Like a basketball player who keeps one foot planted while spinning on it to explore different directions, companies pivot by staying grounded in what they’ve learned while shifting directions to explore a new customer base or providing different products or services to your existing customer base. The pivot is a term coined by Eric Reis in his book The Lean Startup and it has gotten a lot of buzz in the startup and growth communities of late. Nearly every successful company has pivoted on some level and there are many classic examples. Nintendo started selling playing cards before switching to electronic games. Tote was an online clothing catalog before it pivoted and became Pinterest. So, how do you do it? For starters, make it a topic of discussion in management meetings on a regular basis.
Discuss your business environment – your supply chain, your competition, feedback from your customers. Are there changes on the horizon that will be disruptive to your industry? They could be opportunities.
Brainstorm for ideas on how your company could pivot to improve your position in the value chain, to get a leg up on the competition or better serve your customers.
Decide on a course of action and execute it. Use what you have learned to this point and build on it. Do not be anchored to things that do not work, but don’t “throw the baby out with the bathwater” either. Make sure you allocate sufficient resources in terms of budget and training and marketing to implement the pivot successfully.
Being able to pivot is critical for middle market companies. The good news is, it is easier to do at this stage while everyone is accustomed to constant change. This makes it easier to pivot without leaving a divot!
Have you pivoted in your company? Share your story in the comments below.
I recently attended a workshop on advanced LinkedIn skills. The course was conducted by Sven Johnston, Partner & Sr. VP Business Development at GigaSavvy.
Sven has over 5300 LinkedIn connections. That is a lofty goal, but 500 is more realistic. Once you get there, your profile shows that you have “500+” connections and people will see you as a super connector. At the time of this writing, I have 259 so I have a way to go.
The first step is completing or improving your profile. Think of your entire profile as a key part of your personal brand. It is more than a resume, but done properly, it can essentially replace your resume.
You should have a picture of your face that will help people remember you.
Your headline can be more than just your title and the name of the company. You have 140 characters to summarize your personal brand so make it memorable.
Use your summary to tell your story. It can be a little more narrative and interesting than the one paragraph summary you may have on top of your resume, mainly because you have more space.
Experience – Does not necessarily need to be limited to paid jobs. If you gained good experience from volunteer work or contract positions, you can include them as experience. That will allow people you worked with in that capacity to endorse your skillset and write you a recommendation.
Skills & Expertise – List the top skills you want people to know you for. Ask for endorsements from your former co-workers. You can have up to ten skills with up to ten endorsements in each. The goal is to have 100 little faces in the box, meaning you have ten endorsements in each of your ten skills.
Recommendations – You need to have at least 3 in order for LinkedIn to recognize your profile as an All-Star. It can be uncomfortable to ask people to write you a recommendation, so make it easy for them by suggesting what to write. You can hide recommendations if you have more than you need, but having 4 to 7 great ones on display is a good target.
Groups – Join groups that interest you in a mixture of local, industry specific and mass groups. Participate by adding to the discussions. Groups extend your network as you are able to send group members messages even if they are 2 degrees or further away from you. I just created a group called MiddleMarketCFO. You can be one of the first to join!
The next step is searching for new connections. Using the Advanced Search options, you can find potential connections from your groups, schools, fields, companies, geographic areas or any combination of those options or more. When sending invitations to connect, you should personalize each message rather than using the default message LinkedIn provides. While strong connections are best, a weak connection is better than no connection so if you find yourself wondering whether you know someone well enough to send them a invitation to connect, the answer is probably yes you do.
Lastly, review your connections regularly and stay in touch. You can use tags to remind you who you need to schedule a lunch with or who you need to reach out to with a business opportunity.
You can see my LinkedIn profile using the button below (which you can create in LinkedIn). If we are not already connected, send me an invitation to connect. If you are moved to endorse my skills or write me a recommendation, even better! If you have any additional tips to get more out of LinkedIn, leave a comment below. I look forward to connecting with you!
Of these four trends – Big Data, Crowdfunding, 3D Printing, Made-in-America – which will have the biggest impact on business in 2014. Take the poll below.
BIG DATA is a big trend. With a multitude of brilliant minds pursuing the field, new innovations emerge daily, but the biggest applications of big data are probably yet to be pondered. Retailers are already using this data to know who you are, or at least what you look like, where you live, what you eat, what you wear, where you go on vacation, how much you spend and get paid a month, who your friends and family are and what you are saying about their products. Plans are underway to use big data to crunch consumer credit worthiness, predict the likelihood of mergers and acquisitions, prevent the spread of disease, combat crime, alleviate traffic congestion and who knows what else.
CROWDFUNDING – In 2012, 308 crowdfunding platforms across the world raised $2.7 billion, an 81 percent increase over the amount raised in 2011, according to the annual report released today from the Los Angeles based research firm, Massolution. The growth in 2012 represents an acceleration, up from 64 percent growth in 2011. Looking ahead, growth is expected to reach $5.1 billion raised in 2013, representing an expected 89 percent increase in the dollars raised, the report predicts. A trend is obviously developing.
As it exists, the majority of money raised with crowdfunding is still on donation or reward-based platforms, where an entrepreneur or artist raises small sums from a large group of people in exchange for a product sample or experience. Of the $2.7 billion raised in 2012, $1.4 billion was on these platforms, made popular by brands such as Kickstarter or Indiegogo. Lending-based crowdfunding, where campaign leaders have to repay their investors, equaled $1.2 billion.
Equity-based crowdfunding, where investors receive a share of the company in exchange for funds, was the smallest sector the market in 2012, totaling only $116 million. Until the SEC issues the regulations to allow the JOBS Act to take effect, private companies in the U.S. are only able to crowdfund from accredited investors. In a handful of other countries, equity-based crowdfunding is already legal. When the JOBS Act takes effect, the distribution of funds raised from equity-based crowdfunding is likely to increase dramatically. This will open early stage companies up to a new, much larger, group of potential investors and it will give unaccredited investors access to a new pool of investments.
3D PRINTING is not a new concept. The platform for it began with a 30-year-old technology called rapid prototyping. Although there were cost-savings benefits to rapid prototyping, the equipment was very large and expensive and had very limited capabilities. Fast-forward to 2013. Hardware and software advancements have modernized rapid prototyping, allowing 3D printing companies to enter the market. Today’s 3D printers provide more accuracy and precision than rapid prototyping because the design of the object is created separately in 3D software. High-end 3D printers now allow multiple materials to be fused together in one print.While the platform for 3D printing is more than 30 years old, today is the first time that 3D printers have become inexpensive enough to be used by enthusiasts and small businesses to create physical objects. It is similar in that sense to the emergence of the personal computer, and we know the sort of impact that had on business productivity and nearly every other aspect of our lives.
The real opportunity of 3D printing is that it is giving companies the ability to produce a wide range of objects on demand, with little or no inventory costs. Imagine a ‘virtual’ parts catalog, made up of sets of 3D files that can be printed on demand. Because the inventory is virtual, it would cost very little to offer customers an ever-expanding catalog of products and replacement parts. For a small premium, customers would have the option of creating whatever they want. With the rapid advancement of 3D printing, we are entering an era in which it is possible and economical to produce products at a low volume and with mass customization. 3D printing has the capacity to change the definition of obsolescence, as well as the level of control that customers have over their products.
MADE IN AMERICA – This has been a trend in reverse for the past several decades, but it is already starting to change. The labor costs have inevitably crept up in places like China, making U.S. manufacturing more competitive. If you think this trend will be small compared to the others, consider that the other trends listed above, particularly crowdfunding and 3D printing will contribute greatly to the Made in America movement.
“Regardless of which sources of growth their companies pursue, the results indicate that, in the coming years, CFOs will need to up their game in a wide range of growth-related activities.” Click here for full article.
Companies that depend heavily on raw-material inputs or commodities are sensitive, sometimes significantly, to the price change of the inputs. For example, energy intensive manufacturers and transportation companies can be sensitive to the price of gas. Food product companies can be sensitive to fluctuations in the price of certain agricultural commodities. Futures contracts on commodities can mitigate a portion of this type of risk.
Futures contracts are sometimes confused with forward contracts. While similar, they are not at all the same. A forward contract is an agreement between two parties (such as a wheat farmer and a cereal manufacturer) in which the seller (the farmer) agrees to deliver to the buyer (cereal manufacturer) a specified quantity and quality of wheat at a specified future date at an agreed-upon price. It is a privately negotiated contract that is not conducted in an organized marketplace or exchange.
Futures contracts, while similar to forward contracts, have certain features that make them more useful for risk management. Futures contracts have standardized terms established by the exchange. These include the volume of the commodity, delivery months, delivery location and accepted qualities and grades. The contract specifications differ depending on the commodity in question, but this is the general idea:
A flour miller is concerned about the risk of wheat price increases for wheat to be purchased in November. Wheat futures for December delivery are currently trading at $4.20/Bu, and the typical basis at the miller’s location is $0.15 over futures. The miller hedges this risk by taking a long position (buying) the December wheat future at $4.20. In November, the futures price has increased to $4.40, and wheat is selling locally for $4.55. The miller lifts the hedge by selling back the futures position at $4.40, resulting in a profit of $0.20/Bu. This profit is then applied to the cash purchase cost of $4.55/Bu, resulting in a net cost of $4.35, which is the price expected when the hedge was placed.
For companies sensitive to raw material prices, raw material price variances should be isolated and included in your KPI reporting. Implementing an effective commodity hedge strategy can minimize these price variances, and the effectiveness of your hedge strategy should be measured and included in the reporting
This concludes the 3 part series explaining how middle market companies can hedge their risks with derivatives. Happy hedging!
If variable interest rates leave your company exposed, you should consider an interest rate hedging strategy. The most common method is a ‘vanilla’ interest rate swap which can be used to effectively convert all or part of a variable (LIBOR + X) rate loan into a fixed rate loan, thereby mitigating the risk of fluctuating exchange rates. Simple example: You have a $2 million loan that pays a variable interest rate. You can enter into a swap agreement whereby you will borrow $1 million at a fixed rate and invest it in a security that earns a variable rate. This will reduce your exposure to fluctuations in the variable LIBOR rate.
Another situation that may necessitate an interest rate hedging strategy is when you are anticipating a significant inflow or outflow of cash to take place in the future, perhaps one year from now. The viability of the strategy may depend to some degree on the interest rate at that time, and you do not know what that interest rate will be. By purchasing a Treasury futures contract, you could effectively ‘lock-in’ the interest rate now. This will take one important variable out of the equation and make it easier to focus on the other aspects of the deal.
As with other types of hedging, remember the purpose of a hedge program is to mitigate risk.
Next up: Hedging with Derivatives; Part 3 of 3: Commodity or Product Input Risk
When a middle market company engages in exporting its products or importing raw materials, it may want to consider hedging the risks related to fluctuations in the currency. For example, let’s assume your company takes a sales order from a French customer that will be filled in 6 months and you agree on a price in Euro’s. You know exactly how many Dollars those Euro’s will convert into at today’s exchange rate. The problem is you don’t know what the exchange rate will be 6 months from now when you get paid. If the Dollar appreciates versus the Euro, you will end up with fewer dollars than you anticipated when you booked the sale. To mitigate this risk, you can purchase foreign-exchange futures contracts. I will not get into the details of how those work, but I will offer these additional tips:
If you agree to terms with a customer or vendor involving foreign currency, define the currency and stick with it. Do not allow the customer/vendor to have their choice between a price in Dollars or the foreign currency. Doing so would allow them to complete the transaction in whichever currency is favorable to them at the time of payment, which means your company is shouldering all the risk and will likely lose either way. Make sure your salespeople, AR and AP staff’s understand this and monitor it.
As an alternative to hedging, you can structure the sale or purchase contract in a way that shares the risk between the customer and the vendor by locking the current exchange rate on a portion of the total contract.
Some companies have a natural hedge, meaning they purchase raw materials in a foreign currency and then sell finished goods in the same currency. The idea is fluctuations in the currency that drive raw material prices up will also result in higher sales and vice-versa so there is less need for a hedging strategy. However, due to timing differences, you might think you have a natural hedge but what you really have is twice the exposure and you could actually lose on both ends!
Isolate your gains/losses on foreign currency exchange from your other revenue and material costs. Make it one of the KPI’s you include in your reporting package.
Remember, you are not a speculator. You are a risk mitigator. If your “hedging” strategy actually makes a lot of money for the company, you are not doing it right.
Next up: Hedging with Derivatives Part 2 of 3; Interest Rate Risk
Per Bureau of Labor Statistics data, businesses with between 50 to 1,000 employees generated the biggest job gains between March 2011 and March 2012. In fact, the 1.8 million jobs these firms added over that period accounted for more than half of all new jobs and more than five times the number of jobs created by companies with 1,000-plus employees.
Deloitte’s Tom McGee talks about the middle market in an article for Forbes. The success of middle market companies stems from their ability to be nimble, McGee states. Operational costs tend to be lower, and smaller companies have greater flexibility and hands-on management. McGee said many mid-market companies also tend to be entrepreneurial, a positive point highlighted by another Deloitte survey that showed that entrepreneurial mid-market companies experience greater worker productivity and generate higher profit margins. “All of this evidence, in my view, points to a cross-section of the economy that is most likely to explode once our nation’s economy starts to shift to its potential growth rate,” McGee argues.
…related advice. That’s right, free beer related advice about how middle market companies can go toe-to-toe with giant corporations and win. Consider the case of craft beers. The number of breweries in the U.S. has more than quadrupled in recent years. Restaurants that once offered the choice of either American mega-brews or ‘imports’ are increasingly turning to a line-up of craft beers, many of them made in America by middle market breweries. How are they able to compete with the big companies?
Make a better product. The bland American-style pilsners may appeal to the masses but they leave room for competition.
Embrace your underdog status. Turn their strengths (economies of scale, mass appeal) into weaknesses. “They spill more than we produce” and what not.
Work like hell. Many successful craft brewers will tell you it was a lot harder than they thought it would be, but it was worth it.
Be cool. Get involved in your community. Host fun events. Associate with fun-loving adventurous types, musicians and the like.
Use clever marketing tactics, something this blogger knows absolutely nothing about.
Most, if not all, of this free beer related advice applies to middle market companies in industries other than beer.