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Business Management

Business owners must be up to the challenges they alone must face.

by Patricia M. Johnson and Richard F. Outcalt

The future of retailing -- it's got to be super, right? The economy is buoyant, consumer confidence is strong and expectations for retail businesses are going up! Business Week magazine proclaims: "The data paint the most vibrant picture of consumer fundamentals in not just years, but in decades." Here are just some of the factors fueling this euphoria: •The strongest labor market since the 1970s. •Low inflation boosts buying power. •Low interest rates boosts borrowing. •Stock market gains increase wealth -- and borrowing power -- of many households. •Home and car sales are up sharply. What happens in an environment like this? Everyone expects to do better! Vendors expect higher sales (at higher margins!). Landlords expect higher rents. Employees expect higher wages. Customers expect better prices and better service. And your family expects better vacations! Who is expected to make sure all of these prospects are met? That's right, the owner! And the pressure is on, big time. So how is your business, really? Mediocre at best? You are not alone. Independent retailers are swamped with competition, are watching margins slip while costs rise and, generally, are scared. For many, it just isn't fun anymore. Given the realities of today's retailing, and the exorbitant expectations of 1998, are business owners up to it? It's More Than an Adventure, It's a Job! Winston Churchill once said, "Some are born great. Some achieve greatness. And some have greatness thrust upon them." So it is with business ownership. Some are born to it; some achieve it; others have it thrust upon them. Whatever their route to ownership, few owners recognize or appreciate that being the owner is its own job separate and distinct from any other job in retail. Within every retail business -- no matter its size -- there are three levels of issues, or responsibilities, and each has its own unique demands. These three levels are the Owner Level, the President Level and the Management Level. In far too many businesses, these three levels of issues are entangled and overlapping. And, just as often, the word owner is used interchangeably with boss, or president or manager. This confusion is understandable. At least 85 percent of all retail presidents/general managers in the United States also are the owners. In our professional opinion, it is absolutely essential to separate the three levels of issues in order to start doing the owner's job! Working in the business -- as president, manager or sales associate -- can be delegated; working on the business is something only the owner can do. Every retail business must have its own strategic vision, and only the owner can choose that vision. Thus, we have developed the Owner(s) Job Description[TM]. The Owner Level of Responsibilities The No. 1 responsibility of the owner is the survival of the business. It's not so much the day-to-day survival, but the long-term survival -- three years, five years, 10 years and more. Here's a key: The owner must know the answer to the "Why?" question. Why should the business survive? To answer it, the owner must have a vision for the company's future. •To be the biggest, the most dominant in its market. •To be the fastest growing. •To be a way of life for the owner, a place to go, something to do. •To survive in order to be handed off to the next generation. •To create personal wealth. •To support a larger cause. •To be sold. •To be a great place to work. The answer is not the same for every company, and there's no right answer. Moreover, for each business and its owner the answer changes over time. The owner's responsibility is to address this question, gain consensus if there are multiple owners and effectively communicate the answer to "Why survive?" throughout the business. This answer is the foundation of all strategic business decisions -- until the answer changes. The next responsibility for owners is to sharpen the company's competitive edge. Ask yourself: If this business disappeared today, would any of our customers really care? If you hesitate at all in your response, it is time to reinvent your competitive edge. Once again, there is not just one right competitive edge that works for every business. Your competitive edge must be whatever matters the most to your best customers. Another major responsibility of the owner is to manage the balance sheet. Doing this involves the owner's appetite for risk. What debt-to-worth ratio should be targeted? How rapidly should assets grow? How leveraged should the business be? How liquid should the business be? Only the owner knows what balance sheet will allow peace of mind and a good night's sleep. But he must design it so that he and the staff can achieve it! If there isn't a plan, as the old adage goes, any road will get you there. In addition, owners must manage all three kinds of assets in the business: •Balance sheet assets (i.e. inventory, furniture and fixtures, leasehold improvements, etc.); •Other tangible assets (i.e., customer databases, key employees, locations, etc.); •Intangible assets (i.e., the vision of the owner, company reputation, company culture, key vendor relationships, etc.) The President Level The president level is the "pickle in the middle" between ownership on the one hand and management on the other. The president is responsible for answering the "What?" question. What will be done in order to accomplish the goals of the owner? The owner already has answered "Why survive?" The president now must devise the strategic business plan to achieve that goal. This demands energy, creativity, leadership and a clear understanding of the owners' goals. The owner's vision provides the framework for all of the president's strategic business choices. The Management Level The third major level of issues or responsibilities in a business is the management level. This is the day-in, day-out operational level we are most familiar with. Here, the major question is not "Why?" (the owners have answered that), nor is the question "What?" (the president has set that strategic direction). At the management level, the major responsibility is answering the "How?" question. How do we accomplish the results we're looking for? The management level is responsible for the income statement, managing sales, margins, expenses, profits and people. Frankly, this level is where most owners find their own comfort levels. The time spent on these responsibilities is often at the expense of fulfilling the owner-only responsibilities. If you must wear several hats within your business (i.e., owner and president and manager), here's our rule of thumb: Put on your owner's hat at least once a month. Set aside a particular time (the first Tuesday morning of every month, say) to evaluate your key balance sheet ratios to assure that they ALIGN with your vision for the future and that your vision is well communicated. President level issues must be specifically addressed at least once a week: cash flows, updating your pro forma financial statements, analyzing your sales results, reviewing your open-to-buy option, etc. And, of course, management level issues must be addressed every day. What Does This Mean in 1998? Remember where we started? All the experts say 1998 will be a gangbuster year. It is a whole new way of thinking about the future. How high is up? Retail owners are in a goldfish bowl. They must lead by example. Whether they have been aware of it or not, how they treat the job aspects of ownership radiates to employees, customers, their own family, suppliers, bankers, the community and all other constituencies. The pressure is on. The retail success stories of 1998 will be written by those companies with the best owners. Especially in these supposedly good economic times, the challenge is to rededicate yourself to being the best owner you can be. Your constituencies -- family, employees, customers, suppliers, etc. -- deserve it.   Owner(s) Job Description Job Title: Owner Major Responsibility: Each fiscal year, to enable the president and management team to prepare the annual business plan, the owner must develop and communicate conclusions in the following six areas of accountability. These must be answered only by the ownership; this responsibility cannot be delegated. •Citizenship. What is appropriate in your community? What is expected? What level of visibility and activity best represents the company and its customers? Company citizenship is today's imperative for company growth. Don't underestimate it. •Why Survive? To be the biggest? To provide a way of life? To return something to the community? To pass something on to the children? To have something to sell? To increase the owner's personal wealth? Other reasons? The owner must choose -- and convey -- the answer. •Competitive Edge. If you have one (industry's most knowledgeable staff, unique merchandise, great location, lowest prices, etc.) you must flaunt it. If you used to have one, you must find a new one. •(Total) Asset Management. Balance sheet management, target ratios and non-balance sheet assets: key employees, reputation, customer loyalty, etc. •Growth Choice. Which risks are appropriate? How much risk? When? Grown with which market? How, or how not, to grow? •Constituencies. How should the company be represented to and perceived by: Employees and their families? Suppliers? Lenders? Customer? Competitors? Other stockholders? How would they rate the company on issues such as fairness, civic responsibility, a good place to work, growing better of just bigger, being fiscally prudent and customer-focus? ©1998. Outcalt & Johnson: Retail Strategists, LLC. Seattle, WA. Considered among the foremost authorities on strategic retailing, Patricia M. Johnson and Richard F. Outcalt, Outcalt & Johnson: Retail Strategists LLC, provide services to retail owners/presidents throughout North America. They are acclaimed speakers, writers and consultants addressing issues of change in retailing. They can be reached via e-mail at OUTCLTJNSN@aol.com.