By William F. Brandt, Jr.
I believe in profits. The reality is that to be sustainable, all organizations must generate revenues equal to or greater than what they spend. The mechanism that creates this relationship is the business strategy, an integral element of a vision-driven organization.
A business strategy, also referred to as a business model, is the vehicle by which organizations generate profits—or, as some non-profit organizations prefer to say, “excess revenues over expenses.” By so doing, for-profit organizations create wealth for owners, while non-profits generate cash reserves (the equivalent of wealth) to be held by them for the public good.
A viable business strategy creates a sustainable competitive advantage, meaning that customers, clients and benefactors value their products, services, or causes more than they do the offerings of competing organizations. Such strategies are critical if institutions are to achieve their missions.
For example, when I joined the Board of Trustees of Shenandoah University, the school was in a crisis: It had low enrollments, high-fixed costs, excess capacity, few cash reserves, virtually no endowment, and a small alumni base. In order to survive, the president at the time, Dr. James Davis, froze salaries, cut staff and expenses, and extraordinary efforts were made to meet payrolls.
At the time, Shenandoah, was formulating a viable business strategy, and under Davis’ leadership, a new direction evolved to grow revenue – a two-pronged business model, which—in addition to addressing the school’s immediate needs—served the institution well for the next twenty years:
1. Focus on gaining financial support from members of its local communities. Critical to this was the creation among donors of a sense of ownership in the success of the institution, even though most were not alumni.
2. Develop new academic programs which would be both self-funded through tuitions and fees, and also generate contributions to overhead benefiting the institution overall. The focus of this initiative was the creation of highly sought graduate programs which were in demand nationally. These had the advantage of not requiring the significant financial-aid support required of undergraduate programs.
Over Davis’ twenty-six year tenure, Shenandoah increased the quality of instruction, established graduate programs in eight key areas, expanded enrollment and became a regional university with several nationally recognized programs. While not the only factor, none of this would have been possible without a viable business strategy. Under the leadership of Dr. Tracy Fitzsimmons, who succeeded Davis as Shenandoah’s president, the institution continues to prosper and grow with a new strategy built upon the successes of the past.
Many institutions develop five-year or ten-year plans that are little more than extrapolations of past trends into the future. Annual budgeting becomes an exercise where those at lower levels vie for a greater percentage of the organization’s resources, while senior management decides how best to split the pie.
Frequently, leaders of successful enterprises are not even aware of their entities’ underlying business strategies. Often such leaders took the helm when times were good and implicitly assumed that they would remain so. It usually takes a crisis for such individuals to examine their business strategies—and often this is too late. When economic downturns hit, many leaders find that what had worked for decades has now become obsolete.
Early in my career, I had the fortune of leading American Woodmark’s predecessor company through an economic downturn and I have subsequently led my company, American Woodmark, through two others. Each instance made us acutely aware of the strengths and weaknesses of our business model and afforded us the freedom to make difficult choices that might not have been available in better times. In each situation, our vision was not only to survive the downturn but also to enhance our competitive posture as we exited it. None of these initiatives would have been made as part of the normal budgeting and business planning cycle.
For either a for-profit or non-profit institution, there is no alternative but to create a viable business strategy where the organization sustains a competitive advantage and a positive cash flow. While not the only factor, viable business strategies are crucial to the creation of exceptional organizations.
William F. Brandt, Jr., is cofounder and former CEO of American Woodmark Corporation—the third largest producer of kitchen cabinets in America. His books include the winner of 22 Book Awards COMPASS—Creating Exceptional Organizations: A Leader’s Guide and COMPASS TOOL KIT, the teaching companion to COMPASS (www.WinterValePress.com ).
Copyright 2015 © William F. Brandt, Jr.