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Flashcards in Scaling Up by Verne Harnish Deck (202):
1

Two entrepreneurs went way beyond the call of duty to review the galley copy and provide extensive, critical, and detailed feedback, which resulted in significant changes to the style, approach, format, and design of the book: Kevin Daum,54

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If you want to teach people a new way of thinking, don’t bother trying to teach them. Instead, give them a tool, the use of which will lead to new ways of thinking. — R. Buckminster Fuller Designer, inventor, futurist122

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there is a huge market for the myriad number of books supporting these entrepreneurs — the two best being Michael E. Gerber’s The E-Myth Revisited and Eric Ries’ The Lean Startup.171

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read Verne’s interview in Business Review Europe titled “Give the Gazelles a Break”.177

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Steve Jobs, “I’m always amazed how overnight successes take a helluva long time.” If you’ve been in business less than 25 years, you still have time to make it big; if it has been more than 25 years, and you’ve not scaled up, it’s never too late!190

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Senior leaders know they have succeeded in building an organization that can scale — and is fun to run — when they are the dumbest people in the room! In turn, if they have all the answers (or act like they do), it guarantees organizational silence,196

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Every business is more valuable to the degree that it does not depend on its top leader.199

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our tools and techniques focus on three deliverables: • Reduce by 80% the time it takes the top team to manage the business (operational activities) • Refocus the senior team on market-facing activities • Realign everyone else (onto the same page) to drive execution and results203

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• In leading People, take a page from parenting: Establish a handful of rules, repeat yourself a lot, and act consistently with those rules. This is the role and power of Core Values.215

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You don’t have a real strategy if it doesn’t pass two tests: First, what you’re planning to do really matters to enough customers; and second, it differentiates you from your competition.219

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Set a handful of Priorities (the fewer the better); gather quantitative and qualitative Data daily and review weekly to guide decisions; and establish an effective daily, weekly, monthly, quarterly, and annual meeting Rhythm to keep everyone in the loop. Those who pulse faster, grow faster.221

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many people dream of summiting Mount Everest (or its equivalent in their life). Those who do it create a plan.226

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Guided by a set of Core Values and a purpose, it chooses a Big Hairy Audacious Goal (BHAG®)* to achieve in the next 10 to 25 years.231

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To break up the journey, the leadership team sets a series of three- to five-year targets divided up into annual goals. These are further broken down into specific actionable steps the business takes over the next few weeks or months, adjusting tactics as the market conditions dictate.232

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Everything in between this quarter and the next 10 to 25 years is a WAG: a wild-ankle guess! There are no straight lines in nature or business.238

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Albert Einstein: “Everything should be made as simple as possible, but not simpler.”254

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Most of the teams we work with are wicked smart. With enough perseverance and grit they’ll find answers. Our concern is they might be working on the wrong question.277

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4 Decisions Assessment available at scalingup.com to help you determine your starting point.285

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People KEY QUESTION: Are the stakeholders (employees, customers, shareholders) happy and engaged in the business; and would you “rehire” all of them? Do you have the “right people doing the right things right” inside the organization?289

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the best for the size of the organization and future plans? The toughest decisions to make are when the company has outgrown some of these relationships and you need to make changes.295

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One-Page Personal Plan (OPPP): Our personal and professional lives are intertwined — and best if aligned. This tool looks at four key decisions — Relationships, Achievements, Rituals, and Wealth — which mirror the four key decisions for the business: People, Strategy, Execution, and Cash.299

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You want to delegate these functions to people who fit your culture and pass two tests: 1. They don’t need to be managed. 2. They regularly wow the team with their insights and output.308

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Next designate one or two key performance indicators (KPIs) for each function, defining objectively what activities each senior leader needs to be focused on day-to-day.310

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Process Accountability Chart (PACe):This chart provides a place to delineate the four to nine processes that drive the business316

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Next, designate who is accountable for each process,318

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Last, decide on two or three KPIs that track the health of the process320

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In retaining employees and keeping them engaged, we’ll cover the five activities of great (vs. good) managers: • Help people play to their strengths. • Don’t demotivate; dehassle. • Set clear expectations and give employees a clear line of sight. • Give recognition and show appreciation. • Hire fewer people, but pay them more (frontline employees, not top leaders!).326

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Strategy KEY QUESTION: Can you state your firm’s strategy simply — and is it driving sustainable growth in revenue and gross margins?330

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Strategic thinking requires a handful of senior leaders meeting weekly (it’s not sufficient to do strategy work once a quarter or once a year) in what Jim Collins calls “the council.” It’s a meeting separate from the standard executive team meeting. Rather than getting mired in operational issues, the strategic thinking team is focused on discussing a few big strategic issues including those outlined in the SWT and 7 Strata tools334

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Execution planning, in turn, requires a much larger team engaged in implementing the broader strategy. Setting specific annual and quarterly priorities, outcomes, and KPIs338

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The 7 Strata of Strategy: This tool represents the seven components (stratum) of a robust, yet simply stated, strategy. It’s designed to provide the kind of differentiation and barriers that allow you to dominate your niche in the marketplace.352

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The seven components: 1. What word(s) do you own in the minds of your targeted customers (e.g., Google owns “search”)?

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The seven components: 2. Who are your core customers, what three Brand Promises are you making them (e.g., Southwest Airlines promises Low Fares, Lots of Flights, Lots of Fun), and how do you know you’re keeping these promises (Kept Promise Indicators, a play on KPIs)?

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The seven components: 3. What is your Brand Promise Guarantee (e.g., Oracle has been advertising the chance to win $10 million if its Exadata servers don’t outperform the competition by a factor of five)?

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The seven components: 4. What is your One-PHRASE Strategy that likely upsets customers (Apple’s “closed system”) but is key to making a ton of money and blocking your competition?

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The seven components: 5. What are the three to five Activities that fit Harvard strategist Michael Porter’s definition of the essence of differentiation (e.g., IKEA’s furniture needs assembly)?

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The seven components: 6. What is your X-Factor — a 10 times to 100 times underlying advantage over the competition — that completely wipes out any and all rivals?

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The seven components: 7. What are your Profit per X (economic driver) and BHAG® for the company?355

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Execution KEY QUESTION: Are all processes running without drama and driving industry-leading profitability?376

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Companies can get by with sloppy execution if they have a killer strategy or highly dedicated people willing to work 18-hour days, eight days per week to cover up all the slop. Just recognize you’re wasting a lot of profitability and time (i.e., you’ll burn both cash and people in the process!)384

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Who, What, When (WWW): Improve the impact of your weekly meetings by taking a few minutes at the end and summarizing Who said they are going to do What, When. This isn’t about micromanagement; this is about excellent management and being clear in both communication and accountability.387

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The habits (“Routines that set you free!”): 1. The executive team is healthy and aligned. Here we pull a page from Patrick M. Lencioni’s The Five Dysfunctions of a Team: A Leadership Fable,402

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2. Everyone is aligned with the #1 thing that needs to be accomplished this quarter to move the company forward.407

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It is about setting a quarterly goal, providing the company with a badly needed finish line every 90 days, vs. just running and running and running.409

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3. Communication rhythm is established and information moves through the organization accurately and quickly.412

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4. Every facet of the organization has a person assigned with accountability for ensuring goals are met.416

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5. Ongoing employee input is collected to identify obstacles and opportunities.419

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6. Reporting and analysis of customer feedback data is as frequent and accurate as financial data.423

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7. Core Values and Purpose are “alive” in the organization.427

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8. Employees can articulate the following key components of the company’s strategy accurately.430

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9. All employees can answer quantitatively whether they had a good day or week434

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10. The company’s plans and performance are visible to everyone.436

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Cash KEY QUESTION: Do you have consistent sources of cash, ideally generated internally, to fuel the growth of your business?439

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successful companies held three to 10 times more cash assets than average for their industries, and they did so from the time they started.443

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Harvard Business Review article titled “How Fast Can Your Company Afford to Grow?” by Neil C. Churchill and John W. Mullins.454

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The Power of One: The 7 main financial levers available to managers to improve cash and returns in the business are: 1. Price: You can increase the price of your goods and services.

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7 main financial levers 2.Volume: You can sell more units at the same price.

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7 main financial levers 3. Cost of goods sold/direct costs: You can reduce the price you pay for your raw materials and direct labor.

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7 main financial levers 4. Operating expenses: You can reduce your operating costs.

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7 main financial levers 5. Accounts receivable: You can collect from your debtors faster.

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7 main financial levers 6. Inventory/WIP (work in progress): You can reduce the amount of stock you have on hand.

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7 main financial levers 7. Accounts payable: You can slow down the payment of creditors.457

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Downloadable PDF versions of the various tools, in multiple languages, are available at scalingup.com474

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“Get it down; then get it right”484

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The key is lots of iterations: reviewing and updating our Growth Tools every quarter. Routine will set you free.486

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Handling a company’s growth successfully requires three things: an increasing number of capable leaders; a scalable infrastructure; and the ability to navigate certain market dynamics.491

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Great execution won’t get you anywhere if your strategy is wrong.518

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“Grow where you’re planted.” In other words, stick to the businesses and markets you know best.537

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There are roughly 28 million firms in the US, of which only 4% ever reach more than $1 million in revenue. Of those firms, only about one out of 10, or 0.4% of all companies, ever make it to $10 million in revenue, and only 17,000 companies surpass $50 million. Finishing out the list, the top 2,500 firms in the US are larger than $500 million, and the top 500 public and private firms exceed $5 billion.602

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What defines the hills and valleys is related more to the number of employees than to revenue, since this is what drives the complexity equation606

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• One to three employees (the majority of home-based businesses) • Eight to 12 employees (a very efficient company with a leader and a bunch of helpers) • 40 to 70 employees (a senior team of five to seven people, leading teams of seven to 10 — in a company where you still know everyone’s name) • 350 to 500 employees (seven leaders, with seven middle managers each, running teams of seven to 10 — actually a very efficient company) • 2,500 to 3,500 employees (more multiples of seven to 10)609

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“You can’t run the business all by yourself, so you need to change the way you run it, and some guys can’t get over it,”626

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Whatever challenges exist within the organization can be traced to the cohesion of the executive team and its capabilities in prediction, delegation, and repetition.637

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Leaders don’t have to be years ahead, just minutes ahead of the market, the competition, and those they lead. The key is frequent interaction with customers, competitors, and employees.639

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To get to 10 employees, founders must delegate activities in which they are weak. To get to 50 employees, they have to delegate functions in which they are strong!652

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if the founder is the CEO and the main sales driver, either everyone ignores the big picture or revenue stalls. The leader needs to delegate one of these two functions if the company is to continue to scale up.654

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And many leaders confuse delegation with abdication. Abdication is blindly handing over a task to someone with no formal feedback mechanism. This is OK if it is not mission-critical, but all systems need a feedback loop, or they eventually drift out of control.659

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Successful delegation requires four components, assuming you have delegated a job to the right person or team: 1. Pinpoint what the person or team needs to accomplish (Priorities — One-Page Strategic Plan). 2. Create a measurement system for monitoring progress (Data — qualitative and quantitative key performance indicators). 3. Provide feedback to the team or person (Meeting Rhythm). 4. Give appropriately timed recognition and reward (because we’re dealing with people, not machines).661

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Our favorite book on the topic is Steven Johnson’s Emergence: The Connected Lives of Ants, Brains, Cities, and Software. The Rockefeller Habits, when fully implemented (and automated through technology), facilitate the decentralization of organizations, providing pheromone-like communication and feedback trails similar to those that guide the activities of ants and other communities without bosses.672

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The leader’s final job is “to keep the main thing the main thing” — to keep the organization on message and everyone heading in the same direction.678

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pick a message and then repeat it a lot until the organization responded. Repetition encompasses consistency.682

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Just as living cells need to be near nutrients, companies need to be close to customers700

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Don’t decide the physical location of employees and teams haphazardly. Certain functions are best co-located together, which we’ll discuss in the “People” section of the book. Even determining the location of restrooms, break rooms, and meeting rooms is important, especially when a company grows to occupy a second floor or more in a building. Serious communication issues surface when employees on different floors no longer bump into each other. The goal is to increase the cross-interaction (accidental collisions) of various individuals and functions.707

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Between startup and the first million or two in revenue, the key driver is revenue (sell like hell). The focus is on proving that a market exists for your services.720

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It’s between $1 million and $10 million that the team needs to focus on cash. Growth sucks cash,722

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To prevent the erosion in your margins, it’s critical that you maintain a clear value proposition in the market.733

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the main function of a business leader: to build a predictable revenue and profit engine in an unpredictable marketplace and world.740

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The spoils of victory go to those who maintain a steady pace, day in and day out, in all kinds of weather and storms.743

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Business leaders need great people both inside the company and out — investors, suppliers, customers, partners, advisors — as well as a great support network at home. All of these people are critical to the business.756

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So how do you know you need to make changes on the people side of the business, and in your life, as you scale up the venture? Two questions: 1. Are you happy?758

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2. Would you enthusiastically rehire everyone, knowing what you know today? This goes hand-in-hand with the questions above (except for family!) and includes not only employees but existing customers, suppliers, and other stakeholders in the business.764

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Is there a relationship that is draining you emotionally?769

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Nothing is tougher and more time-consuming than having to replace people who haven’t kept up with the growth of the business.779

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Keep everyone as close to his or her respective customers as possible!797

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just as no cell can be too far from the blood supply, no team can be too far removed from the action of the marketplace818

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Amazon’s “two-pizza rule” — no team should be so big that it can’t be fed with two pizzas).819

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Each cell within the organization must have someone clearly accountable for it. This doesn’t mean the person is boss and/or gets to make all the decisions. In fact, it’s important to delineate the differences between accountability, responsibility, and authority.823

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Accountability: This belongs to the ONE person who has the “ability to count” — who is tracking the progress and giving voice (screaming loudly) when issues arise within a defined task, team, function, or division.827

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The rule: If more than one person is accountable, then no one is accountable, and that’s when things fall through the cracks.830

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Responsibility: This falls to anyone with the “ability to respond” proactively to support the team. It includes all the people who touch a particular process or issue.831

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Authority: This belongs to the person or team with the final decision-making power.833

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those who have advanced up the ranks find that they’ve taken on increasingly more accountability for things they have less and less real control over — until they reach the top and find they are liable (often legally) for anything that goes wrong in an organization that is expanding beyond their day-to-day reach.845

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The list of 5Fs located down the left-hand side of the OPPP — Faith, Family, Friends, Fitness, and Finance — is contributed by James Hansberger. He found, through his decades as a wealth advisor, that what mattered most to those near the end of their life were these 5Fs, in the order they are listed. They serve as a gentle reminder as you set priorities in the OPPP.868

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Rather than viewing financial wealth as an end in itself (as a wise guru once told Verne, “All assets become liabilities!”), see it as a resource for supporting the rest of your personal plan.899

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“All assets become liabilities!”904

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focus on how your wealth will flow through you in the service of others, rather than hoarding it.905

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An organization is simply an amplifier of what’s happening at the senior level of the company,912

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The chart lists a common set of functions that must exist in ALL companies. Even start-ups have all these functions, only it’s the founder(s) doing everything! In scaling the business, the idea is to figure out which function on the chart to delegate next.915

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The chart asks you to list one or two key performance indicators (KPIs) for each function. These KPIs represent the measurable activities each functional leader needs to perform on a day-to-day basis.920

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The last column on the chart captures the outcomes expected for each function (i.e., who is accountable for revenue, gross margin, profit, cash, etc.). These outcomes normally represent line items on the financial statements.922

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Whatever is the strength of a leader often becomes the weakness of the organization (e.g., if the founder is strong in marketing, the business may eventually find it’s weak in this functional area). Why? Because leaders have a tendency to hold on too tight, strangling the efforts of those around them. Or the leaders figure they can “watch over the details,” bringing in someone too junior to oversee the function vs. bringing on the powerhouse they really need. Instead, leaders must make a counterintuitive decision and find people who exceed their own capabilities in their area of strength, to prevent the company from stalling.932

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1. Do you have more than one person accountable for a function?953

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Does someone’s name show up in more boxes than everyone else’s? We recognize that in growth companies, leaders may wear multiple hats, but if one executive’s name shows up three or four times compared to everyone else’s one or two, that leader is either going to die young (a little dramatic) or one of the functions he or she owns will not be supported sufficiently. This is another red flag.956

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3. Do you have any boxes with no names in them? This often happens when someone says, “Hey, who’s accountable for marketing?” and the response is, “All of us!” “All of us” really means “none of us,” and the box should be left blank.967

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The rule of accountability means one person must ultimately take ownership,971

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Rather than hire an additional person, you might choose one of the customer service reps to hold overall accountability, rotating this role among the reps every six months.973

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4. Are you enthusiastic about the person you have in each box?983

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For help in selecting KPIs appropriate for your industry and/or function, visit KPILibrary.com. For more general KPIs, we recommend the book Key Performance Indicators: The 75 Measures Every Manager Needs to Know, by Bernard Marr.994

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WARNING: A common mistake is simply noting down KPIs that are representative of the daily and weekly activities of the person listed for a particular function. It’s critical to zero-base your KPI decisions. Do this by covering up the names listed in the “Person Accountable” column (metaphorically or physically) and then decide on KPIs for each function that align with the business model of the company. Then consider if the person in the job function has the skills and aptitude to deliver on those KPIs. A mismatch might indicate a potential problem.996

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the main job of the head of the company is to make sure she has the right people doing the right things right).1005

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the fundamental job of a leader is prediction. The right KPIs, along with sufficient market intelligence (discussed in “The Data” chapter), help executives navigate what are expected to be turbulent markets throughout the foreseeable future.1008

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There should be a person clearly accountable for each line item, even if it’s a middle or lower manager, when considering a highly detailed P&L and B/S.1023

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ACTION: This is a great exercise for the CFO or person in charge of accounting to lead. Go through your financial statements and decide who is accountable for each line item. Then pick the most important line items for each of the functions listed on your FACe tool and transfer the answers to the “Results/Outcomes” column.1032

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NOTE: Most organizations, at some point in time, develop detailed job descriptions for all the key roles in a company … a huge project. We are not big fans of job descriptions and prefer Topgrading’s Job Scorecards, which you’ll learn about in the next chapter.1035

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good companies tend to share their titles, whereas executives at strong and great companies share what their accountabilities are in a very measurable fashion,1039

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The first natural organizational split is by function. When the business gets above 50 employees, the organization needs to start aligning teams around projects, product groups, industry segments, and geographical regions. This is the beginning of what is commonly called a matrix organization (see diagram).1043

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The third one-page People tool — the Process Accountability Chart (PACe) — lists who is accountable for each of the four to nine processes that drive the business and how each process will be measured to guarantee it’s running smoothly.1076

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Example processes include: developing and launching a product; generating leads and closing sales; attracting, hiring, and onboarding new employees; and billing and collecting payments. Almost all these processes cut across the various functions, requiring a coordination of activities that gets more complicated as the organization scales up.1078

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One of the keys to Lean is objectively modeling and measuring productivity and then using simple visual systems to eliminate costly mistakes.1100

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Eliminating Waste “Lean describes waste as anything that happens in a company that a customer would not want to pay for,”1108

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our first initiative was to divide all of our costs into two columns: things that add value to our clients and things that don’t.1109

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Parsons, like Sim, warns that Lean is not about reducing headcount. It’s about reducing waste. Redirect the time and energy your people get back from eliminating wasted efforts, devoting them to serving customers, making sales, and growing the business.1125

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Without a powerful, industry-dominating strategy, you’ll spend the next several years generating very little traction in the marketplace. To address this challenge, we’ve integrated several of the best-known strategic concepts into one comprehensive framework — called The 7 Strata of Strategy — for scaling up your business. It provides an agenda for the strategic thinking team to create and maintain a competition-crushing, differentiated approach to a specific market.2054

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When you nail your strategy, top-line revenue growth and fat margins come almost effortlessly.2062

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HP’s Dave Packard, who was once advised that “more companies die from indigestion than starvation.”2065

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the One-Page Strategic Plan (OPSP), think about the 7 Strata framework as the “page behind the page” — a worksheet drilling down into the details2073

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If this work were easy, every company would have a killer strategy. The process can be very uncomfortable2083

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it’s a very messy and creative process requiring lots of learning and talk time with a myriad number of customers, advisors, and team members. This can be particularly difficult for engineering types who want to follow a sequential process to finding the right answers. It just doesn’t happen that way.2085

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For an update to the 4Ps, search the Internet for ad agency Ogilvy & Mather’s 4Es of marketing (Experience, Everyplace, Exchange, and Evangelism),2094

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read the three most important pages ever written in business — Pages 114 to 116 — where he describes the 11 guidelines for structuring such a council.2102

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Lords of Strategy: The Secret Intellectual History of the New Corporate World, it chronicles the relatively short 50-year history of corporate strategy and the four men who were the pioneers in the field. For leaders interested in the topic of strategy, it’s an invaluable resource documenting,2117

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Most strategy frameworks include some kind of competitive analysis. As you work through the 7 Strata, it’s illuminating for the team to discuss how the competition might fill in each level — and to do the same for firms you highly respect outside your industry.2134

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In the end, that’s what branding is all about: owning a small piece of the mind-space within a company’s targeted market,2151

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The key is owning words that matter — the ones people think about and use to search for your products and services.2155

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Your first instinct may be to go after the most popular terms, whether you are planning to use paid advertising or “organic” search engine optimization techniques. However, you may be better off picking slightly less used but still popular terms to point potential customers to specific products or services you offer.2164

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Videos and images have dominated over text ever since Google purchased YouTube.2170

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People don’t want to be sold; they want to be educated.2185

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For more on how to use content to drive revenue, read Joe Pulizzi’s highly insightful Epic Content Marketing: How to Tell a Different Story, Break through the Clutter, and Win More Customers by Marketing Less.2191

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Verne wrote as a LinkedIn Influencer titled “Your Career Success Hinges on One Word: Do You Know It?”: http://tiny.cc/success-one-word2196

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Robert H. Bloom and Dave Conti’s book The Inside Advantage, and Rick Kash and David Calhoun’s book How Companies Win. There are four key decisions to make on stratum 2: 1. Who/Where are your (juicy red) core customers? 2. What are you really selling them? 3. What are your three Brand Promises? 4. What methods do you use to measure whether you’re keeping those promises? (We call these the Kept Promise Indicators, a play on the standard definition of KPIs2202

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Who/Where: Bloom and Conti, authors of The Inside Advantage, implore companies to get crystal clear about Who and Where their juicy red core customer is — the customer from whom the business can mine the most profit over time.2209

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Kash and Calhoun, authors of How Companies Win, further suggest that there is a niche within any industry that represents no more than 10% of the total customers but holds a disproportionate percentage of the profit — what are termed profit pools.2215

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Though they represent only 7% of all dog owners, they account for more than 25% of the profitability in dog food purchases. The key is finding that same niche in your industry and owning it through a highly focused product or service offering.2219

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Once you know more specifically Who they are, it’s much easier to know Where to find them. The performance fuelers can be reached locally on a few key trails and via a couple of popular news sites and blogs.2221

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primary mistake companies make in describing What they sell is to focus on the benefits and features. All sales are emotional, initiated through the heart (“No one was ever fired for buying IBM”) and then justified logically by the head. That’s why established brands play on people’s fear of purchasing from a new entry in the marketplace.2226

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Summit Business Media (now Summit Professional Networks), an example that Bloom and Conti use in their book, offers “the indispensable source of authoritative information, data and analysis for the well-informed financial professional.”2229

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the What must encompass a 100% solution.2232

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Many business leaders are easily distracted by shiny objects; they move on too quickly to another product line, distribution channel, or niche before thoroughly locking down an existing one with an offering that completely does the job a customer needs to accomplish.2232

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There have to be some compelling reasons that are evident from the moment she visits BuildDirect’s website. We call these reasons the Brand Promises. Most companies have three main Brand Promises, with one promise that leads the list.2239

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For BuildDirect, the Brand Promises are “Best price, best customer service, and product expertise.” “Best price” is the lead promise. The key is to define the company’s Brand Promises quantitatively so they can be measured and monitored.2241

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WARNING: Refrain from using the words “quality,” “value,” or “service” as Brand Promises. They are too vague. Their definitions may vary, depending on the group of customers you’re facing.2245

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McDonald’s has defined its three measurable brand (value) promises as speed, consistency, and fun for kids.2249

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KPIs (Kept Promise Indicators): A promise has no weight if you don’t keep it, resulting in lost customers and negative word-of-mouth publicity. Thus, it’s critical that you know how to measure daily whether you’re keeping your promises.2261

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The company measures its success in meeting this Brand Promise in three ways. The #1 measurement is uptime of a client’s site. Rackspace offers a money-back guarantee if there’s any downtime. If there is a problem, and a customer has to call in, that call will be answered in three rings. Rackspace installs red lights in its call centers that start to spin if a call is getting ready to go to a fourth ring. So that a customer doesn’t get transferred, that call will be answered by a level two tech. That’s what the customers want. Rackspace measures its performance on these three things, obsessively, every moment:2268

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Jim Collins’ Harvard Business Review article “Turning Goals Into Results: The Power of Catalytic Mechanisms”2279

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It needs to hurt to break a promise; otherwise, it’s too easy to let the moment pass. This is why Collins labeled what we call a Brand Promise Guarantee “a catalytic mechanism.” By promising to refund 100% of a RedBalloon gift voucher’s cost if the customer can find the experience for a cheaper price, the company’s guarantee puts heat on Simson’s team to keep their pricing promise.2280

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The Brand Promise Guarantee also reduces customers’ fear of buying from you.2284

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start paying attention to what other companies are doing to guarantee their promises.2293

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Frances Frei and Anne Morriss’ book Uncommon Service: How to Win by Putting Customers at the Core of Your Business2295

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One-PHRASE Strategy. This phrase represents the key lever in your business model that drives profitability and helps you choose which customer desires to meet and which ones to ignore.2302

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Apple’s One-PHRASE Strategy has been its “closed architecture,” the source of its phenomenal profitability. It also serves as a powerful blocking strategy, since Google and Microsoft are beyond the point of no return and would never be able to close their open systems.2311

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Frei and Morriss’ overarching point is that great brands don’t try to please everyone. They focus on being the absolute best at meeting the needs/wants of a small but fanatical group of customers, and then dare to be the absolute worst at everything else.2315

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In turn, competitors, in striving to be the best in everything for everyone, actually achieve greatness in nothing — and end up as just average players in the industry.2316

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The book Uncommon Service will give you a myriad number of examples and walk you through how to both “be bad” the right and highly profitable way and “be great” via a few Brand Promises. It takes real guts to ignore or even alienate 93% of customers, focusing instead on the 7% of the market that is fanatical about you and willing to put up with the trade-offs.2320

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KEY RESOURCE: Michael E. Porter’s classic 1996 Harvard Business Review article titled “What Is Strategy?”2324

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Underpinning the One-PHRASE Strategy is a set of specific actions that represent HOW you execute your business differently from the competition.2325

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it’s at the “activity” level of the business where true differentiation occurs and the business model is revealed.2327

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NOTE: This is the first time the term “differentiation” has been used. Competitors can pursue owning the same words, make the same Brand Promises, and offer the same guarantees. However, it’s HOW you deliver on your promises where differentiation occurs.2328

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“a true differentiator can only be defined as something your competitor won’t do or can’t do without great effort or expense. Often these can take years to develop since if it can be done cheaply, easily and quickly it provides little or no competitive advantage.”2331

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a handful of hard-to-copy activities that differentiate it from competitors.2335

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Southwest’s One-PHRASE Strategy — “Wheels Up”2343

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A particular competitor might share one of these approaches with BuildDirect, but it’s the unique combination of all three that underpins its differentiation.2350

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“A company can outperform rivals only if it can establish a difference that it can preserve.”2356

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a hidden X-Factor — a 10x-100x underlying competitive advantage over its rivals. Normally invisible to customers, this edge underpins the strategic activities described above and blocks competitors from even trying to copy BuildDirect. And it typically addresses a huge, established choke point in an industry.2360

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Once you have such an advantage, it will usually let you decimate the competition, allowing you to sustain the kind of rapid growth2363

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Recognizing manager turnover as the choke point in the industry, Sullivan and his team asked themselves a key question: What if we could keep a restaurant manager in the same restaurant for five to 10 years? This would represent a 10x to 20x improvement over the existing situation in the industry.2370

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So how do you figure out an X-Factor? Start by asking: What is the one thing I hate most about my industry? What is driving me nuts? What is the choke point constraining the company? It could be a massive cost factor. It could be a massive time factor. The challenge is that you’re often too close to the situation and as blind as everyone else to the real problems that have been accepted as industry norms.2386

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One clue to the source of the X-Factor is going back to your last 10 trade association meetings and gathering the titles of the various breakout sessions. Put them in an Excel spreadsheet, and see if there are any patterns of challenges facing your industry over the past decade. By focusing on these roadblocks, and figuring out a 10x to 100x advantage, you’ll have a huge leg up on the competition.2389

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Barrett Ersek, founder of lawn care company Happy Lawn, reduced the typical sales process from three weeks to three minutes.2393

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list under “Actions” in the Purpose column — specific ways to reinforce the Core Values, Purpose, and BHAG® in the next 90 days.2620

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Coastal.com excels at execution precisely because it listens to customers and employees; has a meeting rhythm to discuss and implement quickly what’s being learned; and relies on a process for setting priorities based on all this input.2873

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advises CEOs to review the Checklist every three months.2880

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“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”2885

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“The main thing is to keep the main thing the main thing,” noted the late Stephen R. Covey,2909

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Individuals or organizations with too many priorities have no priorities and risk spinning their wheels and accomplishing nothing of significance.2911

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Lee asked Schwab to write down and prioritize his six most important tasks to complete the next business day. Then he instructed Schwab to start on item #1 the next day and not move on to item #2 until item #1 was completed. “Don’t be concerned if you’ve only finished two or three, or even one, by quitting time. You’ll be working on the most important ones, and the others can wait.”2935

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1. Core Purpose: the one word/idea/speech driving the business 2. BHAG®: the one 10- to 25-year goal for the company 3. Profit per X: the one overarching KPI representing the core economic engine of the enterprise 4. Brand Promise: the one most important measurable promise (of three) representing the brand 5. The Critical Number: the one key driver for the year and the quarter2945

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if you have a killer strategy and/or heroic people willing to work 18-hour days, eight days a week, these will make up for the messes created by sloppy execution and lack of discipline.2964

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the BHAG® (Everest) and the measurable next step (one with a 90-day to one-year focus). Everything else in between is just a WAG — a wild-ankle guess. The BHAG®, derived from your strategy, is the main long-term priority anchoring the strategic thinking in the vision. The quarterly or annual Critical Number is the main short-term priority anchoring the execution planning side.2986

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Though all your metrics are critical, reserve the term “Critical Number” for your measurable #1 priority, even when other metrics are nearly as important.2991

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what is the most important and measurable choke point you need to fix/control in your business this coming year? Figure it out. Then give your team a chance to win gold, silver, or bronze rewards (Super Green, Green, or Red at the bottom of column 4 of the OPSP).3008

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For those new to this routine, give your team some wiggle room in the beginning by setting a three-tiered target.3014

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Decks in Book Notes Class (70):