The DangerZone - Mark Derr

THE DANGER ZONE

Presentation toJackson White P.C.

Mark Derr, PartnerB2B CFO®

May 18, 2012

What Is B2B CFO® ?

Established: Founded in 1987

National : 200+ Partners in 44 states, 6,400+ years of experience

Focused: Privately-held companies with sales up to $75M

We are Specialists In:

Banking and Lending Relationships

Profit Improvement

Financial and Strategic Planning

Cash Flow Projections

Working Capital Improvement

Gross Profit Optimization

Expense Reduction

Timely & Accurate Financial Statements

Increased Sales

Exit Strategies

Some B2B CFO® Publications

Who Am I?

• 35 years in finance, operations, business development, strategic planning and information technology

• CFO, VP Finance and Administration• $250M+ businesses as well as small businesses

under $1M• BS and MBA (Drexel University, Philadelphia)• As a B2B CFO ® Partner, I help companies achieve

a higher level of success using our proven six stage process - The GamePlan™

What is it? How to Avoid it.

THE DANGER ZONE

Hidden Organization Chart

Source: The Danger Zone by Jerry L. Mills, ©2011, p. 18

Characteristics of Finders

• Creative, innovator, visionary, dreamer• Idea generator• Risk taker• Act quickly• Catalyst for change• Confident in their convictions• Relationship creator/builder, especially with

customers

Characteristics of Minders

• Deep expertise in one area: Finance, HR, IT, Marketing, etc.

• Like structure and process• More risk averse than Finders• Like to follow Finders who are good leaders• Relationships are primarily with suppliers

Characteristics of Grinders

• Focused on the task at hand• Do not like to delegate• Like doing one thing at a time• Distrust Finders and Minders• Will do as instructed, but rarely generate new

ideas

Who’s Who

• Finders: Entrepreneurs, Business Owners• Minders: CFO, VP of HR, CIO, VP of

Marketing• Grinders: Workers, Salespeople, Recruiters

Some individuals may have a mix of characteristics

Timeframes

• Finders: 2 years from now• Minders: Next month, last month• Grinders: Today

Stages of Business Growth


What is “Infrastructure”

• Employees• Vendors• Subcontractors• IT systems• Operating procedures• Machinery• Buildings/office space

• Contracts• Policies• Websites• Advertising• Bankers• Accountants• Attorneys• Consultants

B2B CFO® Truism

Most Finders do not spend a lot of time methodically planning their business infrastructure


Infrastructure Creation Stage


The Finder’s Activities During Early Days of the Business

• Obtaining financing for working capital• Refining products and services• Ensuring quality delivery• Spending time with current customers• Finding new customers• Giving direction on the fly to the Minders and

Grinders• Working long hours, but enjoying it

Infrastructure Peak Stage


Business is Booming

• The Honeymoon Period continues• Plenty of cash• Can give a false sense of security about the

company’s future

Characteristics of the First Two Stages

High customer service

Short cash collection cycles

Few customer complaints

Low overhead

Personal sacrifice by the Founder

During Infrastructure Creation and Infrastructure Peak

Company runs “lean and mean”

The Finder’s Perspective Shifts

“Maybe I should raise employee

pay”

“We need more people so we can

take time off”

“We need a better building”

“I need a new car/house/vacation…”

“We should buy more equipment or

inventory”

The result of running lean is......

1. Burn-out – of owner and employees – who have been doing the 100-yard dash for 100 miles

2. ‘Extra’ cash leads to thoughts like:

What Happens to the Finder?

• Realizes that the current infrastructure is too thin to support a larger company

• Focuses on infrastructure investment needed, BUT…– Less thought is given to the needs of customers– More thought is given to the needs of the company– More resources begin to be spent on things that do not

lead to increased sales and better customer service– Finder spends less time Finding

The Finder Becomes a Minder and Grinder


Infrastructure Outgrowth Phase


Consequences of Inadequate Infrastructure

• Customers – complaints increase, customers dispute charges, time spent on customer problems rather than customers sales

• Productivity – quality decreases, inaccurate information, more meetings, equipment downtime

• Employees – higher turnover, increased theft of time, money and inventory

• Cash – receivables increases, increased dead inventory, owner lends money to cover overhead

• Vendors – delay deliveries, relationships decline, time is spent finding new vendors

• Overhead – legal fees increase, government fines increase

• Lenders – complaints about delays, accuracy of accounting information, borrowing costs increase

Remember…

Most Finders do not spend a lot of time methodically planning their business infrastructure


Who’s Doing the Finding?

Someone is spending time with your current and future customers.

If not you, it will be your competition.


Result? The Danger Zone

The Danger Zone is created when the cash needs of your business far exceed the cash available to meet those needs

Finder’s Activities During Infrastructure Outgrowth and Danger Zone Stages

• Endless meetings with staff, bankers and lenders, attorneys, accountants...

• Analyzing cash flow• Deciding which bills can be paid• Hiring or firing staff• Writing checks

But …

• The Finder hates these activities

• Minding is typically not the Finder’s skill set – no good at it

• Finder needs complementary skills that can handle the Minding and Grinding…

• …So the Finder can get back to Finding!

Consequences of The Danger Zone for the Finder

• Loss of current and future customers• Damaged business relationships• Damaged relationships with family members

and friends• Less enthusiasm for the company• Death of the Finder’s dreams• Death of the company

The Danger Zone

How to Avoid it

The Finder Must Return to Finding!

Stop trying to solve all the problems personally

Rely on others for Minding

Refocus on finding new customers

Refocus on product and market factors


When The Business is Small

• The all-purpose Office Manager, or your cousin, may be good enough…

• …But the company’s needs will likely outstrip their abilities as the business grows

Target Skills Mix Across the Management Team

• Understanding the market and thinking strategically and long-term

• Creating great products and services• Finding, retaining, and growing customers• Managing financial performance• Finding, motivating, and retaining talented

staff• Managing risk

Look for Minders with these Characteristics

• Good at tactical and operational planning (based on strategic goals set by the Finder)

• Have the experience you’ll need 2-3 years from now, not just today– Consider adding part-time supervisory/mentoring from experts to

help them

• Have the discipline to write down processes and procedures• Hire people you’ll feel comfortable giving authority, not

just responsibility– You’ll also need to give them sufficient money to build the

infrastructure needed for growth

Educate and Monitor Your Minders

• Make sure they understand “the business” (i.e., product/service delivery)

• Articulate your goals and dreams to them• Set clear priorities, and communicate when

they change• Make sure your Minders do what you’ve asked

them– If not, fire them and replace with better people

Efficient Business Monitoring for Finders

• Determine Key Performance Indicators (KPIs)– Examples: sales, inventory changes, employee turnover,

staff utilization, cash balances• Have daily, weekly, monthly dashboards

– Color-coded for easy scanning• Attend periodic business reviews, run by the

Minders and key operational managers• Get clean and timely financial statements• #1 Rule for all growing businesses: CASH IS

KING

Prescription for Escaping The Danger Zone

• Let the Finders find the sales

• Let the Minders find the cash

Questions? Comments?

Mark Derr, Partner, B2B CFO®

e-mail: [email protected]: 480.570.9329website: www.markderrcfo.com

The DangerZone - Mark Derr

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Transcript of The DangerZone - Mark Derr