10 Considerations for Business Transformation

On a panel at a recent business seminar, and we discussed how painful it is to transform a small business whose revenue is less than $30m each year. There are many reasons for this: business owners need to be engrossed with running the business and may not have the headspace to review the current state, let alone think forward strategically. Then there is concern of skill and experience: where do we start, how do we start, when do we say 'that's enough' and call it off?

So here are 10 tips on how we may be able to do this efficiently. This isn't an exhaustive list but it can serve as a base to start thinking about this process that could help us innovate a new venture that could spark a whole new trajectory for our business, especially when we have be grinding for some time and not making enough progress.

1. Know the WHY

"Are we transforming our business to GROW, or are we doing it to LIVE?"

This is important as it defines the roadmap for any attempt to transform a business. For example, if we are transforming to Grow a business, then it precludes that the business is already generating healthy cashflow and profits and the owners wish to grow it further, to make more, possibly from new markets or offering new services to the current markets. In this instance, they may need to review the vision of the company and examine if they have the resources to extend and diversify, or if they need to raise funds to convince external investors with a growth story that could lead to a sizeable exit in the foreseeable future.

But if the business is not healthy financially, or revenue has been flat or is declining, and the founders see a real possibility for trouble on the horizon, then they probably need to transform the business to survive, to live. This is liken to an emergency ward, where doctors work on a patient to change things rapidly in order to save that patient. For a company, it may call for an honest audit of how its different businesses have been operating and looking to trim some while expand others. Steve Jobs did this with Apple when he returned after being ousted by the board some years earlier -- he discovered that the company he co-founded was making too many peripheral products that dragged Apple and decided to terminate several product lines to focus on what really mattered to Apple. He double-downed on creating the ecosystem and on the design of computers, launching the iMac, and later on, the iPhone, which would change the way we use mobile devices. So what appeared as a transformation to live transformed an enterprise in dire circumstances into the leading player in the industry and one of the most valuable companies in the world.

2. Look for PAIN

I suck at looking into crystal balls to predict new opportunities based on current trends. So when I was asked to do so recently to find growth opportunities, I couldn't, but offered another way to look for opportunities to innovate a business --- I look for Pain.

I try to find areas in the daily lives of people or companies where they experience the most pain. It could be a specific set of tasks that they need to do in order to get on with the job to be done, or it could be the trouble to go find someone to help with something to be done. Then I will spend some time reflecting on the situation to assess if this is something that is tolerable (meaning that the people experiencing this inconvenience is fine with it) or if they are prepared to pay for a service or a product to reduce this pain in doing their work.

The greater the pain, the bigger the opportunity.

3. Dig deep to find promising HIDDEN ASSETS

We have more than we know. And many of these resources are bankable.

Through my conversations with founders and business owners, I am convinced that many businesses, especially those in non-scalable, traditional, 'boring' businesses, may have assets that the owners have overlooked. With a bit of imagination and some creativity, we could repackage these assets and offer them in a different way, creating something that is audaciously desirable.

If we think about it, many successful businesses are born out of a iteration of a traditional asset, be it a car (think Uber), a house (think AirBnB) or even a shaver (think Dollar Shave Club). It is quite possible that the next big thing could come from a boring, non-scalable asset that a business owner has written off.

But here's the thing: it's really hard to do it alone. And we should never expect business owners to be able to this by themselves. This is because they are too engrossed in the daily running of the business, from cashflow, to deal flow and pipeline, to morale, shareholder relations, compliance; it's a never ending list of tasks to be concerned about. Business owners won't have the headspace to reflect adequately and look for hidden gems in their backyard.

The other problem is baggage: business owners who have tried different ways to grow or pivot their businesses may now be tired, and they may look at their businesses through tainted lens. Sometimes, they need someone from the outside, with no baggage to help them sieve through the clutter and find those assets that they can use to develop new offerings that could help them springboard back into the game.

4. Don't be afraid of big companies

Big companies don't necessary want to compete directly with you, but they do want to 'eat you up' or acquire you if you have something that they deem too laborious to do. Daniel Pinto, the COO of JP Morgan, the biggest bank in the world, in an interview by the Straits Times, sums it up on JP Morgan's strategy to invest in and acquire fintech companies that directly competes with the bank:

"Such things would take a lot of time to develop, so it's more effective to do them through acquisitions."

Big companies may also take a long time to decide on any new venture. A startup or a new venture in a much smaller company is different --- founders and business owners can jump and act on an opportunity, then iterate quickly until they get it right. This initial traction is crucial and can take a big player a much longer time to gain.

There is another aspect to facing big companies in the market: Some years back, I was invited to the THINK BIG Leadership seminar by The Business Times and Canon, where I shared my thoughts on how we could compete with giants in the industry. And my take was: don't compete; complement. I shared that small companies could stop thinking of themselves as competitors but could consider themselves as synergistic partners to bigger organisations. To do this, it is important to choose our battleground and not infringe on the core business of these players but to find gaps in their businesses that could be addressed by our solutions. In other words, we are indirectly solving the painpoint of bigger companies by delivering a better service to the same customer, and we could do so by partnering these companies to reach these customers.

Here's the caveat: if your solution is easily copied, and you haven't had much traction to begin with, then you cannot expect bigger players to just dish out a partnership proposal because it would probably cost them much less to get to where you are than to share the spoils with you through a collaboration.

5. Design an ADO in this new venture

"Make something people want" --- this is the motto of Y Combinator, that has nurtured phenomenal startups like AirBnB and DropBox.

But that's easier said than done. What should the product/service be able to do for the customer and what sort of behaviour about our product from the customer would convince us that that we have actually made something people want?

In my book, 📘The Fast Founder📙, I described how, by designing an Audaciously Desirable Offering, or ADO, we may be able to offer something that people would rush to pay us for it. To design such an ADO, we need to be obsessed with solving the problems for the Customer. And to do that, we need to first know what those problems are and whether the Customer wants them solved in the first place or is perfectly fine tolerating the inconveniences.

One way to know: Watch Them Carefully and see if our business has assets that we can deploy differently to help solve these problems.

Another way: always look at the data (when things seem to fail) and find the silver lining within - maybe this offering doesn't fit this Customer, but there is no guarantee that it may not be a blockbuster service for another Customer, in another place, to solve another problem.

6. Find the right revenue model

The same dollar earned is valued differently by investors and potential acquirers, and for good reasons. Even if the business owner does not ever intend to sell his/her business, it still makes sense to know a little about the differing value weightage that professionals ascribe to a business.

Generally, businesses or offerings that generate recurring revenue are more valuable than those that do not.

So where possible, try to frame a business offering that would make customers want to pay us on a regular basis such as monthly or annual payments. Recurring revenue streams offer several advantages for the company, here are three benefits:

• they make the revenue of the company predictable, enabling its leadership to make investment decisions with greater clarity;

• they enable steady cashflow for the company and because they are predictable, the company could adjust its cost base to facilitate a gradual build up of cash that it can use for other purposes

• if a business is based on one-off sale to its customers, then it is likely valued based on a multiple of its net profit. But if the business is based on a recurring revenue model, this multiple could be much higher and in some cases, the valuer may even be prepared to value the business based on its recurring revenue. This is very important when the company wishes to raise money from external investors since the higher its valuation, the less its owners need to dilute their share of the company with each round of investment.

7. Scale and Tech don't always fit, at least in the beginning

I shared in the earlier points that if we can offer an solution that solves a problem in a matter than few think is possible, we could be one on an ADO to remove a Pain that people really want to be done with. Then there is a revenue models that tend to be valued higher for the same dollar made. And so the natural tendency is for the business owner and consultants to recommend infusing technology to automate tasks since this should reduce operating costs in the long run and increase profits.

But this shouldn't be the case when we are early in the process.

"Do things that don't scale", is a common advice given to startup founders at Y Combinator. This means spending time with the customers, getting to know what really matters to them, then distilling it down to where the most pain is found. This is not scalable and no tech can do this for us. We have to do it ourselves. So don't be too eager to jump the gun.

8. Expect to fail at first launch

"If things work spectacularly the first time we launch, we should be worried"

I told this to an entrepreneur recently. It is ironic I know -- we are in business because we want to make money and the way to do so is to expect great sales with every product or service we launch. So why should we expect to fail at first launch?

To be clear, when I say 'failure', I don't mean a colossal failure where no one buys from us.

No.

Failure here refers to having not enough customers to suggest that we may be on to something that our target market truly desires, but we may still be generating enough income to cover part of our expenses. In the end, we still lose money and things don't see to get better.

I learned this when I was running one of my startups: we were not the first in the market and were hoping to better our competitors by doing a better job, delivering a better service, but fundamentally, we were offering the same thing, just better. So we made some money, but not enough. And we were grinding along. But as we began to look closely at our customers' behaviour, we gained insights on what really mattered to them, and then it hit us -- we could offer another service targeting at the same customers and shift the competition. So we did that, and we launched an ADO, after a series of lukewarm launches that preceded it. And the revenue grew by more than 10x in the following year.

So unless we have such an intimate understanding of our customer and are expert practitioners of the art customer painpoint identification and solutioning, we should expect to fail the first time we launch an offering to the target customer.We may have one lucky break with the first product we launch and we gain some precious resources like a customer base, funds etc. Some successful companies start off like this. But don't expect such successes to happen everytime we launch a new product. We need to be relentless in getting to know the customer and why there aren't enough of them buying our product, then reiterate, redesign and even pivot our offering if we need to, until we get to the outcomes we desire.

Failure at first launch gives us the opportunity to study our target customers, and if we look hard enough, we could find valuable insights pave the way for an ADO.

9. Don't be eager to Build and Find ways to subsidise the process

We shouldn't be spending precious dollars to build something without first establishing a Profitable Use Case for Adoption by the target customers.

Yet, without something to go to market with, how do we even go about convincing our target customers about the offering we provide?

Beg, Borrow, Deal --- in the early stages of any innovation process, we should be actively looking out for like-minded partners who may have assets that we can trade with, borrow from or (if we have enough goodwill) ask to get for free. This allows us to quickly launch a operating concept that can generate revenue from target customers as they start to use our offering. To be clear, the 'assets' that I am referring to here are more than tech or fixed assets but should include network, community funnels, competencies etc.

Because we should expect to iterate the offering several times and shouldn't expect to succeed at first launch, the process can be very expensive. So when someone asked me recently if we should rely on government grants for business transformation activities. My short answer: if the basis for transformation is right and someone is willing to bankroll if for us, then TAKE THE MONEY. The key word here is 'basis'. Do we know why we are doing this in the first place? We should never depend on grants as a source of revenue. But if these grants could defray our costs substantially, then there is no shame to take them, take as much as you can find!

10. Set a deadline

Regardless of our intent when we started our business and the motivations that keep us up at night thinking about it, we should always be concerned with when we will need to seriously review what we have done and be prepared to call it a day and start all over if we have to. The years can pass really quickly and if we don't set a deadline for this new track of the business, we could be in the grind for the next 5, 10, or 20 years, and before long, we may feel too tired to start all over. It is a real pity when this happens since as entrepreneurs, we have an optimism quite unlike any other and we should never let that flame dim. So how long should we allow ourselves to do this? My recommendation is slightly longer than 3 years or 36 months. During this time, we need to test our hypotheses relentlessly, redesign, reframe or even pivot to find that sweet spot that could suggest we may be on to solving a problem that people are enthusiastic to pay us for.

I have expanded on some of these ideas with additional insights and examples in my book, 📘 The Fast Founder: from Startup to Exit in 36 Months 📙.

Some people call this process: business transformation. Personally I don't like the word 'transformation' as it doesn't tell me what and why we want to transform our business in the first place. I prefer the term 'Venture Innovation', which is about innovating something out of the current business and in the process, taking a hard and honest look at our business to see if there is potential for a breakthrough.

Sometimes, all it takes is a change of lens and the vantage point from which we look at the same business we have been running all these years.

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I am a venture innovator at Recast Ventures who helps entrepreneurs scale for exit. I wrote the book 📘📙The Fast Founder: from Startup to Exit in 36 Months 📕📗, that made AmazonSG’s #1 Bestseller (Small Business) in 2 weeks and Kinokuniya Bestseller in 5 weeks.