Book: What the CEO wants you to know

 

1.     Practice business acumen everyday

2.     The best CEO’s the ones whose companies make money year after year – are like the best teacher you ever had.  They are able to take the complexity and mystery out of business by focusing on the core fundamentals.

3.     They have business acumen – the ability to understand the building blocks of how a one-person operation or a very big business makes money

4.     They never lose sight of the basics….their intense focus on the fundamentals of business…is the secret to their success

5.     If he makes a profit, saves some money, and has the right people around him, he can grow the business

6.     Every business is the same inside….Money making in business has three basic parts: cash generation, return on assets (a combination of margin and velocity), and growth

7.     Add consumers to these three parts of money making – cash generation, return on assets, growth and you have the core, or nucleus of any business

8.     Cash generation – is several important indications of money-making ability

9.     Return on assets – borrow from abank or use your savings…that money represents your investment, or you investment capital….the thins you have invested in are assets

10.                        Return on investment or return on equity (equity is the money shareholders have invested in the business).  How much money are you making with your investments, or with the money shareholders have invested in the company

11.                        Earning a good return has two ingredients – profit margin and velocity – the more quickly she sold the more she accumulated 0 velocity describes the speed of turnover, or movement

12.                         Inventory velocity – divide total sales by total inventory…more to the customer, faster and better

13.                        The faster the velocity, the higher the return….return on assets is nothing more than profit margin multiplied by asset velocity.

14.                        R = Margin X Velocity or R=M X V

15.                        The best companies have a return on assets greater than 10 % after tax

16.                        Margin refers to net profit margin after taxes….all the money the company earns after paying all its expenses, interest payments and taxes

17.                         ROA – multiply margin by velocity of assets (sales divided by assets)

18.                         ROI – multiply profit margin by velocity of investment (sales divided by investment)

19.                        ROE – multiply profit margin by velocity of equity (sales divided by equity)

20.                        Many people focus on profit margin, but they overlook velocity…think about both margin and velocity

21.                        Growth is vital to prosperity…people are attracted to growth, opportunities and to make something happen…it has to be profitable and sustainable.  It is a psychological dimension…energizes a business…new talent and fresh ideas

22.                        Bankruptcy is often the sad end of misguided expansion plans

23.                        Pushing for more sales dollars is not necessarily good business.  You have to have how and why your are growing and consider whether you are growing in a way that can continue

24.                        Are you growing in a way that is generating or consuming cash…is your profit margin improving or getting worse?

25.                         Customers simply need a reason to buy from you…give them something they really want and need

26.                        Begin with the basics of money making and then try to get a feel for how they work together

27.                        What were your company’s sales during the last year?

28.                        Is the company growing? Or is growth flat or declining? Is this growth picture good enough?

29.                        What is your company’s profit margin? Is it growing declining, or flat?

30.                        How does your margin compare with your competitors? How does it come with those of other industries?

31.                        Do you know your company’s inventory velocity? …Its asset velocity?

32.                        What is your company’s return on assets?

33.                        Is your company’s cash generation increasing or decreasing? Why is it going one way or the other?

34.                         Is your company gaining or losing against the competition?

35.                         Suppose you work for a company and you know that the company is a net cash generator, that its margins are very good compared with its competitors’ but low compared with those of other industries, that sales growth is not as good as you would like and velocity is low… what would you do?  Would you have abetter sense of what to focus on? Would you have a sense of urgency?  You would look for ways to improve customer satisfaction or increase productivity.  You might focus on developing exciting new products and work hard to launch them quickly…you might make extra efforts to ensure that big investments are made in areas where the business is growing profitably

36.                         The best CEO’s use their business acumen to reduce complexity, whether internal or external to the company, to the basics of money making

37.                        Choose the three or four business priorities (no more than five) that will retain customers and achieve all the important money making goals at the same time – all in the context of the real world….the most important actions that need to be taken at a certain point in time

38.                         If you get more sales using the same assets, velocity will increase

39.                        Many business leaders falter because they become overwhelmed or indecisive…some do not set clear priorities, or they lose focus, especially it their judgments come into question.  If the leader fails to set priorities, keeps, changing his mind or communicates them poorly, the whole organization loses energy

40.                         If he sets business priorities and communicates them clearly and often, people will have a better sense of what to do

41.                        Wealth is more than making money…The best CEO’s understand that money making and wealth creation are linked through what is know as the price-earnings multiple – also called the P-E multiple or P-E ratio….the P is the price of an individual share of stock and the E is earnings per share – how much profit the company made for each share of stock

42.                         The best CEO’s use their business acumen to cut through the complexity of their business, their industry and the broader business environment. They continually improve the fundamentals of money making, and by doing so consistently and relentlessly over time, they create a track record

43.                        Growing people takes courage…how to make money is one thing…making it happen, getting it done, executing it is something else

44.                        Leaders have to deliver results day in, day out, relentlessly and consistently over a long period of time.  Delivering results is what gives an organization energy, build confidence and generates the resources to go forward

45.                        A leader of people knows how to get it done.  Harness the efforts of other people, expand their personal capacity, and synchronize their efforts to get results.  If you do all that, you get results.  That is what I call an edge in execution

46.                        It takes insight into how the organization really works and how to link people’s actions and decisions to the right priorities

47.                        Every business needs the right people in the right jobs

48.                        Coaching – people who do well in a job also need attention.  A true leader of people expands their capacity by helping them channel their skills, develop their abilities, and release their positive energy.  Expanding capacity may mean giving the person a “stretch job” that will force him to develop a new skill or gain a new perspective

49.                        Making groups decisive…as an organization grows and you have dozens, of people working together, synchronization becomes a greater challenge.  To divide responsibilities you create an organizational structure

50.                        Do the work on the business side first.  Set the priorities.  Then take the time to design social operating mechanism, whether a conference call or a fifteen-minute meeting, that gets information flowing and the right people talking

51.                        Discussion questions should be specific and simple enough to be answered in two minutes; all participants should  be put at ease and encouraged to contribute; meetings should be shore, so people don’t lose interest; information should be processed along the way and summarized at the end

52.                        CEO’s – successful – have a common pattern – they have mastered both the business side and the people side

53.                        Assess the total business – questions listed before – p. 131

54.                        Is there excess capacity in the industry?

55.                        Is the industry consolidating?

56.                        Do you face stiff pricing competition?

57.                        Might your business be affected by currency fluctuations or changes in interest rates one way or the other?

58.                        Are you facing new competitors?

59.                        What is happening in e-commerce? How might that affect the company?

60.                        What are the two or three non-negotiable requirements of the job now and tow years out?

61.                        What are the two or three things you would call the individual’s natural talents and drive?

62.                        What is the one major blind side of the person that might prevent him or her from growing further?

63.                        How can you help coach this person?

64.                        Are ideas and information exchanged openly and filter-free?

65.                        What is the speed of decision making?

66.                        Do decisions stick, or are they often revisited and reworked?

67.                        Do people find meetings constructive and energy building or destructive and energy-draining?

68.                        Be a leader of the business

69.                        Synchronize the organization.  Link people’s efforts to the business priorities.  Find mechanisms that increase the information flow and coordinate people’s work.  Make the group more decisive.  Build the team.