Every new year, people all over the world make resolutions. Probably the most common is the resolve to lose weight, which generally means eating smarter, drinking less booze and soft drinks, and beginning a regular exercise regimen. The key word here is “regimen”—a daily routine. Truth is, staying at it requires discipline, and most of us fail miserably. We hate discipline!
In business, it is imperative that you create yearly sales forecasts and monthly expense budgets as a means to measure progress. It astounds me when I speak with business owners who tell me they don’t generate a yearly budget. The most common excuse? “We have no way of predicting what will happen or what customers will buy.”
The Aha Moment: You will never create the perfect budget. But the process isn’t about that; it’s about setting goals and allowing the averages to work themselves out. If you track the purchases of every customer individually, each one will create a line. Put them all onto a single graph, and as you zoom out, you will see that together they form a thick line. This is the basis of the sales forecasting process.
Sales forecasting takes a tremendous amount of time, and you have to find the discipline to do it each and every year. Yes, discipline … that ugly word again!
At Radial, we would start the process in October: the sales manager would translate all the numbers into units and dollars, while I, the CEO, would generate a forecast using past history plus our growth trajectory and then add in assumptions about where new business could be generated. We would compare forecasts and come to an agreement. Once the sales forecasting was completed, the accounting department could then work through the numbers to generate the expense budget, taking into account the cost of goods and other expenses such as salaries, rent, marketing and so on, along with any significant expenses that might come into play in the coming year. This endeavor then gave us a monthly nut to crack.
The most important aspect of any business is sales revenue. You can have the coolest widgets and the best shipping department in the world, but if you have no orders to fill, the company will cease to exist. This is why the sales department plays such a key role in any company. Sales teams must be given goals and be rewarded for success. I am a big fan of rewarding salespeople with commissions on sales and bonuses when they meet their targets. We employed a system that shielded salespeople somewhat, so they could recoup losses from a bad month over the next month or two and not be penalized. This approach helped avoid finger-pointing if product deliveries were slow due to part shortages—a situation that in turn would affect commissions and a salesperson’s income, leaving everyone involved demotivated.
Another initiative that I undertook was giving the company a challenge each year to do something big and radical. In the business world, this is known as a BHOG, or a big, hairy, audacious goal. One year’s BHOG could be the launch of a new product line, the development of a new technology, moving the company to a new location, finding secondary part sources, reorganizing the warehouse or manufacturing layout to improve efficiency, expanding sales into a new market and so on. Over the years, we did just that. Or more to the point, all of those.
For instance, when we moved from a 10,000-square-foot facility to 25,000, the new building required significant renovations. Our general manager, Mike Hill, and our operations manager, Steve Hopia, took on this project with aplomb. Another year, we decided to switch the production of Primacoustic from foam to glass wool so we could boast about having a higher-performance product that would meet the stricter fire codes required for commercial sales. That may sound easy, but it took months of trial and error, which turned into years as production evolved. Another goal was expanding sales in Asia. We had already made headway into Europe and knew that the next big challenge would be to turn Radial into a household brand in key markets such as Japan, South Korea and Singapore.
We have all heard the adage, If you don’t have a target, how can you hit the bullseye? When you give your team a challenge and they are up to the task, they walk around with pride. It is not merely the pride of achieving their goal, but the pride that comes from knowing that they made it happen.
There is a downside to success, one that tends to blind. It comes when sales are rocking. When a company is successful and cash is flowing in, the success hides inadequacies. Then, when sales slump and money gets tight, frustration can set in and tempers can flare. All of a sudden, the hidden problems all find their way to the surface. This only further substantiates the importance of discipline and setting goals each year. Once you get started and begin to reap the benefits, you will soon begin to love that cranky old miserable word we call “discipline!”
Happy new year!