LEADERSHIP - A Key Fundamental Business Tenant

Situation: You have been working 14+ hour days on a very important request for proposal (RFP) for the mid-sized company for which you work. You haven’t seen much of your family, and your spouse is starting to get pretty agitated with you. While you explain to her how the extra time you put into this proposal will really benefit the company and its ability to land some key new accounts, it is increasingly falling on deaf ears. You and your team are among the highest performers in the company and have been motivated in large part because you know your efforts really make a difference. Recently, you have been wondering if being the “A-team” is really worth it.

One afternoon as you are contemplating whether or not to work late to tighten up the RFP and potentially insert additional client studies that would make the RFP stand out, you look out at the golf course view you have from your office. There is a foursome playing the hole near your building and you notice it is your boss, the CEO and two of the sales guys on the account for whom the RFP is being prepared. “Damn it!” you mumble. “Here I am killing myself and pulling in chits from my wife to stay late to make this RFP sing and those guys are out there playing golf. I know when the RFP gets submitted, the CEO and the sales guys are going to expect me to present the details that they should be explaining to the client. On top of that, the sales guys get the commission and the CEO is going to get a big pat on the back (and a bunch of stock) when we land these next accounts. You know what, the RFP is good enough – I’m going home.”

How does a leader get the best out of his/her people? Or conversely, how does a leader prevent his/her “A” players from working like “B” players?

Build a Team, Choose a Path and Motivate

While there have been countless books written on how to best lead, I believe all of it boils down to those three concepts. Trust, communication, setting an example, being decisive, taking responsibility, etc., are all critical to being a strong leader, but those characteristics have to drive (1) Building a Team, (2) Choosing a Path, and (3) Motivating people.

It is unfortunately unusual to find a leader that is truly effective and understands the importance of these three points. Often times whether due to poor mentoring, personal insecurities, fear, ego, rigid views around hierarchy, poor listening skills, or a host of other issues, many “leaders” fail to do one or all three effectively. Getting people to do what you want because they fear you (a la Kim Jong Il) is not leading. Leading is creating an environment where people come together naturally in the pursuit of a common goal and motivating them to perform at high levels of productivity.

Building a team:  One builds a maximally effective team by creating an environment where all members of a group feel their participation and perspective is valued, their input is considered and free communication fosters unfettered debate. I touched on this in the very first post – the foundation of building a team is trust. An effective team has Respect for each other, engages in open Debate, focuses on Logic not emotion, it is Business not personal, has a Clear Action Plan, and holds others in the team Accountable.

Choosing a Path:  Ultimately it is the leader who is accountable for the direction of the organization. Before choosing a path though, the effective leader should have an intimate grasp of the complexities of the organization, business, and the problem through diligence with members of the organization and its stake holders. This requires listening and thinking. The leader takes this mindful diligence and open team debate and arrives at his/her view of the right goal for the organization and the best path to take to achieve that goal. If there has been sufficient diligence and debate, whatever direction the leader arrives at (note the direction is not determined by group vote, but by the leader assessing all input), then there will be group buy-in and ownership of the goal.

Motivating People:  Motivating people is a complex endeavor. I believe the best motivators are actually those that don’t appear to be doing it. It is like the old Zen concept of mastering something without focusing on it. While there are many examples in sports of coaches motivating players before a big game to out-perform their expectations ...and then the Americans beat the Soviets... in the business world motivational pep-talks are valuable but don’t generally drive long term consistent motivation. As important as they are, corporate goals rarely generate the same kind of white-hot passion as winning Olympic gold. To motivate effectively over the long term, the business leader must build the right team, chose the right path, then by lead by example (inspire through actions). Leading by example could be as obvious as the leader going out and meeting with all the customers or staying late with the team that is cranking on the new customer RFP, or it could be something small like helping set up at a trade show or vacuuming the storage room. If the rest of the team knows that you are willing to do what it takes to reach the goal and you are not asking them to do something you wouldn’t do, then they will be right by your side, in many cases way ahead of you. Conversely, regardless of Knute Rockne-esque words, if the leader is not giving 100%, the team will lose its passion.

Obviously, a leader can also motivate using money, recognition, or other “compensation”. While compensation is certainly an important component of corporate motivation (as we all want to get paid for what we do), without the motivation resultant from building a team, choosing a path, and leading by example, the motivation will be fleeting. More often than not, companies use compensation to make up for lack of true leadership in their staff and then wonder why the improved performance didn’t last after the bonus check was cut.

So, if you want your staff to go the extra mile, add the extra zip to the customer presentation, or burn the midnight oil because “it will really make a difference”, then they need to know they are part of a team that they trust, are working for a common agreed upon goal, and see you right there with them. The great leader creates that kind of environment and in doing so turns the vast majority of the group into high performance A players that put in 14 hour days with a smile rather than 8 hour days with a frown and monster.com on speed dial.

-Bob

ADVISORS - Business Tactics

Situation: You have a small but growing web business selling bicycles you and several of your friends are buying used and fixing up. You just found out that a school district in the city did a “donate your old bike” program to raise money and they are willing to sell you 500 bikes for $20,000. You know you can turn around and sell these for $40,000 with a couple weeks of re-habbing. That said, they need to know in 48 hours or they will sell them to a salvage place. Fortunately, you have been working with a local bank to put in place a line of credit for this kind of big purchase. The bank is well respected by people in the community and has been around for a while. After providing the bank with tons of information about your business and your personal situation, they are willing to give you a line of credit. You just received the loan documents.  Knowing you should, you slog through the papers - while pretty complicated, it all sounds fine to you and you grab your pen. Just before you press the tip to the paper, you think…hmmm I could have my friend Jim who used to be a banker read this just in case, but I wouldn’t want to trouble him to get this done in the time I need. You sign. You get the money, you buy the bikes, the world is good…

Two days later, while you and a team of friends are covered in grease working the new bikes, the bank calls you and says they have had a change in strategy and, pursuant to section 6.c of the loan agreement, they are accelerating payment on the $20,000. "Please come down and pay us by the end of the day...Huh?!?!?!?” Shocked, you pull out the document and on page 12 you read section 6. entitled “Other Provisions”. 6.c says “In the sole discretion of the lender, in the event that the lender feels insecure, the lender may accelerate all outstandings under the line of credit.” You scramble, and fortunately you are able to borrow $20,000 from your friends to cover it.

You might think this is an extreme example – it is not. Two years ago, I had a friend who was running a business much larger than the bike business above that, before he pressed the pen to the paper, called me. I read the loan document and that exact language was in the agreement. The bank was using the “insecure” language to give them a broad “out”. This is a very reputable bank and they weren’t trying to screw my friend, it was just their boilerplate language that was there to protect them. Fortunately, I told him to go back to the bank and have them change that section and about 5 others. They did and he got a loan that he could live with…the world was good.

Seek Advice

Regardless of your experience, energy level and commitment, the first thing any business person understands is that you need help. Until cloning technology advances sufficiently or your dream of the 36 hour day becomes real, you will not be able to do everything yourself. While obvious, this is often a difficult thing for driven entrepreneurs and CEOs of established companies to come to grips with. It might be the “I can do it” DNA that has made them successful, the belief that a leader has to have all the answers, they don’t want to bother their business acquaintances, or they are wary of people that get paid as consultants.  That said, a truly effective leader knows that he/she doesn’t have all the answers and they strive to surround themselves with a strong engaged team (that might be smarter than the leader in many subjects) and a broad network of willing advisors.

The most obvious areas where advisors play a significant role are Legal, Finance / Banking / Raising Money, Accounting, HR, Insurance, Web, etc. Also make sure you seek input on other core topics like Strategy, Branding, Operations, Sales, Marketing, etc. Seek out experts in all these areas. Tell your story to as many people as you can, always listen and consider how what they say might improve what you are doing.

There are endless vendors that look to get paid to provide you with services, advisory or otherwise. That said, in many of these cases you should be able to get a significant amount of free advice or work if you actively seek advice from your network of friends and business acquaintances. They might not be able to provide you the advice, but they probably can point you to someone who can. When you do have to pay for advice, you will likely be buying it from a vendor / advisor that is connected to your network and cares about building a relationship with you, not just selling you a service.

I want to spend a minute on this last point. Virtually all service providers / advisors will insist that they care most about “building a relationship”. I can’t tell you how many times I have heard this. Unfortunately in the vast majority of cases, “building a relationship” in their minds means they want to get to know your business so as not to sell you just one product, but to sell you every product they have. Getting to know you and building a relationship in this sense is highly one-way.

In evaluating advisors and vendors, look for that vendor that truly helps you build the business. They are out there. For example, I have worked with an accounting firm that, before they were even hired to do accounting work, provided highly valuable advice on systems, financials, tax issues, compensation challenges, personal financial topics and connected me with several parties that helped me raise money and grow revenues. All for free.

One interesting facet of this relationship is that my main contact person there is a tax guy, probably an area one considers very narrow relative to vendor advice. What makes this person so unique, and consequently my view of the firm so different, is that he is able to call on all parts of his organization to help - for free. He is able to “make the corporate elephant dance”. This reflects incredibly well on the firm. They are going the extra mile and truly building a long term relationship that is two-way. This firm is a trusted advisor and one with whom I will do business the rest of my career.

Thoughts on getting the best advice.

- Mine your network of friends and business acquaintances for advice or connections to experts.

- Go to all those boring business networking events and get to know the respected firms / people.

- When you meet someone with an expertise, tell them what you are doing and gain insight – they may offer to help.

- In evaluating an advisor, trust your gut as much as looking at their pedigree, firm or client list.

- Ask yourself if they will truly build a long term relationship, or will they be a “drive-by” vendor.

- Are they getting to know your business to sell you more stuff or so they can best leverage their network to help you (make their elephant dance).

- Do they help you in “non-billable” aspects of your business: Provide free services, introduce you to people that help build your network or business, refer business your way, etc.

- If you are bidding out work, make sure you have several strong firms competing against each other so that in addition to getting the best service, you are getting the best price.

- With any vendor, make sure you speak with many of their past clients and compare what you hear.

- Seek more than one opinion.  The video link below is an obvious example of that.

If you consider the above points, you will likely find people that are willing to give you very sage advice, in many cases for free. In order to get the sufficient expertise or depth of advice you may need to compensate some people for their input.  If you sufficiently canvas the people you know or know in the industry, you will likely be getting the best advice when you have to pay for it.

-Bob

Click here to see a pretty well known (though not necessarily respected) advisor get something very wrong

...and just to prove the above photo was not a fake.

FOCUS - A Key Fundamental Business Tenant

Situation: The Vice President of Sales for a young snack food company runs into the Founder’s office and says “I just had lunch with an importer who has done a ton of business in Asia. We were talking about how well our main product would do there and he said the only thing we would have to do is translate the label! What is really great is that he said he would be willing to buy a container so we would not be on the hook if it didn’t sell. If we sold a container of product, that would really make up for our being behind plan in our main US business this quarter.”

The Founder contemplates this idea. “I don’t know…. I am concerned about throwing a package change at Jim in marketing who is already overloaded with our new local marketing campaign. That campaign is focused on our core midwest consumers so that we can stop the high level of discounting we are doing to move product in that region. I agree our product would kill it in the international markets, our largest shareholder mentions it every time I see him. A full container would be the largest single order in company history and boy we could use that volume.”

What should they do?

FOCUS

One of the biggest challenges for most companies, particularly small to medium size ones, is managing the myriad of opportunities for growth that arise. Unfortunately, more often than not companies launch that new product, open that new region, hire that new executive, close that acquisition in the euphoric spirit of growth but sacrifice essential focus on the core competencies of the company or team, or the benefits its key products provide to its core consumers / clients. Maintaining focus is difficult for companies of all sizes, but small to medium size companies tend to lose focus due to abundance of opportunity and passion where larger companies often lose focus as they strive to bring growth back into the business. (I will focus on smaller companies in this post.)

One of the main reasons small to medium size companies have difficulty maintaining focus is that they are constantly bombarded with new ways to grow: new products, new markets, new territories, new customers, new technologies, new market trends, etc. Typically these companies have unique or innovative products and services that attract opportunity. They gain increased awareness in the industry, the media begins to notice them, vendors or customers pass along new ideas, friends and family enthusiastically forward ways to help out and the phone starts to ring. Additionally, one of the strengths of a smaller organization (ie. that decisions can be made quickly and the company can be nimble when attacking opportunities) can be a weakness in that new directions can get set without thorough analysis. Combine all of that with the intense passion and spirit that are required to make a young company successful, and the temptation to follow and act on every lead, market and product idea is great.

While this passion, hunt for opportunity and desire to find new ways to fill society’s needs are the essential engine of progress and innovation, the manager of a young company needs to balance that with a steely eyed focus on the mission of the company, the core market and consumers, and the key product benefits. Without that focus the direction of the company can shift frequently, the team can get demotivated, the organization can become highly inefficient, the customer can get confused and leave, and the cash balance can dwindle quickly. Here is just a sample of the repercussions:

- You will dilute your already scarce resources – money, people, time.

- The company will launch new products or enter new markets without sufficient research into the full implications to the business model, financials, organization, brand and long term strategy.

- Customers will become confused as to what the company truly stands for and what its products / services truly deliver. They will migrate away from you. This is death for a “brand”.

- The team will feel like the company direction shifts constantly, the place will feel unstable, even passionate employees will lose their desire to go the extra mile (because the work they did last month is not helping this month’s strategy.) The best people will leave.

- Corporate culture will be virtually impossible to build and maintain.

- Revenue growth and profitability will suffer as money spent on prior initiatives is lost as new initiatives become priority.

How do you not lose sight of organizational focus?

- Know the company’s core mission and soul. Why does it exist in the first place?

- Understand exactly the core customer need you are filling. Get granular with this. You may think your product or service has a dozen uses. That may be, but you need to focus your energies on the key one that sits at the core customer need.

- Know your customer and market cold. This is related to the prior bullet, but in addition to understanding the need, you need to understand the key customer and market you serve intimately and you need to target them with unwavering focus.

-Understand your true competitive differentiation - why your product / service fills the customer need better than the other alternatives in the market.

- Concentrate on doing these core things really really well in one market first. If you do this, you will get well known in your key market, build a core customer group of fanatics, and have a solid base upon which to expand. This means you don’t launch in Asia if you have not yet “owned” your key customers and markets.

- Communicate the core competencies and strategy with abandon. Communicate to everyone all the time. To your staff, your investors, your customers, your clients, the media. Do it all the time, in staff meetings, company meetings, sales calls, on company fliers, on the walls in the office, in marketing material. Be consistent. This defines you and helps you build a brand rather than just sell a service or product.

When considering new avenues of growth (products, markets, etc.) stay focused and be an incredibly good listener. Trust your team and let unfiltered debate take place. If you and the team are focused on your core competencies, then the company will make the right decisions about new growth opportunities and all members of the team will know that their tireless efforts are a part of a grand and well defined strategy.

-Bob

Click here for unbelievable video footage of what happens when you don't focus

TRUST - A Key Fundamental Business Tenant

Situation: Sitting with a group of people (a meeting, a cocktail party, a casual conversation, whatever) and one of the people in the group feels really strongly about the topic, seems to know more than the others, or has significant power over the fortunes of the others. You have something important to contribute that might contradict the prevailing wind of discussion, might add a relevant overlooked fact, or might just force the group to consider the merits of an alternative course of action. What determines whether or not you speak your mind?

TRUST

In all organizations, young / old, small / large, public / private, interpersonal dynamics determine whether a group maximizes the knowledge and skill of its members. If each team member trusts that his/her opinion will be respected and honestly considered and that everyone will be held accountable to “do what they say they will do”, then the group will benefit from open dialogue and will likely arrive at the best course of action. Without that trust, team members will play politics and only reinforce the view point of the strongest willed member or will only shallowly bring up opinions counter to the conversational trend.

You say, "Yea, I know this – it is pretty basic Group Think stuff…" Might be basic, but it is everywhere and personal insecurities make sure it is unfortunately the norm.

Trust in the Team: The foundation of a healthy and successful organization is building and maintaining a cohesive leadership team whose interaction is based on trust. It is the goal of the effective leader to snuff out the tendency of any group to orbit dominant personalities – particularly that of the leader. Trust is not created by saying “I will not fire you if you disagree with me”, or “my door is always open”, true trust is built over time through many interactions reinforcing the following:

- Respect: Team members know they won’t get their head "bitten off" if they speak their mind.  (See the picture above.)

- Debate: The team engages in energetic unfiltered debate around important topics (and doesn’t waste energy on trivial issues.)

- Logic: Debate centers around logic and fact, not emotion and personalities.

- Business, not personal: Each team member knows that everyone has the best interests of the team / organization at heart - all discussion is about the business, it is not personal.

- Clear action plan: The team and individuals commit to specific plans of action.

- Accountability: The team follows up on progress and holds one another accountable.

While seemingly obvious, in practice most organizations / teams fail in at least one of the above areas. The last two (Clear action plan and Accountability) are often surprisingly difficult. You can have unfettered debate, respect for your team members and focus on logic not emotion, but if you do not set clear action plans and hold the team members accountable daily and weekly, politics will prevail. People will realize that success is not necessarily based upon performance and will focus on the fact that some people are not equally pulling their oars. All members of the team must feel comfortable calling out missed deadlines - not meeting action plans impacts the success of entire team, not just the individual.

Diagnosing Trust in an Organization: How do you know if you have a “Trusting Team”? (Excerpted from Patrick Lencioni’s The Five Dysfunctions of a Team – Jossey-Bass 2002)

Members of a Trusting Team:

- Admit weaknesses and mistakes

- Ask for help and constructive feedback about their areas of responsibility

- Take risks in offering others feedback and assistance

- Appreciate and tap into one another’s skills and experiences

- Focus time and energy on important issues, not politics

- Openly address viewpoints of other’s performance in the group (no backstabbing)

- Have leaders that are good listeners and encourage a free flow of dialogue

- Look forward to meetings and other opportunities to work as a group

Members of a Team in the absence of Trust:

- Conceal their weaknesses and mistakes from one another

- Hesitate to ask for help or provide constructive feedback

- Say negative things about members of the team behind their backs & hold grudges

- Fail to recognize and tap into one another’s skills and experiences

- Are afraid to hold others accountable for lack of performance

- Have “table pounding” emotional or insecure leaders that dictate discussions

- Dread meetings and find reasons to avoid spending time as a group

The next time you are in a group setting, I encourage you to assess what type of group dynamics are going on. Does the conversation flow freely with people highly engaged, readily accepting constructive criticism and you don’t feel time passing? Or is the discussion dominated by one or two individuals with the others seeming like spectators until the topic gets to their area of expertise and you look at your watch every 10 minutes thinking you need another cup of coffee?

If you are in the latter group, there may be some very drastic things you will have to do to change the dynamics and culture of that organization. But that is for a future post…

-Bob

First Posting to The Young Business Blog (TYBB)

I am starting The YBB because of what I see as a general lack of relevant and actionable content written by people that have actually lived through starting, growing, funding, and transitioning a business.  Most content is written by consultants or vendors (bankers, lawyers, accountants, etc.) who have only seen it from a distance or been advisors for a short period of time.  While I have been a banker helping others fund their business plans, I have also lived the dream (nightmare to some) of actually implementing growth strategies for a start-up as well as a public company.  I intend to keep these postings generally short and manageable (not massive B-school essays) that touch on the main points of an issue.  I may deepen a discussion if I get sufficient feedback requesting more detail.  I am also one that doesn't take myself too seriously, and as such I hope this to be entertaining - if not, no one will read it.

The following outlines some of the topics I intend to cover:

Key Fundamental Business Tenants regardless of business size.

Considerations for the really young business:
• Turning an idea into reality - what an idea needs to have any chance at all.
• The business plan - what do I really need to do?
• Raising money - dos and don't, banker or no? other considerations.
• The financial plan - how do I do this and what does this have to be to raise the money?
• Hiring your first staff, hiring people over the coming years, firing people.
• Strategy - what is it really and why does it matter?
• The biggest ways things go wrong.
• The most important things to get right.

Considerations for business adolesence:
• "Yippee we closed that huge account...Oh no, what is it going to do to our business?"
• Funding the growth - how much capital? what kind of capital? where do we get it? what do we give up / how much will it cost?
• Growing the team, managing the team, culling the team, incenting the team, keeping the team motivated and bought in.
• Roles of the Founders vs. other senior staff.
• Building the systems you need to scale from 3 guys and a fax machine to a real business.
• Staying Focused - avoid a huge fatal mistake.
• The Business Model - Do we have a sustainable business?
• COGS & Operations.
• Selling & Marketing.
• General & Admin costs.
• Partnering & Alliances.
• Where is it all going? Planning for the end-game.
• The biggest ways things can go wrong.
• The most important things to get right.


Considerations for managing the business in its adulthood.
• Corporate strategy & retaining competitive differentiation.
• Maintaining corporate culture and maximizing team effectiveness.
• Refining the business model to maintain high growth while improving profitability
• Considerations related to capital structure - debt vs. equity and the different permutations.
• "Should I Stay or Should I Go" - considerations around executive staff and corporate evolution.
• Executing on the end-game.  Sale to a strategic buyer, a financial buyer, an IPO, other options, etc.

My goal is to post once a week.  I expect generally to follow the above, but there may be weeks when I write about something that I feel is particularly relevant at that time that doesn't completely fit in the outline above. 

I welcome broad feedback and questions.  Feel free to email me at bobpink1@comcast.net.

Thanks

-Bob