Entrepid

Here’s a tool I use (Leapfrog Spreadsheet) with some of my clients who need to manage for breakeven cash flow on a monthly basis. I call it cash flow leapfrog because it demonstrates the link between revenue when booked and cash when it comes in the door. This tool works best when a company has a relatively level cash disbursement profile and revenue is recognized in irregular chunks. If you want to play along at home, open up the file and follow along.

• For the current month and subsequent months put in your customer name and the amount of committed (or booked) revenue in the appropriate month. This should be only revenue that you are sure of - you have a signed contract, it’s a multi-month project or you have some other assurance that the activity will take place.
• For each item above, put the amount of cash collection in the month you are sure to collect. Sometimes this will be in the next month, sometimes in the second following month. Doing this will highlight customers that are good targets for efforts in speeding up collections.
• In the middle section put those revenue items that you think will take place, but don’t rise to the level of committed. At this time do not put any anticipated cash collections for these items - do that when the projected revenue items move into the committed category.

What’s the purpose of this exercise? At a glance you will be able to see if your revenue for this month and subsequent months is enough to break even. As you look at next month and the month after you will see what you have to do to get there - do what you have to do to move those projected revenues to committed revenues. Also, you will be able to see if your cash collections will be break even at least a month in advance and be able to take appropriate steps to bring in the money.

Richard Florida comments on an article in the WSJ Online (subscription req’d) in which condo developers are finding that condos in urban areas targeted to young singles are attracting empty nesters in large numbers.

“Mr. Schaefer’s Bristol Development Group is pitching the project, Velocity, to twenty- and thirtysomething professionals willing to trade space (as little as 535 square feet) for affordability (as low as $165,000) and a chance to live in a hot urban neighborhood. Developers across the country are appealing to young buyers — many of them single, almost all without children — with buildings that promise not just an affordable first home but also a great social life. The amenities tell the story: videogame lounges and outdoor fire pits, rooftop soaking tubs, on-site bars and poolside drinks.

But it’s not so easy to control demographics in the open market. Some of the buildings are drawing unexpected buyers: people old enough to be the parents of the kids down the hall. And that’s leading to territorial conflicts, social snubs — even planned boardroom coups.

Such concerns are multiplying as the new buildings fill up with a mix of residents who range broadly in age. In Denver, about half of the units in the recently completed Glass House sold to empty-nesters, despite youth-oriented amenities such as a videogame lounge and a Web site that promises “cool bars” and “a fresh vibe.” In New York, even a hot tub above the lobby and a provocative marketing campaign couldn’t keep boomers away from William Beaver House, slated to open next year. And when Viridian opened last October in Nashville, most locals expected the high-rise to draw young buyers looking for a chance to live downtown. It did, but it also attracted people like Julie Lammel, a speech pathologist in her early 50s who moved there from a suburb where most of her neighbors were in her own age group.”

This is an excellent example of ‘best laid plans’ not turning out as expected. But sometimes that’s a good thing. In this case the developers have found an additional market for their product through no action on their part. The trick will be finding ways to keep both groups - young singles and empty nesters - happy. If they can do so (in other words, change the strategy on the fly) they will be able to sell more and sell faster. And what business owner wouldn’t be happy doing that?

Bob Sutton, Stanford professor, has a short but thought provoking article in Harvard Business Online.

To return to my colleague and friend Jeff Pfeffer, this pattern is consistent with what we discovered as we were writing Hard Facts, Dangerous Half-Truths, and Total Nonsense. Great leaders and firms often “win” by doing mundane things well. Think of Southwest Airline’s Chairman and Founder’s Herb Kelleher saying “Airplanes don’t make any money when they are sitting on the ground.” Or of George Zimmer, CEO and Founder of The Men’s Wearhouse, building a business model around the notion that most of his customers would rather not actually be in his stores buying suits. Wal-Mart Founder Sam Walton’s motto, “everyday low prices,” may have had some controversial effects, but is a simple idea that shapes many, many actions at the discount giant. It was essential to its becoming the biggest retailer in the world.

While strategy is important, it doesn’t have to be complex. Execution is the difference between success and failure.

Similarly, research on what leads to effectiveness says that the answer with the biggest impact is often absurdly simple at first glance. For example, the most powerful personality variable for predicting performance is conscientiousness. Does the person usually do what he or she commits to do? Is he or she reliable and hardworking?

The takeaway: Find something importantly simple that no-one else is doing and do it well.

Hat Tip: Rob at Businesspundit

In a previous post I linked to an article by Dan and Chip Heath that cautioned against assuming you’ve made correct decisions just because they resulted in success. Now I’ll encourage you not to assume you’ve made bad decisions just because they don’t result in success. Here’s a little story I’ll call “As in Poker. As in life.” Read the rest of this entry »

Chip and Dan Heath, authors of “Made to Stick” have an article in this month’s Fast Company titled “Success Can Make You Stupid.”

“If there’s a moral in this story, it’s this: Question success. Success propagates backward in our minds and bestows the glow of wisdom on our every decision. The irony of self-fulfilling prophecies is that even bad ideas end up looking right in the end, because we’ve salvaged them with good execution. And when bad ideas get reinforced, there are consequences: The wrong movies get pushed. The wrong deals get funded. The wrong employees get advanced.”

Chip and Dan describe a process whereby bias toward past successful decisions results in more resources being directed to what is comfortable and known, rather than what is more objectively “right.”

Read the whole thing.