The COVID19 humanitarian crisis should always ensure our focus and compassion is with our fellow human beings who have suffered terrible loss in such a short period of time, and this is rightly so.
There is, however, another ‘victim’ of this pandemic, our economy. Our political leaders have taken unprecedented steps to ensure short to medium term remedy, which will undoubtedly have long term impact.
While our fantastic medical professionals take on the huge challenge of saving lives, it is Merlin’s opinion that our business community has a lead role in tackling ‘head on’ the task of resurrecting our economy as soon as is practically possible.
To paraphrase Lord Kitchener: Your Economy Needs You.
During this crisis, there is little doubt that there is an absolute need for Business Leaders to seek the help of their professional advisers. There are lots of great examples of advisers coalescing around business communities to offer help.
However, ultimately it is the role of Business Leaders to make DECISIONS and there is no one better placed to know your business, culture, market, competitors and so on. That is, after all, why you are in the role you are in.
We at Merlin think our role in all of this is to help, where we can, Business Leaders make the best decisions to manage the impact of COVID-19 and adapt Operating Models to set up for success.
With spare capacity due to client projects being cancelled or deferred, in these unprecedented times we’d love to make ourselves available, at our own cost, to Business Leaders who need to make these decisions.
Areas where we are currently sharing / tailoring pragmatic and practical tools with Business Leaders and helping apply them in their context:
1. COVID19 impact on your business – a robust, pragmatic and honest review of this external stimulus, or otherwise, to your business. A means of getting to ‘tough decisions’ or identifying opportunities that may define the future of your business.
2. Based on 1) above, YOUR impact on your business – the speed of COVID19 may have caught a lot of Business Leaders off-guard and forced knee jerk, short term decisions that may not ordinarily have been taken. Adapting and using ‘Failure Modes and Effect Analysis (FMEA) will help Business Leaders understand the Impact of Decisions, when/how often they may feel the Impact, how they will identify it and, most importantly, how they can potentially mitigate it. For example,
Avoiding Creditors calls
Laying off key team members
Signing – when it is possible to do such – the lease on a new office.
Merlin are happy to help explain the use of these tools (and others) further, if required, and would also offer that now more than ever, when normal day job routine is most likely to be interrupted, is the time when you have time to determine the future or your business.
Once done, this then leads to what next? what will my business look like? how will we operate? What skills/technology/data will I require? This will take you a long way towards developing your Crisis Recovery Strategy.
3. So, what is the new Normal? – by using Target Operating Model (TOM) methodology in its simplest form, you can determine what you may have to change to adapt your business to set up for success. By de-layering your business, the task of making change becomes much more focussed and only touches those layers that will require change. If, for example, Working from Home (WFH) becomes the new normal for your employees, what does that mean?
Managing 20 remote workers is very different from managing 20 office workers
Is your leadership team set up for the new normal?
How will your clients react to a new ‘channel’?
Do you have the technology, and how do you share relevant information/data?
How do you maintain security?
4. COVID-19 Recovery Project Plan – Having understood, per above, what needs to be done, ‘Plan for Success’ and coalesce all your staff around a well thought through, rapid recovery Project Plan.
A lot to consider. Yes undoubtedly, however, you most likely have the opportunity NOW to determine your business future and play your role in ensuring our Economy can be as robust as possible, as fast as possible.
This is a call to action, so let’s get moving in a pragmatic and practical fashion. We would love to help in any way we can.
Why Pitch? Pitching is a crucial part of the investment journey. Fail to pitch well and fail to learn may set you back. So be prepared!
Before we explore the pitching process, let’s consider what stage of your business life cycle you are in and therefore what the investment requirement might be. Business start ups often involve personal cash and time, as well as borrowing money from friends and family (love money). This is often referred to as bootstrapping. You might also be relying on loans and overdrafts and more than likely tapping into non-refundable grants. The pitch often comes when you are looking to start-up or more commonly looking to scale up – that is, getting your business idea off the ground, or growing quicker than your baseline and projections suggest.
So you now want to consider investment in your business? This means you are giving away part of your company and you will share ownership and therefore many of your company’s future decisions. So you need the right investment partner. Accepting investment is not like a loan when you can walk away after fulfilling payment. Investors are typically involved for a number of years until a successful buy-out or if unsuccessful, liquidation. Is your investment partner a crowdfund campaign, a sole angel investor, an angel syndicate, a family office, with or without co-investment funds, or perhaps a corporate venturing company or a venture capital fund?
Confusing, yes? Think carefully about how these types of organisations differ as your approach to them will need to differ also.
Individual angel investors and/ or angel groups are less institutionalised. They may come from a finance background, but likely to be successful entrepreneurs and will be very commercially minded. They will insist on meeting you face-to-face and you will be expected to peak their interest in your investment proposition almost immediately.
Family offices behave in a similar way to angel groups but will often require a trusted introduction and your investment proposition will most likely to be a very good fit with their investment principles.
If there are co-investment funds in the mix, these organisations may be public funded or form part of a University Fund and will again have a different approach based on alignment with their permitted sectors and criteria for investment.
Corporate venture funds is popular particularly in the technology sector, and often a good solution for early stage technology companies to bolster their balance sheet and begin growing sales and/ or advancing new technology, but it is not always right for start-up companies for a number of reasons, often due to conflicts of interests.
Venture capital funds are perhaps the toughest route for a start-up company to pursue given that they are usually focused on investing in more mature investment propositions and their process will almost certainly be more drawn out than the options previously outlined.
Crowdfunding has been popular, and has been successfully applied when a brand is strong and can attract interest from a LOT of small investors. You will normally be expected to have a minimum level of investment secured before the crowdfunding campaign, and require a good handle on PR and online marketing. In terms of pitching, you may have one chance at a first impression as your ‘pitch’ will be recorded and uploaded, and may not even meet your investors face-to-face. Innis and Gunn had a successful crowdfund campaign in 2016 and have recently launched another campaign to help build a new brewery.
There has never been a better time to consider investing. Ten years ago the choices were far more limited, and who knows what the investment landscape will look like in ten years time. For example, the UK Government’s SEIS and EIS investment schemes continue to give early stage investors plenty of down-side protection.
It is a good time for a female founder to approach potential investors. BUT the proposition still needs to be sound!
The Pitch Deck
So, onto the pitch. Critically, some investors will provide a template to use, so you will need to revise your pitch to use a format they are comfortable with. But let’s assume you are invited to pitch without any documentation provided.
Pitch decks can range from short and succinct to long and detailed, and one very important point is not to use the pitch deck you would normally make to customers as investors want to see different things!
The most common pitch deck headings include:
The problem your business is solving
Roadmap (showing time to achieve milestones)
Your solution or product
Market size and potential
Route to market
Competitors and points of difference
The management team
Historical finances and projections
The ask – investment proposition
Additional areas that may also be covered include:
Purpose of company – why you set up the company
Investment and funding history
Testimonials and PR coverage
Board of directors and advisors
Ten Ways to Get Your Pitch Right
Let us consider your investment journey like a recipe for a chocolate cake. Each cake might look and feel different depending on the quality of ingredients, the amount of chocolate you use, how you mix it and the oven itself. And finding that magic extra ingredient to make it unique, whether a splash of whisky or spice. So the following themes are your ingredients for each pitch, useas much or as little as you need depending on who your audience is. Apparently, investors spend on average 3 mins 44 seconds on reading a pitch deck! So it’s a challenge.
And remember that extra special ingredient of patience will be needed! Extra chocolate anyone??
#1. Do your due diligence on them!
What’s the investor’s criteria, geographic and sector limitations, and track record? Who is in the room and do they have particular interests? Some investors focus on sector, some on stage of business life cycle, and others on differentiators such as social purpose and/ or gender. Weave this information into your pitch so they know you are talking to them not a generic investor. The Rose Review in 2019 highlighted only 13% of senior people on UK investment teams are woman, and almost half (48%) of investment teams have no women at all. Less than 1% of UK venture funding goes to all-female teams and just 4% of deals. So currently, you are more likely to be pitching to a male dominated investing organisation. So make sure you know who you are pitching to and that they are the right fit with your business and it is the right time to invest.
“At ESM Investments we receive 20 pitch decks per month and we estimate circa 10% had researched our organisation thoroughly for alignment with their own organisation. Alignment saves a great deal of time for both concerned. Investors often don’t have enough time to read through volumes of information in order to find that all important reason why they should contact the entrepreneur to make the next step. Being concise makes life easier for everyone. Oh and a warm introduction to the investor can be very helpful as a third party endorsement can be valuable. In summary, be aligned, be concise and try to be introduced if possible.” – Steven Morris, founder and Chair of ESM Investments Ltd
#2. Ensure your leadership team is aligned
They are investors not mediators. Most companies are led by more than one founder, so they will want to see that your personal motivations and growth plans fit the company’s vision. Is there a clear consensus on growth, diversification and exit? Get a trusted advisor to test all founders so you are able to confidently respond to any question.
“The challenge is keeping everyone on the same page. Investors ask questions and it can be a tortuous journey so being focused and aligned is important.” – Brian Williamson, award-winning entrepreneur
#3. Have a resilience coping strategy
No one said investment pitching would be easy. Remember all pitches give you exposure to experience. You might be lucky first time, but it’s unusual. It’s not about you! And even if the investors liked your pitch, they may not invest for other reasons such as timing, conflict with another investment they have or a feeling they won’t add any value as an investor. Make sure you don’t go into your second pitch deflated. Research by Harvard Professor Tom Eisenmann suggests companies need on average 40 investor meetings and over 12 weeks to close a round. A 2015 study of UK angel networks noted that only 30% of funding proposals went beyond the initial screening process, and overall, fewer than 3% attracted funding.
“My biggest challenge is the rejection and getting conflicting advice – go for investment now, no, wait two years etc. And if you have a social purpose its complicated. It’s ok and normal to be tired by it all, it can be very lonely.” – Avril Chester, Founder, Cancer Central
#4. Tell your story well
This is a story about you as well as your company. What are you passionate about? Why did you get involved in the company? Can you bring your product or service to life? Investors remember people and remember stories. Think also about props – your phone, a pen, a book, and weave it into the pitch. And how you tell it is as important as the ‘what’. And aim to be as authentic as possible otherwise it may come across as false even if it is polished.
“Be a compelling speaker. Practice. Know your story and how to tell it. Get the emotional connection.” – Russell Wardrop, The Pitchmaker
#5. What is the problem you are trying to solve?
How ambitious is it? And can you explain it succinctly? The pitch aims to complement your business plan that (hopefully) most investors will have read. But don’t assume they have! Use your time wisely. Too much detail might switch your audience off, too little looks lightweight.
“People fail to explain 1. What does the business do 2. What is the business model 3. Future strategy 4. What do you want.” – Atholl Duncan, investor
#6. Defensibility strategy
Who are tomorrows competitors? These are usually companies that do similar activity or an aspect of what you do, or new entrants that take advantage of your leg work. How can you protect what you do? What is stopping an established company creating the same thing to compete with you? It can be easy to be arrogant and state what you do can’t be replicated or done as well as you, but can you prove it?
“Understanding our competition is vital. We’ve spent a significant amount of time researching who’s there, how they’ve grown and pivoted, and why. Learning from this, we can confidently demonstrate our ability to compete in the marketplace with a product that’s both robust and ahead of the curve.” – Catherine Ann Reid, founder Life’s Back Up
#7. Show off but don’t be a show off!
Investors want credibility – how do you show you know your market and product? Using statistics and testimonials can demonstrate your expertise and knowledge. But humility goes a long way. If you are pitching to angel investors, do you want an active investor that can support or fill a gap in your skillset? So the pitch may also become a reverse interview. For this reason, some pitch decks will place the team near the beginning to confirm its importance, and show active investors an opportunity for their skillset. Having an active investor as a partner can be invaluable as they can mentor you, provide much needed contacts or simply offer advice. But equally if it is the wrong fit, it can create more difficulties for you in your business journey.
“We’ve been approached and offered investment, but its not right for us at the moment. It’s important to leverage investment at the right time and with the right partner.” Anne MacColl, founder, Saint Amans Gin
#8. Investor chemistry
The F factor. Females generally have higher Emotional Intelligence (EQ) than men, so use it! Engage, converse, make eye contact, smile. Recent research from Stanford suggested women had 8% greater expressions of interest when approaching venture capitalists than men. However, we also know that this does not translate into actual investment funding so the pitch is a real opportunity to secure investment. Research undertaken in 2016 into UK angel investing confirms that people factors are the dominant ‘deal killer’ so a focus on engaging with your potential investors is vital.
“People buy people not products. You can have the best concept or business in the world but if investors can’t engage with you they will shy away.” – Victoria Russell, coach and advisor
Brevity, clarity, impact. What is your style for pitching to an audience? Is it to focus on your slides, or is it a theatrical performance? How you pitch is as important as what you are pitching. Ensure your slides don’t have typos and has a suitable font size and colour for the presentation room. Are you able to let investors experience your product or service? Why rely on slides when you can let them see it.
“Investors only skim slide decks. Start bold ‘solving world famine’. End bold ‘save a billion lives by 2025’.” – Gary McAuslan, pharma advisor
#10. Communicate the future but don’t lose sight of reality.
It is easy to show graphs and numbers projecting growth, and investors want ambition, but can you justify it? Who are you benchmarking against, and what proof of demand is there. Make sure you are knowledgeable about market demand not just your capability to deliver. While financial information is often captured in later slides, research suggests it is the slide investors spend longest reading.
“Calculate the market potential carefully. Numbers can often be unrealistic and don’t stack up.” – Simone Barnett, sales advisor
The Pitch – Other Considerations
Duration – how long do you have? 3 mins, 15 mins? Are you the first presenter? Do you have a separate Q&A? Is there a visible clock or do you have someone to advise when you have a minute to go?
Projection – does your attire reflect your business? Can you position yourself so you are able to view all audience members? Are your vocals clear? Can you engage with your audience easily enough?
Slides – are you talking and clicking? Can you talk without having to stop and revert back to your slides? Are you saying verbatim what your slides say? Are you using the right visuals? Brand? Quality photographs?
Media – do you want to use a video clip? If so, this eats into your presentation time. Can you forward beforehand to those attending?
The End – how you end the pitch is as important as you begin. Don’t be afraid of The Ask.
The Questions – be prepared. Questions can vary from asking about your differentiator, your cash burn rate, your personal motivation, margins, stress test sales, bottom up projections to industry track record and exit plans.
Victoria Russell is a global consultant and coach. She has supported companies with pitch decks, pitching skills and business plans, has helped with crowdfunding preparation, and is an active member of an angel syndicate supporting members and companies, as well as investing herself. She is particularly passionate about supporting fellow female entrepreneurs. This article aims to offer an insight based on experience from herself and other investors, and does not represent the views of any investment group or intermediary.
This article was produced for participants at RBS Venturing Forward Conference, November 2019 attended by around 300 participants. Victoria facilitated the Investment Pitching session.
If you’re acquiring a service company your merger is all about people. Of course, there will be plenty of rational, financial and practical reasons, but without the support of people it’s doomed to fail.
Like all good change programmes, a brilliant communications approach will navigate the risks and be a springboard for the benefits. Tell your story well and you’ll be on the way to building a strong, connected and motivated new company. Create a new culture and you’ll reap the benefits.
Fail to connect with people and you’ll leave them anxious, unmotivated and looking for the door.
Create a strong story
People connect to stories and the trick is to make an emotional connection with all your audiences. Define a narrative your employees and customers will want to support. Make it a compelling* story that’s not just based on facts and figures.
When you’ve created your story and everyone’s bought into it, check it’s not been watered down along the way. The definition of compelling is *evoking interest, attention, or admiration in a powerfully irresistible way.
Along with your core narrative you should have a big pack of questions and answers. People will want the ‘me’ questions answered first. So plan your announcement and ongoing messages with this in mind – you can’t just talk on and on about the bright new future at the moment when people are wondering if they’ll be part of it.
Tailor messages for all stakeholders
Targeting comms for your giant stakeholder map is essential.
Who can’t you afford to lose? Whether this is customers, leaders, suppliers, partners or key influencers and publications – identify the people or groups who are critical to your business and tailor activity to them.
The more important they are to you, the more personal the activity should be. Plan a series of one to one discussions with key people to retain them for the future and so you know exactly where the risks are. Include specific plans for investors, analysts and regulators too.
Each brand will have a certain status, position and credibility in the market – treat the general public like they’re your next customer, partner or employee. Avoid speculation and negativity from detractors by setting out your story clearly and deciding when you should be proactive and reactive. Don’t forget social media and plan how you’ll manage your channels at each milestone.
Create a careful reputation matrix to tackle the announcement and ongoing conversations to maintain momentum and enthusiasm.
Playbooks for each phase
Along with the project plan for each milestone you’ll need a communications approach and plan. Your playbook should include goals, governance, roles and responsibilities and content.
Prepare for leaks – First off, in the build up to announcing a merger it’s fair to expect rumours or even a full-blown leak. Have a strategy and plan for what you’ll do based on scenarios that could come up. You should have a playbook, messages, ready to go templates and spokespeople prepared, along with what you’ll tell your customers and people and how you’ll do it. Remember if the news is, well news, to your people you’ve already lost a bit of trust because they’d expect you to have told them first. Your plan should include what you’ll do to regain their trust.
Announcement – the first time you’ll set out the vision for the future. This shouldn’t be a one-off event; people will need a bit of time to absorb what’s going on and think of what they need to know. Have a message plan that lasts at least a week.
The void – this is the bit between announcement and A day. Where the dreaded ‘in the coming weeks and months’ phrase can slide in. Don’t just stick to high level things and make it sound all glossy and superficial– face the big topics too; it’s much better to be clear that you don’t know yet and explain the activities and things that are happening. Your competitors might try and steal your customers and best people so keep listening to feedback and take action if you need to.
Day 1 – this should feel like a celebration and you’ll have a fuller vision for the future and the steps to bring the organisations together. Don’t forget the ‘me’ questions. All stakeholders will also need to know what changes and what doesn’t – from bosses to processes, be clear about what’s staying the same at this point. And make sure the celebration is mindful of the uncertainty individuals might still face.
Integration milestones – two big tasks continue throughout integration. Continuing to reinforce the culture, purpose and strategy to create the connected company. And communicating the milestone events like leadership announcements, operating model decisions and locations. It’s important these work in harmony – people will read into everything that’s happening to try and get to their own personal answer (or their own decision to look for somewhere new). Creating a complete plan, focussing on the emotion each event will create, will help to mitigate against the risk of clashing messages. This is especially important for your culture plan – where what you say and what you do needs to match closely.
Your Post Merger Integration plan
Communication and culture is just one part of a robust post merger integration plan. Merlin Consultancy has an experienced team of experts who’ll create a comprehensive plan. We’ll help you to mitigate risks, create synergies of revenue and cost as well as managing the practical compliance and business critical needs to keep your new business running smoothly.
Create a new culture
Part of the due diligence will be to check there is broadly a culture fit between the two businesses.
Your Post Merger Integration plan should include a culture programme focussing on your first 100 days, that knits together the teams and breaks down the us and them. Make sure it’s clear what the hallmarks of the new culture are in everyday life. Show how everything from recruitment to performance and from processes to leadership will live in the new world. This is likely to be a big programme of change, so set out the vision early and the steps to getting there.
Plan carefully to build culture ambassadors and include practical initiatives and projects to align ways of working.
It’s critical that the new culture is known and understood by the Exec team and senior leaders in detail. They’ll need to act consistently and model the new culture during the deal and integration. People will pay close attention to what’s said, behaviours, gestures and even who is invited to meetings. Everything will be under scrutiny. Make sure what you do and say lines up with what you’re telling people the new culture will be.
Share the new purpose and invite people to join – create an emotional connection so they’ll know it’s the place for them.
Equip your leaders
Your leaders and line managers need reasons to believe. They’re the trusted voice for your people so you should equip them to have honest and authentic conversations. Even if the answer they need to give is ‘I don’t know’, make sure they’re briefed first, they have time to absorb what’s happening, build in the story of their own team and prepare for the questions their people will have.
Making time for regular sessions with leaders – formal and informal – will build their confidence they’re involved and informed, which will translate to trust with their teams.
Share the voice
Waltzing into a new company on day one to tell them you’re the boss might not be the best approach. Leaving it weeks would be worse.
Your action plan should set out the timing, who’ll be the lead voice and who’ll speak to press and employees of each business.
Think about how the people working at the company being acquired will be feeling – anxiety and fear along with hope and possibility. The best way to connect with new teams will be to involve the leaders they already know. Create a ‘bow tie’ for who has the lead voice – starting with the leaders they know and trust introducing the new leaders over time.
This is a tricky time and you need to reassure people, but you’re not there to be a ‘friend’. You need to be consistent and not make empty promises – especially by inferring things. We’ve seen clients create a problem by suggesting its business as usual when of course integration would be everything but usual.
Involve your people
To create a shared belief, you need to involve people. Leaders are naturally fearful of getting into the nitty gritty with people whose main question is ‘Will I have a job’. Timing is really key here; you can’t wait until everyone has the answer to this question but starting too soon will be a mistake too.
Create discussions about ‘what’s great about us’ – to bring people together and share knowledge. They’ll feel good about this and it will start to build the connected company.
Involve plenty of people in shaping the new culture. Like all good change programmes, you can’t just give people the full and final script and expect them to learn it. Use different channels and content to inspire them to create their own story so they feel part of it.
Your approach should be tailored and take into account your old culture, history and future plans. We’ve found what works for one organisation would be a huge mistake for another.
Listen, listen and listen again
Open feedback mechanisms are critical – you need to know the tone and mood as well as what people want to know. Internally you should use a blend of digital surveys and face to face town halls to make sure you spot any pressure points and take action. Use or create influencer groups. Externally stay close to reaction and feedback, particularly on social media.
Use data to monitor reaction, create thresholds for action and you’ll retain more customers and employees.
The last thing you need is to know everyone is unhappy because they’ve already headed for the door.
On the other hand, some people will want to leave – their own ambitions might not match yours. The key is creating a safe place to have these conversations so you can manage any risks and you’re not locking people in.
Merlin Consultancy works with clients to offer a full range of M&A support – including cultural transformation, communications, and Post Merger Integration planning. Contact Director Victoria Russell or Associate email@example.com to talk about how we can help you.
We’ll work as your trusted partner throughout the process, providing an independent sense-check and support based on our experience. We’ll help you to shape a culture programme to accelerate the benefits and give powerful and effective results. We’ll tailor the right approach for you – as light touch as you need it to be – including regular support through workshops, coaching and other interventions.
We’ll create a communication approach with a balance of rigorous planning and creative inspiration to help you to avoid the risks and land the benefits of your merger deal.
Retain the right people and motivate them for the next stage of the journey. It’s exciting times!
While there is no substitute for great, hands-on Executive management in any business, there is an argument to say that sometimes you can just get too close, become too involved in the day-to-day and not have time, or inclination, to step back and steer the ship.
How many times, as an Executive, do you go home at the end of the week feeling totally drained, having put in too many hours, not really feeling that you have achieved much, and with some ‘homework’ to boot.
Is that your life?
Do you recognise your business?
Are you simply too involved in the day-to-day running?
If so, then ask yourself, WHY?
There have been so many occasions in my Consulting career where I have been hired to become the crutch of the exhausted Executive who is ‘living the dream’ above.
Great job, well rewarded, no work-life balance, and no real understanding why the ‘job’, with their innate, well proven ability and skills, simply takes so much of their time.
We help Executives in this situation by carrying out a short, broad but shallow Business Diagnostic to uncover the reasons why so much ‘work’ is going on beyond what is actually required to run the business. In most cases, this falls into the category of ‘Failure Demand’, where a large percentage of ‘work’ is created within the business and becomes ‘the way we do things around here’, offering no value to Clients, or Shareholders.
This usually falls into a couple of categories;
In technical ‘lean’ terms, this will come from a plethora of wastes – under the “Seven Wastes of Lean” philosophy.
However, it can also be cultural, where the ‘norm’ is to escalate ‘issues’ to the highest level in the organisation – usually the aforementioned overworked Executive – for resolution. In most cases, the root cause of this lies with the Executives themselves, as they have permitted this to take shape and, perhaps, see their role as ‘Master Fire Fighter’ with the skills, experience and aptitude to resolve anything that is escalated in their direction.
As long as that continues, be prepared to give up your weekends until your frustrations reach a level when you have simply had enough. Alternatively, take time, step back, get some help and understand WHY you are working so many hours and then put a plan in place to stop that ‘hamster wheel’.
A Business Diagnostic will highlight, in a very short period, the root causes of your 7 day weeks, develop a solution and help drive your business towards a more process managed, higher skilled, less costly environment that perhaps will offer you the time to determine strategic direction: the things you should be doing as opposed to fixing problems.
Our Diagnostic approach provides independent, trusted resources that will partner with you, share knowledge and offer practical insights to your business needs. We utilise experienced project team members to work on-site, where we can shadow and work with you and your teams’ so they are engaged and involved in the process. Our Diagnostic Report is detailed, underpinned by data, and uses internal and external best practice, identifying non-value costs, realistic cost efficiencies, business improvements including customer satisfaction and an organisation structure that is fit for purpose.
In a recent Diagnostic exercise with a well-known, international business services provider our Diagnostic Report identified a benefit-to-cost ratio of 14:1. This is an investment that can help you take control of the increasing frustrations that you are facing as an Executive.
If you would like to understand in more detail the benefits of a Business Diagnostic, we would be delighted to organise a presentation or video conference to talk through a case study with you and your Executive Team – please contact us directly by email.
Profitability is the key to driving a successful business, and how you do this will undoubtedly make or break many a CFO, with many sleepless nights trying to unlock the secrets to this success. Unless you are an NFP (Not for Profit) business you get up in the morning, get dressed, and off to work to play your part in driving success and delivering sustainable profits. And so, the cycle continues …
However, this cycle can easily become broken via a large variety of means, for example; new competitors, threats from competitor product innovation, customer migration, poor quality product manufacture, reputational risk and customer dissatisfaction, macro environmental impacts i.e. have you heard of Brexit?
As a Director and CFO of Merlin Consultancy (Global) Ltd I would like to provide you with insight and tools ‘as your extra pair of safe hands.’ These blogs will provide you with ideas and thought inducing opportunities for how a CFO can play their part to risk mitigate the aforementioned cycles. However, the focus today is on cost control and specifically overhead management within your company.
From our experience the curse of overheads in any business can generally follow a life cycle which trends the following six stages;
High overhead to sales ratios in the initial year of start up
Overhead focus and maximizing returns post start up
Sales focus takes priority as the business matures, and the business tackles opportunities and threats
Leaving overheads to their own devices to accumulate and spread like a disease across the company
Sales start to plateau and the business settles into a planned trajectory.
Immediate realisation that overheads are too high, out of control, or that Macro threats mean that you need to cut your cloth accordingly and all aspects of the business addressed
This may resonate with CFO’s who have often grappled with fellow execs over wage constraints, marketing budgets, premises decisions, travel & entertainment levels, procurement decisions etc, which have seen all of these, and more, increase to unsustainable levels or to levels that are completely out of cinq with sales volume and business activity.
Fast forward to 2019 and it’s time to cut the clutter and spread of the overhead disease and drive them back down to a level commensurate with business activity and to a cost which beats your sector competitors and gives you that competitive edge again. I know that many CFO’s are still grappling with ongoing regulatory environment demands, planning for/assessing Brexit, and trying to deal with a myriad of other challenges. I know, because we are actively helping clients with these very demands too.
I’ve used and can recommend various tools and methodologies which are available to help get more control on overheads and understanding their absorption across your business. Many of my clients have adopted these with fantastic results, so for starters;
Understanding your cost base and driving down overheads
Good discipline is needed across the following;
Engagement and Communication of the company’s priorities: When everything is a priority, nothing is a priority. Communicating and driving from the top down the need to control overheads is a great starter for ten. However, this needs careful thought around the messaging and delivery, and attention to tracking how this is embraced across your fellow C-Suite and senior management.
Clear definitions of success: Everyone in the company may agree that “delivery of a 5% reduction in overheads” may be the goal but differ on what exactly constitutes success. KPI’s and metrics which underpin the delivery are just as important as the £ reduction itself. The KPI’s will also help you track and maintain the hard-won rewards and keep the menace that is ‘creeping overhead disease’ from returning too soon.
Motivation: Most people are driven by finding purpose in their work and a desire to succeed. A small team who own the communication and KPIs for your overhead reduction programme will provide clear and constant feedback on progress towards the goals and help enable everyone in your company and culture to play their part in the immediate success, the rewards, and ongoing war against overheads.
Activity Based Management (ABM): You need to quickly establish what exactly is driving your cost base and particularly your overhead consumption. A simple yet effective ABC/M model can get to the nub of the key issues quickly with typically a 70%+ confidence level. Having implemented and delivered many of these, my advice is not to expend huge efforts of time and money on bespoke Activity systems (unless already in place within your organization) at this stage. A prototype model can be built within MS Excel or similar – build time totally dependent on data availability and buy-in from your C-Suite peers. Don’t aim too high at this stage, 70%+ accuracy is more than enough to provide pointers to what parts of your business are driving the costs and overheads. Engage a third party to lead and drive this work as it’s critical that the business see the output as being independent as this will provide you an immediate ‘antibiotic’ with a step-up achieving buy-in and confidence.
Chart of Accounts (COA) / Trial Balance: ‘What’s not seen is not heard………’ – this truism is all too prevalent in business these days. Standard cost centre reporting often rolls up data from your COA’s and for reporting on a page reasons the ‘devil in the detail’ is hidden. Lines of overhead as reported at nominal level in your trial balance can go unmissed as they are rolled up into Management Reporting line items which often hide adverse variances and deep-rooted problems. As the saying goes, “What gets measured and reported gets managed.” The commitment of the company to elevating certain nominal codes and reviewing these means that nothing is left to chance and you can achieve that extra ‘stretch’ to attack those overheads.
Use a set of SMART metrics: (will delve into these in more detail in my next blog) and link these to overhead controlling KPI’s which are simple for your peers to understand and buy-into, yet effective and easy to maintain and report on.
Engage an independent firm to undertake a simple and cost-effective Business Diagnostic (BD): a further blog on these, which considers your whole value chain, not just costs/overheads to be issued. From my experience of implementing/delivering BD’s these will more than pay for themselves several times over from the insightful management information (MI) you will receive and bottom-line improvements in a very short time period.
Characteristics of Successful Cost/Overhead Management Programmes
The scope of the programme MUST be clear and everyone needs to fully understand what the programme is going to achieve, including their input and commitment requirement. It’s not motivational if it’s unclear, then it’s not even useful and will certainly fail before you even get off the starting blocks. Engage a 3rd party firm to take the time and effort away and let the CFO focus on other priorities.
Leads to Action
Everyone needs to know how their actions, whether individually or as teams can help the company meet the objective of fighting the overhead disease. As a driver of the activity levers each and every C-Suite member has an impact on how quickly, and from where, the overhead disease can spread. Informing C-suite of how these levers work and their degree of impact will lead to action and acknowledgement of the problem. – this is a good place to be.
I have seen so many such programmes fail because they tried to be too complex and methodological. ‘KEEP THEM SIMPLE’ is my mantra and best advice. Yes, downstream, once the business is wholly on the same page then you can start to incorporate the shiny suits, the designer clothes, the salon haircuts, but please keep it simple to begin with. As soon as you start building in complexity then fellow C-Suites will lose interest and think it’s, ‘just another finance fad thing.’
Communicate, communicate, communicate is so important throughout all stages of the programme lifecycle. Regular working groups from across the C-suite, and C-Suite updates are essential to winning your war on overheads.
But that’s just the start.
Then it’s time to communicate throughout the company and set up monitoring systems.
Are You Ready to Win the fight with Overheads and prevent the disease from spreading?
You know how to manage your day to day operations and are undoubtedly mired in a plethora of other priorities. We are here to help and be ‘your extra pair of safe hands’ so please ‘click here’ if you would like to bring in the wizards from Merlin to win your war on costs and overheads.
I’ve been working with a client on their PSD2 / Open Banking project for over a year now as a Fraud SME, and despite the recent announcement by the FCA delaying enforcement of the regulation, things will undoubtedly improve in a couple of ways following implementation;
Reduced online fraud
Increased competition through sharing of bank data, given the low levels of current account switching.
What has left me more intrigued however is how it will be embraced by the general public?
Having all your accounts with different providers in one place isn’t a new concept, and the extra layer of security that Open Banking will provide will get a few more people on board, but what will be the watershed use for Open Banking? What will be the Killer App?
Below are some thoughts on a potential future but please feel free to agree or disagree and engage with this post.
There are good use cases for age verification and affordability assessment, but compliance tends to be imposed onto a business rather than embraced by them.
To consider the future for Open Banking first consider how you save the consumer money. The rise of aggregators such as Moneysupermarket demonstrates the appetite from customers to change providers to save money. From my experience, I tend to receive weekly emails from them with top 10 offers followed by increased activity around known renewal dates and preapproved/ high chance of being accepted offers. These all rely on the customer realising they are paying to much and acting accordingly, and people do it in their droves.
Now imagine you could outsource all of that by letting someone else interrogate your data? Savings rates you’re getting compared to best in the market. Changes in payment amounts on credit cards showing your promo rate has just finished. Knowing insurance payment data. Bring all this together and you could get marketing from these companies which will be specific to how much they can save you, guaranteed. From a GDPR perspective Open Banking will need to convince both us, and the authorities that personal data is being managed and protected appropriately, with increased protections versus the current being a game changer for many.
Great for consumers, but what will that mean for the providers?
Some will bury their heads in the sand, pat their acquisition teams on the back as they see their market share soar via competitive advantage, but at what cost? Customer behaviour will undoubtably change suggesting those accounts will be less profitable than forecast, in all likelihood being unprofitable. This will mean a contraction of the market in terms of teaser rates and potentially a reduction in switching due to price. So where might we end up? More aligned deals for new and existing customers? More of a focus on customer experience to retain business? We’ll soon see.
Andy Brock is an Associate with Merlin Consultancy with over 15 years experience of retail banking experience, with particular specialism in fraud.
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