, vaunted startup incubator founded by venture capitalist Paul Graham, the development formula is fast and furious: Get your software up and running (bugs and all), gather feedback, adjust and grow. Graham’s mantra: “Put it out there and let users decide,” he told Forbes in a cover story in 2010 (see “The Disrupter In The Valley”). Y Combinator expects its budding entrepreneurs to have a working product, customers and revenue within three months.

Not all industries are as fast-paced and volatileas technology, but the lesson is that you don’t win by carving assumptions in concrete.

18. Do I have a good lawyer?

‘Nuff said.

New Gear

19. Am I truly harnessing technology?

Building a clean, intuitive Web site or mobile app is relatively easy; getting people to do what you want when they get there is still really tough. (Drunk gnats have longer attention spans than most people have online.)

With roughly 650 million sites vying for eyeballs now, rookie design mistakes like cluttered layouts, impenetrable blocks of text, befuddling navigation and buried phone numbers persist. (Evernote, maker of popular note-taking software for laptops and tablets, doesn’t bother to list its contact number anywhere on its site.) Haven’t rolled out a mobile friendly version of your site? Read this: “The Number Of Mobile Devices Will Exceed World’s Population By 2012 (& Other Shocking Figures).”

To get the most out of technology, you have to run tests. Bridgette Sexton, Google’s effervescent Global Entrepreneurship Manager, put it like this: “Divorce your Website, have multiple wives for awhile, and choose the best one later.”

Sexton recently walked through the wonders of Google Website Optimizer at an all-day seminar in Nashville, Tenn. (FLO Thinkery, a tech consultancy, organized the event, which attracted entrepreneurs from all over the state and beyond.) The Optimizer can test an audience’s response to just about anything—text, colors, location of images, calls to action (Buy Now! versus Learn More!)—and all for free. During the highlight of her presentation, Sexton asked the crowd to choose which design of Barack Obama’s website was more effective in getting people to contribute to his campaign in 2008. Most of us picked the worst-performing layout. Bottom line: Data rules.

Then there’s the social Web.Online marketing guru Neal Rodriguez acknowledges that so-called experts (like him) are only beginning to understand how to tap social networking’s true potential for business. “What none of us can afford is to stand by and watch it all unfold,” he says. “There’s money to be made, after all!” Rodriguez’s “Ten Myths About Social Networking For Business” and “The Definitive Guide To Selling More Of Anything Online” lay out tangible tactics any company can take right now—and you don’t need to be an “expert” to understand them.

20. Am I thinking big enough?

Here’s a trait so many business leaders I’ve met have in common: They set awesome goals. Not awesome as in, “We just took an awesome trip to Hawaii,” or “That sushi last night was awesome.” Awesome as in large, daunting, obscene.

Michael Bronfein has one. He wants to streamline the way medication gets to nursing homes, a $14 billion business that’s getting bigger: By 2025 seniors will account for 20% of the U.S. population, up from 14% today. Bronfein’s company, Remedi Senior Care makes money buying pills from drug companies, marking them up and shipping them to nursing homes. For 30 years this involved lots of people packing pills into batches of “bingo cards,” each containing one month’s worth of medication. Dispensing all those pills is extremely tedious: Some seniors take up to 12 different kinds a day, many of which look the same. Bronfein spent 15 years and $30 million to engineer a 50-foot-long, 20-foot-wide, dizzyingly complex conveyor-style robot that serves up plastic pouches containing pills individually wrapped and labeled for each nursing home resident. That saves nurses hours a day handing out medication and reduces the chance of dispensing the wrong pills.

Bronfein has made admirable strides (see “Drug Lord”, from May 2011), but those robots are expensive. So is convincing an entire industry to change the way it does business, especially given the potential liability issues. (There are 17,000 nursing homes in the U.S.; Remedi is in less than 2% of them.) Bronfein got some help last August when Centerbridge Partners, an investment firm in New York City, kicked in $300 million in fresh growth capital to fortify his robot army. Now that’s awesome.

21. Can the business function day-to-day without me?

If you want to run a growing company, or a division within one, the answer should be “Yes.” It means you have dependable people and processes in place. Billionaire Clay Mathile spent $130 million to create the Aileron Institute, in Dayton, Ohio, to teach entrepreneurs this very lesson. I spoke with Clay at length last year about what it takes to keep a small business growing. In short: Systems win, heroes don’t. (For more, see “The Billionaire Business Owner’s Playbook.”)

You’ll also need a strong bench. Andrew Sasson, who last November sold his Light Group nightlife empire to Morgans Hotel Group for $47 million, believes training starts at the lowest level—with the bussing staff. To have the honor of setting tables, dumping garbage and lighting cigars until 4 am, candidates must survive a grueling eight-day boot camp, including role-playing, sales seminars and written tests. All club managers must bus, among other tasks, before assuming their roles; the best bussers can climb into the management ranks. (Last fall Sasson let Forbes go undercover in busboy training at The Bank nightclub in Las Vegas’ Bellagio resort. Read Steven Bertoni’s breathless account here: “Inside The Vegas Party Machine.”)

Finding the time and money to train is getting harder as companies look to wring productivity from their operations. Invest now to avoid pain later.

22. Am I avoiding the tough decisions?

In the first season of Mad Men, Bert Cooper, eccentric head of fictional ad firm Sterling Cooper, lauds his star Don Draper for being, like Coop himself, “unsentimental about all the people who depend on our hard work.” It’s a hard line to hear, let alone swallow, and it’s a reminder of the granite resolve it takes to build growing enterprises.

Even the greatest leaders suffer from indecision. Executive coach Steven Berglas calls it “executive yips,” akin to the nerve-rattling doubt golfers get when standing over a short putt. “In most cases, folks who struggle with indecision have it bad,” says Berglas. In“Seven Ways To Conquer Indecision,” he offers some calming perspective and tangible advice, including:

“Plenty of talented people, even those who have made a killing, go to exhaustive lengths not to appear dumb. (For proof, read Paul Allen’s recent autobiography: The man has billions but still craves respect.) Actually, the smarter you are, the more likely your indecision is born of this anxiety. A kid building a startup can be wrong, fail and feel no shame: ‘I’m a kid…what do you expect?’ Not so for someone with an established reputation to protect. This fear of shame is pernicious, mainly because it’s useless. Let it go.”

23.Am I burned out?

Last year I asked five members of Forbes’ list of America’s Most Promising Companies the same question I’ve put to hundreds of business owners: “What keeps you guys going? ”Before I got the words out, Steve Spoonamore, founder and CEO of ABSMaterials, started laughing.

“It’s just balls-out fun,” he blurted. “Every time I get the pleasure of a nice exit, I sit around and after about three months I start bouncing around. There are people who love to sail the ocean or climb mountains, and more power to them—but it’s nowhere near as interesting as taking a technology nobody has heard of, finding a market for it and launching it to your customers. That’s satisfying.”

That kind of wide-grin enthusiasm gets harder to keep as companies and careers grow. For many, burnout sets in. You can ward it off (see “How To Prevent Burnout?”), or you can go back to question No. 1 and reassess your commitment.

In fact, go back as often as you can. That’s what these questions are for.

SOURCE: www.forbes.com