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Sales And The CFO Part Iv

Jan 24, 2011

In the prior three newsletters, we explored three of the four basic ways of the increasing your company sales.  CFO’s aren’t the “Deal Killers” that Sales Executives seem to perceive them as.  CFO’s ask the questions that need to be answered before the company is put at risk.  The CFO can provide the CEO the detail they need to boost profits during a time of sales growth. 

To reiterate, growing sales is simple really – not easy, just not complex.  Besides buying a company and growing through acquisition, there are really only four ways to grow your company:

1.    Sell more of the same stuff to the same people

2.    Sell the same stuff to different people

3.    Sell different stuff to the same people

4.    Sell different stuff to different people

 

Each of these paths to growth is covered with potholes that can pull the axle off your company’s progress.  In this Newsletter we will explore the fourth strategy – Sell Different Stuff to Different People. 

 

Sell Different Stuff to Different People

It doesn’t come as any surprise that this is the least implemented and most difficult of the four strategies.  It is rarely done as a separate strategy – it is usually coupled with Strategy III – Sell Different stuff to the Same People.  In other words, companies and their owners rarely wake up in the morning with an idea to make or market something unrelated to anything that they have made before and to sell it to customers with which they currently have no relationship.  Look it up, it just doesn’t happen.  But companies will take new, unrelated products that their current customers have told them they would like and use that impetus to explore new markets and new customers.

            Development versus Acquisition – Should the product line extension be created internally or acquired from a competitor?  Product development is a risky endeavor.  The closer the new product is to current offerings, as an adjacency, the lower the risk. 

“Adjacency” is defined as being so near as to be touching. A Tool manufacturer acquiring stamping presses to test their tools can sell stamping as a new product offering.  It isn’t tool manufacturing, but it is a natural adjacency.  A tool manufacturer making extrusion dies moving on to stamping dies may not be as close of an adjacency.  Buy company versus buy a product line?  Cost of integration?  If it doesn’t work, how do you pull the plug? Step ahead or behind competition?  The best source of answers to the questions is in creating a strong and effective new product introduction process.

An effective new product introduction process is the result of properly managing product development activities which deliver the right products at the right time, with costs within budgget. By optimizing the process you can shorten the time from a product’s concept initiation to its release to manufacturing, which reduces the risk of uncertainty.  The CFO can help to manage the amount and degree of product change and the lifecycle to minimize the financial impact of obsolescence on inventory.

 

A CFO’s job is to develop the infrastructure to capture the specific new product introduction process steps and help to identify time spent on non-value add activities.   By incorporating best-practice project plan, document templates, and metrics, the CFO can focus on reducing the costs of activities that don’t directly drive the success of the project.  As a necessary member of the team, the CFO helps the team to define, plan, track, and manage each project’s cost.

 

An effective new product introduction process provides project visibility to all team members eliminating the team’s questions about pending assignments.  This can help to control costs by identifying and eliminating unnecessary tasks.  By providing the optimal system, the CFO can help improve the visibility and accelerate the implementation of the new products.

 

An optimal new product introduction process contains four major steps:

1. Initiate the Project. A cross-functional team representing finance, engineering, manufacturing, sales and marketing, and quality, is put together as a core fo the team. An initial project plan is developed from the template based on best practices. Manufacturing and marketing perform trade-off studies to identify potential outsourcing opportunities.

2. Develop Business Plan.  It is often critical to the longevity of the business to validate the profitability of the future product or service. The CFO, using standard business case templates, calculates the cost and business benefit of the project before significant costs are incurred. Marketing must provide the market opportunity, market risk, and technical risk to management so they can evalu­ate the main business drivers behind this project and their effect on the Key Performance Indicators.

3. Execute Project. The major effort and time is expended after the key project criteria are defined and the concerns of management are satisfied.  The deliverables required for the next phase are tightly managed to provide focus and control costs. The team constantly updates the project plan, milestones, and costs, and communicates those updates to management.  The CFO is key to managing the required resources in order to complete the project on-time and within budget.

4. Conduct Milestone Reviews.  Milestones are reviewed throughout the NPI process, ensuring that the predefined condi­tions that need to be met to move on to the next phase of the project. Milestone reviews are necessary for management to decide whether to continue investing in the specific project. Go/No-Go business reviews must be held between critical phases of projects to prevent “throwing good money after bad” and to ensure that project development is on track.

 

Selling New Stuff to New Customers is the riskiest strategy.  Marketing information is important to determine which new customers provide the likeliest ready source for new sales of new products meeting the customer needs.  But the company bears a risk of alienating both the current customer base and the new customers if the products fail to match promises.  Proper execution requires answers to key questions.  Answers that your CFO can provide you.   Answers you need to reach the best possible decisions.  If you don’t have a CFO, well, Every company, regardless of its size, needs a Chief Financial Officer®

More from David Alan Buslee…

About the Author

David has 27 years of financial management and operational experience working as a CFO, Director of Finance and Administration, President, General Manager and Controller for businesses ranging from closely held start-ups to Fortune 500 divisions. David has worked in a variety of industries including software, beverage, electronics manufacturing, precision machining, Mil-Spec and FAA contracting, plating and coating and distribution. David has built successful businesses in Asia, Africa and Europe. David considers himself a business man first, an accounting professional second - looking at overall business environment and company capabilities to develop the proper strategy for growth. David has implemented Lean and Six Sigma disciplines in a variety of organizations. David's diverse industry experience allows him to quickly analyze all aspects of the business to identify problem areas and develop solutions that work. His understanding of finance and operations allows him to develop the financial systems to support the company's operations as well as metrics which quickly tell the health of the organization. He possesses high-level skills in strategic business planning, establishment of operational/financial controls, transaction structuring, systems integration, human resources, and risk management. David has years of expertise in developing financial forecasts that have been used to raise capital and support business plans. David has led MIS, HR as well as Material Management functions. He has successfully selected and implemented a variety of ERP systems for manufacturing and distribution organizations. David has been involved in numerous business acquisitions and possesses the keen ability to dissect legal language and translate the terms so that they clearly state the intentions of the parties. David is a hands on manager and enjoys solving his client's problems. He works well with employees at all levels within an organization and fosters loyalty and top performance from staff members. He is respected for his superb business skills, insight, objectivity, honesty and integrity. David holds a degree in Business Administration from Fort Lewis College in Durango Colorado as well as a Masters in Business Administration from UC Irvine. David earned his CMA in 1994 and his CFM in 2004. David has a certificate in Lean Management from Villanova University.

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