Success May Be Just A Tweak Away

February 22, 2012

In working with numerous business owners and being involved in several turnarounds over the course of my career, I have found that many are seeking a large magic bullet or a major overhaul to turn their business around. In most cases, I have found that major changes are not necessary. The good news is that, in most situations, all that is needed is a simple tweak here and there to turn a business around. Let’s look at a couple of examples.

Accounts Receivable
Some business owners experience problems collecting the monies due to them from customers for products/services they have provided. I don’t need to tell you about the problems this can cause to your cash flow. Not only do small business owners not enjoy the task, they fear that aggressive collections will drive customers away. The truth is that it can. But a simple tweak here and there can turn things around.

A simple change in credit policy can make a world of difference. The first step is to check your prospective customers’ credit worthiness. If they have a questionable or negative credit history, you should require a deposit of at least 50% up front. I have learned through experience that a bad customer is worse than no customer, just as a bad deal is worse than no deal. Assuming that your standard terms are that payment is due in 30 days, the second step is to price your products and/or services at a level that allows you to offer a meaningful discount (the carrot or reward) if the invoice is paid quickly (10-15 days). The third step is to charge a substantial fee (the stick or penalty) for late payment. And finally, the fourth step is to make sure the customer understands your payment terms prior to placing the order.

With a few simple tweaks, you have laid the foundation to motivate the behavior you desire. You will find that some customers will pay early to take advantage of the discount and most will pay on time to avoid the late fees. Should you have to negotiate a settlement to get paid, you will be negotiating from a higher number rather than a lower number, netting you a larger settlement. And should you ever have to take a client to court to get paid, you will be suing for a much larger amount than without these tweaks.

Sales
Securing more sales from your sales reps can be as simple as tweaking their compensation plan. I say this with caution as making changes to a rep’s compensation plan can be demoralizing and have the opposite effect. However, setting it up correctly from the beginning of their employment can prevent the need for further changes.

Direct sales people are compensated on results more than any other employee. The reason for this is that their results impact the well-being of the business more than just about any other employee. For this reason, it is important that a business hire the most effective sales people they can recruit. However, I can’t count the number of times that I have been told by a business owner that they cannot afford the really good sales people. I always find this puzzling, since a sales rep’s compensation should be tied directly to their results. What in the world could be better than paying a rep $200,000, $300,000 or even $500,000 per year assuming they are making the sales to justify it? Just imagine the revenue they would be generating! Of course, it is the salary business owners feel they have to pay that concerns them. What if they pay a large salary to attract the really good sales people and then don’t secure the sales? This is certainly a legitimate concern regardless of how small or large a company may be. Yet again, a few tweaks can make a big difference.

The first step is to develop a compensation plan that will attract good sales people and not put the owner in the poor-house. The best overall compensation plans which I have used are based upon a quota that includes a lower base salary with a great commission opportunity for those who produce results. This might include an overall opportunity of $120,000/year at 100% of quota based upon a salary of as little as $2,000/month (20%) and commissions of $8,000/month (80%) based upon achievement of 100% of quota (less for underachievement and more for overachievement). Of course the key is to determine how much revenue they need to generate to justify this level of compensation and that becomes the quota. If they generate 125% of quota they would earn 125% of the $8,000/month commission ($10,000) and if they only generated 75% of quota, they would be paid only 75% of the $8,000 commission ($6,000). If you need to offer a larger opportunity to attract the level of sales person you feel you require, simply raise the quota to justify the larger opportunity at 100% of quota.

Naturally, quotas must be realistic and at a level you are confident a good sales person can achieve. If it is just “blue sky”, your employment offer will be rejected or once the employee figures it out, they will feel that they have been taken advantage of and you will lose a good sales person. As the years go by, there is no need to change the compensation plan. All you need to do is adjust the quota which is expected in every organization. You may also wish to sweeten the offer by including a short ramp-up that includes some sort of guaranteed commission during the first 90 days or so while they are filling their sales funnel. This will help them get by with a low salary while they are getting started.

The second step is the presentation of your offer. I always prefer a written offer as it is a great opportunity to spell out the details of the offer and expectations while giving the business the opportunity to word it in such a way as to make it the most compelling. It also gives the prospective employee a feeling of professionalism and security.

The third step is to wordsmith the offer. Just a little tweak here or there can make the offer far more compelling. Using the example above, which sounds better? “We offer a base salary of $2,000/month and commission of up to $8,000/month” or “We offer a $120,000/year opportunity at 100% of quota, comprised of 20% salary and 80% commission. Overachievers earn more and underachievers earn less.” Again a little tweak can make a big difference. Chances are some tweaks you decide to make can make it sound even more compelling.

Summary
I could easily give you many more examples if time and space permitted. You are probably familiar with the old adage, “How do you eat an elephant? One bite at a time.” The same holds true for solving business problems. It doesn’t need to be overwhelming or require a major overhaul. In most cases, minor tweaks are all that is needed to solve most business problems. You may only be a few tweaks away from success! Allow me to leave you with a couple of thoughts. We don’t trip over mountains; it is the molehills that cause us to stumble. Managing the little things make the big things happen.

As fellow business owners, do you share this view or do you feel differently? We would love to hear your thoughts. Simply leave your comments below. Our members will appreciate it.

Filed under: Accounting,Entrepreneurship,Marketing,Small Business Education,Startup,Turnaround

Tags: Accounts Receivable, Compensation, Fine tune your business, Sales, start-ups