I often read about businesses that don’t last the distance – businesses that look like they have great potential but just somehow can’t be sustained. I can’t help but think that many of these organisations mustn’t give any thought to “future proofing” their business.
So what is “future proofing” and why can it help businesses survive?
The literal definition of future proofing is: the process of anticipating the future and developing methods of minimising the effects of shocks and stresses of future events. Sounds a lot like planning doesn’t it? You’ll also note the significance of the word “process”. This suggests that future proofing is not about one-off gimmicks or quick fixes – it is a course of action, an ongoing function.
The definition also talks about minimising the effects of future shocks. So, here are my top four tips to future proof your business.
Tip 1: Get your business into a strong financial position.
If future proofing is about minimising the effects of future shocks, then the best way to do this is to have a “war chest”. Make sure that your business is profitable and has strong free cash flows. That means that if you lose a key customer you can withstand it better than if your business was operating on a “line ball” basis.
In a previous blog I talked about my top three ratios for business success. Profit, in and of itself, is not enough. It needs to be strong profit, with an acceptable level of return on capital employed (ROCE). However, profit is opinion, cash is fact. Just because you’re making a profit doesn’t mean the business has free cash flow.
Your business may be growing so fast that all of your free cash flow is injected back into the business. This is how businesses go broke unless they have an unlimited source of money from outside the business, which is rarely the case. Once again, I recommend that you refer to my blog, Three reasons businesses don’t have cash, for more information on this area.
Tip 2: Have a structured process.
As the definition of future proofing suggested, you need to have a process. One off, uncoordinated attempts at “quick fixes” will not do it.
An approach that I use is “now, where, how”. Not rocket science, but effective. The process starts with assessing the “now” or current reality for the business. Unless we understand where we are we can’t move on. We use a number of processes to assist in this. These include a strategic SWOT analysis, which not only looks at the strengths, weaknesses, opportunities and threats of a business, but also builds strategies on, for example, how we can use our strengths to capitalise on our opportunities.
Next, we need to understand “where” we want to go before we get into ‘solution mode’. As the saying goes – if you don’t know where you’re going, any road will get you there. Again, having set processes to assist in developing the vision can be helpful. It is also important to understand the ‘raison d’etre’ for the business.
Tip 3: Develop an action plan
One of the biggest failings I see in planning processes is the lack of an action plan, with timelines and responsibilities allocated to specific people – who has to do what, by when. Many businesses run planning workshops. Everyone walks out of the workshop hyped up and raring to go but there is no action plan and therefore no accountability. Strategy without action is only a daydream.
Tip 4: Don’t fail to implement (FTI)
with an action plan, we all get tied up in the day to day operations of our business working in the business, not working on it. The result can often be that the action plan doesn’t end up getting implemented.
To ensure that this doesn’t happen, my process is to meet with the management team of the business on a monthly basis to ensure that the action plans are being implemented. An external facilitator can “turn up the heat” when the hard decisions have to be made, but also act as an impartial party to provide an external focus for the business.