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Avoiding Growth That Leaves You Broke (Part 3): Calculating the Odds of Successful Execution

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Mid-sized firms striving for growth are just as susceptible to running out of cash as firms that are shrinking. Simply put, they can spend too much too fast, or spend too little too late.

In my 8/21/12 post, “When Shooting for Growth Can Leave You Broke”, I explained why the concept of spending velocity is so important to mid-market firms, and identified three elements of sound decision-making you can employ when cash flow goes negative. The first is market predictability, which I explored in my 9/10/2012 post, “Making a Sober Assessment of Demand”.

Today I’ll be digging into the second element:  measuring execution confidence.  How likely is it that your team will ascend the

learning curve and deliver the expected results on time?  Examine our Optimal Spending Velocity illustration.   You’ll see that low execution confidence - even in a highly predictable market - warrants proceeding slowly and keeping extra financial reserves on hand.

Too often, we accept false confidence from our executive team.  Just like the football squad in the locker room, the adrenaline-fueled excitement of the project whips up a lather of bravado in our team and they exude confidence.  In the face of such passion, we get carried away and our businesses spend more than they should.

To calculate your execution odds objectively, consider these five critical pillars of execution success:

  1. A proven team.  The ultimate proven team has worked together before and recently succeeded on similar projects.  With both the learning curve and team-bonding risks out of the way, such a team can focus single-mindedly on the task at hand.  For example, one management team in the aviation industry became redundant because of an acquisition; the entire team joined an industry startup.  On the other hand, a team whose individuals don’t have specific work experience relevant to the function they will be playing (even if they are quick and intelligent) cannot be considered proven.  Likewise, if the collection of individuals has not worked together before, there is increased risk that the team will not gel.
  2. A realistic budget.  While it is true that there are successes on a shoestring budget, more often than not underfunded efforts fail.  Salaries are too low to attract top talent.  The vendors selected are lower priced and lower quality. High quality partners, if they are enticed to participate, give lower priority to the project because of pricing concessions.  In the rush for expediency, we take short cuts like sacrificing testing time or product quality.
  3. Strong vendors/partners.  It is popular to outsource the aspects of a project that lie beyond our core competency.  Yet with the benefits, like less overhead and sharper focus, come the risks that your partners won’t perform well.  They often don’t.  The ideal vendor/partner should need your project to succeed as much as you do, so they’ll fight through obstacles and strive to keep you happy.  Ideally, they’ll have executed successfully in many similar projects and be financially and technically strong.  Read an excellent case study on partnering best practices here.
  4. Tested, proven processes.  Assumptions are the enemy of good execution, and testing is your secret weapon.  Kicking off a project that will devour significant budget without establishing at least small scale testing is risky.  At the very least, test the sales process with one or two people, even on a part time basis.  Perform small scale testing in a development environment and project management processes.  Draft several training protocols and test them on a few people.
  5. Technical risk low.  Technology can be a great barrier to throw in front of competitors, assuming that we have surmounted the same barrier ourselves.  It is easy to say, “We’ll figure it out—it’s easy”, but actually delivering on a technological breakthrough is seldom easy.  Executive leadership must listen carefully to the concerns and opinions of those performing the technical work.  CEOs with too strong a mindset can stifle truth from bubbling up; trust your technical experts to identify obstacles. Strong technical oversight is required to confirm the level of risk.  Ultimately, testing is your final proof.  Read this case study about how poorly assessing technical risk cost one company millions of dollars and months of delay.

This specific case, the failed installation of a warehouse automation system by a $50M revenue clothing distributor, illustrates a number of these five critical pillars of execution success.  An executive with no systems integration experience took charge of installing the system, with the help of the firm’s in house programmer (an un-proven team).  They didn’t want to spend money on outside experts:  the firm was tight on cash, having just acquired another firm and bought a new building for their headquarters (insufficient budget).  They decided not to run parallel systems since they were making the change just in time for the peak season (unproven, unwise processes).  Not surprisingly, the cutover was a month late and still failed, triggering massive shipping delays, a pile-up of excess inventory, a list of angry customers who refused to pay, millions of dollar in losses and a full-blown liquidity crisis.  The firm barely survived.

Even with strong market demand and a great strategy, spending too much in the face of poor or slow execution can bring on a liquidity crisis.  If you find yourself in this position, first objectively determine execution confidence within the five parameters above, then either adjust spending velocity appropriately or take steps to de-risk the execution.  In my next post, I’ll dive into the assessment of forecasting acumen, third and final element in the determination of ideal spending velocity.

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