I wish I had a pound for every occasion I have heard the diagnosis “just needs more sales”. When I encountered this company it was almost two years old and had acquired its core technology from a 30 year old business whose owner had retired. The company was small, comprising ten people. Its business plan was a budget/cashflow spreadsheet with a revenue target more than 30 times the sales actually being achieved.
The proposition was that the technology’s time had now come because of recent changes in fuel chemistry. The idea was that hazardous chemical treatments could be displaced with the company’s ‘fit and forget’ device. With the global dependency on liquid fuels and a product range spanning oil pipelines to gyrocopters, this was potentially a vast opportunity.
To consider a proper plan, I looked at structure, capacity and process.
Board:
making it: Technical Director (acting Managing Director)
flogging it: Sales Director
counting the beans: nobody
Management:
making it: Production Manager
flogging it: Business Development Manager
counting the beans: Book Keeper
Operatives:
making it: casual labour
flogging it: Marketing Assistant
counting the beans: part time Administrator
The Chairman was not coordinating the Board. There was no Managing Director, no commercial leadership and no financial control.
Next to assess capacity: Looking at component lead times of up to three months meant that the finished goods stock level would need to be maintained at up to one quarter of a year’s sales. The stock on the shelves was a tenth of this requirement. The production capacity of the workers themselves was around one sixth of the sales target.
So: actual sales were 1/30 of target; stock on shelves was 1/40 of target sales and capacity to produce was 1/6 of target. The mismatches are self-evident – but they also begged the question: what was everybody doing?
Answer: process. Looking at the technical and production efforts, there was no documentation or specification for the products. Bills of materials were incomplete and there was no data against which quality could be controlled other than a nod from the Technical Director who had shown the casual labourers how to make one. The Production Manager was tasked with procurement of whatever the Technical Director asked for, generally based on the sniff of an enquiry or, sometimes, an actual order.
The Sales Director and Business Development Manager had neither divided the market into sectors nor structured the sales channels into tiers. They tried to sell to anyone who would listen. But even if they did secure an order the customer might have to wait three months to be supplied, so the chances of an invoice arising were slim.
It will be no surprise that the administration was a horror too. Without tiered sales channels there could be no pricing policies, and there were no means of tracking sales margins or gross profit.
In the absence of direction people ‘looked busy’ but achieved very little. The fact the company held an ISO9001 certificate is a perfect illustration of why this ‘standard’ should never be taken at face value.
The fuel problem the products claimed to solve is widely documented (and has been since 1895), and recently aggravated by chemistry changes. There was no disputing the scale of the opportunity. I joined the company as Managing Director.
The Book Keeper and Administrator were replaced with an Office Manager. The Sales Director was removed and the Business Development Manager tasked with developing distribution. A Design Engineer was recruited and the Marketing Assistant was trained to produce suitable marketing material.
The market sectors – nine of them – were defined and prioritised. A four-tier sales channel was created and pricing policies established. Batch manufacturing was introduced and management reporting was configured. The company was now ready to do business, its structure now:
Board:
making it: Technical Director
flogging it: Managing Director (acting Marketing Director)
counting the beans: Managing Director (acting Finance Director)
Management:
making it: Production Manager
flogging it: Business Development Manager
counting the beans: Office Manager
Operatives:
making it: Design Engineer, casual labour
flogging it: Business Development Manager, Marketing Assistant
counting the beans: Office Manager
A detailed business plan mapped targets and the resources required to meet them and ultra-streamlined processes were created to enable the most rapid and efficient paths to market. It was a perfect batch manufacturing business model with transparent and scaleable processes. Revenue quadrupled in the first year. The trajectory was set.
This would be a great point for the story to end. Twelve month turnaround: ta-dah!
But there was just one more thing… See Black Hole.