Wayne Wilson on Companies in Transition

Getting a return on “luck”

We all hope to “get lucky.” Right? But what do we mean by “get lucky” and how does one benefit from “being lucky”?

Jim Collins, author of Good to Great and Great by Choice, says that the causes of luck could be “randomness or complexity or anything in between.” He defines a “luck event” as any event that meets three tests ¹:

• it happens outside of your doing
• it has a potentially significant consequence - maybe good, maybe bad
• it is unpredictable

But the real key to getting a “return on luck” is what you do when a lucky event occurs:

• Does it cause you to change your plans?
• Do you grab it? or
• Do you run away from it?

According to Collins, great companies are not any luckier than other companies; the great companies just do a better job of capitalizing on the luck that comes their way.

_________

¹ FinancialExecutive, January/February 2012, p. 31

David Petraeus on strategic leadership

A new book about General David Petraeus’ year as commander of NATO forces in Afghanistan [1] describes at one point four tasks which all strategic leaders - be they military, political, or business - must undertake if they are to be successful.

• First, “get the big ideas right”
• Second, communicate “those big ideas”
• Third, oversee “the implementation of those big ideas”, and
• Fourth, capture the “best practices and lessons” and use them to refine the ideas and process.

There is no magic here, but rather a virtuous circle of continuous improvement if the process is implemented correctly.

“Big ideas” are really about key themes - vision, mission, goals - and the strategies that the leader must develop and employ to move his/her thematic agenda forward. In business turnaround situations, these ideas usually involve an assessment of an organization’s capabilities and the market opportunities available to it coupled with a short list of carefully thought out strategies for actually making something out of the combination.

“Communicating the big ideas” often must begin even before the strategies have been formulated because the leader needs the insights, skills, and efforts of others in the organization to ensure that the hoped-for “big ideas” will actually work (a virtuous circle within a virtuous circle if you will).

None of this matters if the "big ideas" are not implemented. Choosing the right lieutenants, communicating with and through them constantly, setting a proper example, demonstrating your commitment to the “big ideas” through  the decisions you make - all of these are important to laying the groundwork for other associates down the line to actually carry out the work of transformation which they will only undertake once they are convinced that the leader is serious about his/her agenda.

And finally, capturing, distilling, communicating and re-enforcing “lessons learned” enables this process to repeat itself with increasing levels of productivity and effectiveness because successful turnarounds invariably require multiple cycles through this process to generate truly successful performance improvement.

If it were easy, organizations wouldn't need strategic leaders.

____________

[1] Paula Broadwell and Vernon Loeb. All In: The Education of General David Petraeus at amazon.com.

Defining entrepreneurs

According to a new book [1] by John Byrne, successful entrepreneurs have three defining characteristics:

• First – Entrepreneurs see opportunities where others see problems. Great examples include Reed Hastings at Netflix and Jeff Bezos at Amazon.com. Their experience suggests that your reality (and therefore your opportunity for success) is a function of how you view the world, not just some objective reality uninfluenced by the people in it.

• Second – Entrepreneurs understand and live with risk and failure. Success often comes only after multiple risk taking and failures. But all risks are not created equal: successful entrepreneurs have an uncanny ability to size up the risks they are taking in a way that affords them a greater than normal opportunity for reward. They take on calculated risks with outsized opportunities for success. Yes, they often fail, but when they win, they win BIG.

• Third – Entrepreneurs want to control their own destiny. They do not particularly like working in teams, and they rarely like taking orders from others. They are independent, rebels. They see the world differently, and they readily take on high stakes efforts to literally change the world. Think Steve Jobs, Larry Ellison, Bill Gates.

In many ways, true entrepreneurs self-select. They are born with certain characteristics and pre-dispositions that drive them to strike out on their own when confronted with difficulty and adversity. But all entrepreneurs are not created equal, and there are varying degrees of entrepreneurial drive.

Owner/CEOs have a wonderful opportunity to mentor the next generation of entrepreneurs, as well as grow their own businesses, by vigilantly seeking out young entrepreneurial associates and giving them room to grow and show what they can do.

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[1] World Changers: 25 Entrepreneurs Who Changed Business As We Knew It. By John Byrne. Portfolio; at  Amazon.com.

Leadership is about “followship”

Sally Jenkins column in the Washington Post about the Denver Broncos’ Tim Tebow calls out some critical elements of true leadership. According to psychologist Robert Hogan, leadership is really about the qualities of the would-be leader that will cause would-be followers to want to follow them.

Followers want four things from their leaders:

• Integrity,
• Confidence,
• Decision-making, and
• Clarity.

Followers don’t want:

• Irritability,
• Moodiness,
• Untrustworthiness,
• Indec­i­sive­­­ness,
• Needless micro-management, and
• Excessive authority.

How do you stack up against this list?

Read the article.

When failure is not failure

“A failure is not always a mistake, it may simply be the best one can do under the circumstances. The real mistake is to stop trying." -- B.F. Skinner, American psychologist, inventor and author

Failure is often the one thing people try to avoid – sometimes to their detriment. But should they? I prefer to think of failures in three varieties:

• “Bet the ranch” failures – generally to be avoided, they should only be undertaken in dire circumstances and with the full knowledge of owners or boards of directors. In the recent financial crisis many financial firms were “betting the ranch” without knowing or explicitly acknowledging the gravity of the business risks being undertaken.

• Costly failures – these business failures occur frequently and systemically have much in common with the first group: all of the risks of a given course of action have often not been properly recognized, evaluated, and/or communicated to the relevant owners or boards. Anticipating risks and planning for their mitigation is an integral part of minimizing costly failures.

• Learning failures – these are or should be the most common and should be encouraged in most organizations. Sometimes, we simply cannot know what will work until we try something. A great example of encouraging “learning failure” risk taking occurs in direct marketing where the mantra is “test, test, test” before rolling out a major marketing campaign. The goal is to incur lots of small failures while working out the campaign details before risking large amounts of money.

Maybe we should change the conversation – instead of “try and fail”, let’s call it “test, test, test.”

Intelligence versus judgment

“Intelligence is nice, but good judgment is better. Beware of smart managers who have limited vision.” – Bill Starling, CEO of Synecor and Managing Director of Synergy Life Science Partners

Bill has it right. Good judgment, like timing, is everything. You can be the smartest person in the world, but if you don’t know what to do with those smarts, you won’t accomplish much for yourself or anyone else.

A recent article in the New York Times about young lawyers makes the case that many law schools have become too academically oriented; they don’t train their students to become practical lawyers who can actually do anything useful for clients.

Effective management also requires smart people who have acquired some base of knowledge and who have developed skill at applying that knowledge to real-world situations. Many large companies have formal management training programs specifically geared to bridging that transition from academic learning to practical application. They are apprenticeships by another name.

How can owner/CEOs of smaller companies bridge this training gap?

Many small/medium-sized companies simply hire experienced people from large companies. This is a time-honored way to gain experienced people.

In the current soft labor market, consider hiring the smartest people you can find and train them on-the-job. Look for energetic self-starters who are attracted to your particular type of business and give them early responsibility in bite-sized chunks.

Keep in mind that people tend to learn more from their mistakes than from their successes. Just don’t let them risk more than you can afford for them to lose.

Truth or Consequences

“Convictions are more dangerous enemies of truth than lies.”

– Friedrich Nietzsche

Our politicians in Washington today are playing truth or consequences: “accept my truth or suffer the consequences” – raise/don't raise the debt ceiling or the country will collapse; cut spending/spend more or the country will collapse; raise/hold the line on taxes or the country will collapse. You get the picture.

Both politics and business involve the art of compromise; there is no place in either for zealots. What business owners, and all Americans want, is a plan for moving forward that is fair to all without gouging one group or leaving others destitute. American citizens, and shareholders, want results, not rhetoric; progress on the issues, not promises; “we are all in this together” convergence, not continuous conflict.

Let’s keep moving.

Moms Rule

Every once in a while I come across a new article, book or blog that jumps out at me with "Hey, I'm different! You might want to take a closer look."

This morning's pleasant surprise was The Mogul Mom, a blog founded by Heather Allard and written by a team of contributors for Moms running a home business while raising kids. Too often, we forget that the world would eventually come to a stop if there weren't some moms raising kids. On the other hand, I'm the father of two professionally trained daughters, and I want them to have every opportunity possible to have everything they want.

The best part about The Mogul Mom is that many of the articles and tips are applicable to any type of business, not just home-based businesses run by stay-at-home moms. Here are two examples with refreshing twists on old topics:

7.5 Tips To A Better Testimonial

5 Steps To A Landing Page That Converts Like Crazy

And this one was the best - 3 Life Lessons I Learned From My 3 Parents

Life is short - take in everything you can!

What world are we living in?

Thomas Friedman's column in Sunday's New York Times (Serious in Singapore) describes the nimbleness of Singapore's people in responding to a changing world. Their mantra: What world are we living in and what do we have to do to thrive?

As a tiny city-state, lacking natural resources, in a volatile part of the world, Singapore has developed a culture and economy based on rapid adaptation.

What are some of the lessons here for owner/CEOs?

1. Focus on the world as it is, not as we would like it to be.

2. The world is large and we are small; learn to move quickly.

3. Success comes from being nimble and hustling.

4. Training and education are the foundation.

5. No amount of wishing is going to make reality different from what it is.

Singapore's success is a great example of figuring out what you have and making the most of it.

The yin and yang of social media

Everyone below the age of xx (pick a number) is raving about some form of social media these days. Twitter is big and facebook is massive, supposedly, and they are going to change the world.

In today's Lost in a digital world, Seth Godin talks about how easy it is to hide. We think we're networking, building relationships, developing business, etc., but if we lose all human contact, all we're doing is hiding.

Owner/CEOs know that businesses are built by building relationships. And building those relationships requires a certain minimum amount of face to face contact. A lot can be accomplished from a distance electronically once you've established that eyeball-to-eyeball substantive contact.

Deal making is a great example. Teams can strategize by conference call and email, but due diligence requires your team to be on the ground touring facilities and talking to people face to face. And while document exchanges and haggling over contract language have been greatly facilitated by email and electronic document rooms, hard negotiations on difficult subjects almost always require physical meetings.

Web-based retail and internet marketing might at first appear to be different. Just look at the success of amazon.com and other online businesses. But amazon's business development officers are likely not meeting with publishers on facebook. They're in New York, or wherever, pitching them in person.

Once all the hype dies down, social media will be like all the great, but now mundane, business tools which came before (think telegraph, telephone, email - you get the idea).

By all means, experiment, test, and incorporate social media tools in your business wherever they make sense. But don't get carried away. You still have to sell stuff and make a profit to create real long-term value.

Hiring the right people - Part 2

Betsy Harper over at Sales and Marketing Search recently offered some additional insights about this process of hiring the right people by getting behind "the label" (resume) to understand what the candidate really has to offer your company:

1. Ask for an explanation of the process by which the candidate did whatever he/she claims to have done. Your goal is to figure out whether the candidate was the driver, a ride-along, or a bystander.

2. Get to the essence. You want to know who they really are - how do they think, what makes them tick, etc.

Read a great story from Betsy's recent newsletter.

Are you afraid of innovation?

Economic growth is often fueled by innovation. And innovation can be tricky to cultivate and manage. Most owner/CEOs have seen examples or heard stories about workers who resist innovation because they are afraid of change, afraid that they won't be able to keep up, or afraid that they just might lose their jobs.

Are CEOs immune to this fear?

Apparently not according to innovation consultant Jeffrey Phillips. Phillips says too many executives are uneasy with the notion of unpredictable routines and uncertain outcomes. The trouble results because of the differing skill sets required to foster innovation versus manage routine operations:

"Innovation requires ART not SCIENCE
Innovation requires QUALITATIVE insights not QUANTITATIVE statistics
Innovation requires HUNCHES not FACTS
Innovation requires RISKS not CERTAINTIES"

Learn about some of the techniques great companies such as Apple use to minimize innovation fear in Phillips' Why innovation makes executives uncomfortable.

Hiring the right people

A recent post encouraged owner/CEOs to stop dawdling and take advantage of the slack economy to reinforce their management teams with high-quality new talent. Hanging out a “Help Wanted” sign will not, however, likely get the job done.

You need a quality hiring process to ensure that you hire the right people. In a recent article, Jim Jones [1] at the Kenan-Flagler Business School suggests several helpful steps to consider:

• Clearly define the skills needed for the position(s)

• Design your selection process to assess whether candidates actually possess the needed skills

• The best candidate for the job may come from a background different from what you expect

• Reference check. Reference check. Reference check.

Read the article here.

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[1] James W. Dean, Jr. is dean and professor of Organizational Behavior, the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill

Now more than ever, scale matters

Scaling up a business is hard work. Most new businesses remain relatively small affairs, especially the "mom and pop" variety.

Venture capitalists and other early stage investors generally limit their investments to startups with large market opportunities. It's simply too hard to hit an investment homerun otherwise, and without a few homeruns,the venture portfolio investing model doesn't work very well.

And scale matters even more in a low inflation, low growth economic environment such as the one we are currently experiencing. With most companies having little or no pricing power, the advantage goes to the low-cost producer and that requires scale. Or, you have to develop a high-performance niche product or service which can consistently command premium prices.

Scale does not, however, mean just bulking up unless you can also achieve the unit costs and economies of scale of the best companies in your competitive space. Bulking up via acquisitions or lower prices is the easy part. Translating that size into competitve profitability is a lot harder. It requires automation, product simplification, and significant process and cultural changes to dramatically improve profitability. Few companies can make all of these changes successfully.

Where do you start?

First, carefully evaluate your strategic opportunites. If there is a Wal-Mart in your space, becoming the largest low-cost producer may not be a viable strategy. While there are only a few such giants, there are many, many successful niche businesses which thrive because their markets are too small to attract the giants and / or the owners have developed proprietary expertise which is not easily duplicated.

Second, if you conclude that a scale opportunity exists in your space, prepare yourself for a long, hard campaign. The numbers of Google-like companies which can spring seemingly from nothing to mega status overnight are tiny. A great example is Iron Mountain, the records storage company which has spent decades consolidating a "mom and pop" industry to become "the world leader in information management services."

Finally, there is a corollary to the "Great Leapfrog Theory".* The price of failure may be extinction. Does anyone remember Webvan or Altavista?

_________

* There is no natural law which says you can't jump ahead of the guy in front of you - as long as you can make it stick. Attributed to Robert Ringer in Winning Through Intimidation. (According to one reviewer "Winning Through Not Letting Yourself GET Intimidated" might have been a more appropriate title.)

The surprising truth about what motivates us

This video is well worth watching!

Sometimes, things just don't work (out)

What do business start-ups, drug clinical trials and weather predictions have in common? High failure rates. Sometimes (many times) things just don't work out.

Over 50% of new businesses fail within four years and 71% are gone by the end of ten years. [1] Drug clinical trial failure rates are even worse, especially for new cancer medicines - only about 5% of the cancer drug candidates first tested in humans ultimately receive FDA approval. [2] And then there is the weather. We are lucky if meteorologists can accurately predict next week's weather, let alone next month's or next year's.

What are we to make of all this?

The world is a lot more complex than we realize or would like to admit. In cancer research, scientists are finding that a myriad of genetic mutations, epigenetic influences, and environmental factors all play into who gets cancer and which one of the multitude of cancer variations they get. Developing effective therapies with widespread applicability is extremely difficult.

And governmental macro economic policy is often just a crapshoot because the models used by economists are grossly simplified caricatures of incredibly complex market mechanisms. Business founders and other market participants are sometimes rational, sometimes emotional, and often wrong. And yet they just keep on trying - as long as the incentives for success are big enough. Make enough shots on goal, they believe, and sooner or later you will score. Never mind that the clock, or the funding, may run out before your number comes up.

And then there's the weather. Edward Lorenz's [3] interest in chaos theory came about accidentally through his work on weather prediction in 1961. [4] The weather, market economies, and other complex systems are not chaotic in the common meaning that their outcomes are unknowable. Such systems are in fact deterministic, but highly sensitive to initial conditions. That is, small tweaks in the initial conditions can produce a multitude of highly divergent outcomes. It is the sheer number, nature, and variety of those initial conditions that may be unknowable.

Recent work in theoretical physics by Stephen Hawking and others suggests that our observable universe may merely be one of an infinite number of randomly created universes comprising the larger multiverse. [5] According to this line of thinking, our existence in this particular universe may have resulted from the specific set of initial conditions (laws of physics, etc.) that gave rise to our particular universe. There may or may not be other universes in which our existence might have arisen.

What are we to make of all of this?

Most of us are just bit players in a grand drama whether it be business, science, or politics, to wit:

• Just play hard,
• Give it your best shot, and then
• Retire from the field so someone else can have a turn.

Once in a while, someone will score a goal, and everyone else will be the better for it.

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[1] http://smallbiztrends.com/2008/04/startup-failure-rates.html

[2] http://www.cancernetwork.com/display/article/10165/62623

[3] An early pioneer of chaos theory

[4] http://en.wikipedia.org/wiki/Chaos_theory

[5] http://www.cambridge.org/catalogue/catalogue.asp?isbn=9780521848411

Stop dawdling

Are you sitting on your hands rather than taking action on those issues, which you know aren’t going to solve themselves? Focus on the big three.

Building the team – Few companies’ management teams are as strong as they need to be to compete in today’s economy. Now is the time to recruit and build. Candidates are available. People are hungry for opportunity. Spend some of that cash and seek out those gems who can ignite your company’s future.

Righting spending – Not every company has adjusted its staffing and spending to the new realities. That doesn’t mean ramping up the layoffs. It does mean becoming brutally honest about whether that pet project or program of yours is every really going to pay off. Figuring out where to cut and where to hold is hard work, but no one else is going to do it for you.

Driving revenue – The future is all about revenue and revenue growth. That requires investing significant amounts of resources. Spend the time to analyze your opportunities and then place your bets. If your current business, product, or service is not a good bet, better start looking for another place to play.

Ignoring the crowd

“Great innovators often need the courage to ignore the crowd.” [1]

CEOs
Investors
Politicians

Whether it is economic policy, business strategy, or trying to protect your 401(k), many of us have joined the herd of lemmings running around in a circle wringing our hands and chasing our tails. Uncertainty is everywhere. What to do? What to do?

Uncertainty is not new. It’s really the volatility that bothers us. We had become accustomed to reasonably predictable uncertainty (is that an oxy-moron?) and now the markets seem to swing wildly like one of those amusement park rides (you know the ones where you almost lose your lunch).

It’s a time for calm and for staying focused on your mission, your goals and objectives. There is no dearth of ideas and opportunities, only the courage to pursue them.

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[1] “Schumpeter: The wiki way,” The Economist, September 25, 210, p. 82

Borrowers and Lenders

An article in today’s New York Times [1] pointed out the price savers are paying through lower income on their savings as a result of the Federal Reserve’s near-zero interest rate policy. Not only does this policy favor borrowers, it clearly favors banks (at the expense of their depositors) amid the banks’ efforts to rebuild capital and profitability.

Such low rates will be counterproductive, however, if carried on too long in an era when consumers, businesses, and banks must de-leverage to right their balance sheets. Consumer spending, especially, ran way out on the proverbial debt limb. That limb has now broken off, and consumers are scrambling to survive the fall. In fact, the lower the interest rates, the more consumers must save and the less they will spend.

If you are a borrower with good credit and equity support, these are some of the best of times with home mortgage and corporate bond interest rates at record lows.

If you are a net saver, your investment options are poor, bad and worse. Bond yields are low and stock prices stagnant. Hard assets (gold, real estate) may look attractive but low/no inflation or out-right deflation are seldom kind to such assets.

How should owner/CEOs think about their companies’ strategies in this kind of environment?

It’s a time to be cautious but opportunistic:

• There will continue to be winners and losers – The continuing success of Apple’s gadget sales demonstrates that consumers will find the money to buy the things they want. Companies with second-rate or me-too products will likely continue to struggle.

• Nothing lasts forever – Just as the good times came to an abrupt end, the current malaise will also improve but over time. Any sharp economic improvement will require significant catalysts in the form of major innovations and/or dramatically more favorable governmental policy. Look for inflection points; be ready.

• You make money when you buy or invest, not when you sell – While there are “get lucky” exceptions, most investment returns result from buying the right assets at the right price. Be patient. Liquidity is your friend, not your enemy.

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[1] “Falling Rates Aid Debtors, but Hamper Savers” at http://www.nytimes.com/2010/09/09/business/economy/09rates.html

Mushing through molasses

Driving revenue growth in this economy is a bit like mushing through molasses. Think about it: top speeds on the 1,000-mile-long Iditarod dog sled race are only about 18 mph across snow and ice. [1]

And then there is that matter of molasses. Molasses is full of starch, which is sticky and tends to glob together. And the lower the temperature, the slower the molasses pour. Our molasses economy needs a dose of Keynesian animal spirits [2] to raise the temperature and get the molasses flowing again.

What can we do in the meantime? Take a few CPR lessons from the mushers:

• Calories –Sled dogs on the Iditarod can consume as many as 10,000 calories per day. Likewise, owner/CEOs must keep their teams well fed. That includes the proper care and feeding of your people, as well as the proper maintenance and repair of all other important business assets. Now is not the time to skimp on maintaining your edge.

• Pacing – Mushers know that jumping the gun to get a head start on competitors can be self-defeating because it’s a long endurance race, not a sprint. Sprinting is for emergencies and the finish line. At all other times, the focus should be on quality, customer service and satisfaction – keep them and keep them coming back.

• Rest – That long, hard sledding requires periodic rest and restoration to prevent collapse. As a recovering workaholic, I can personally attest to the reality of diminishing returns, and that goes double for the other members of your team. Drive hard, but make those rest breaks real and refreshing. Otherwise, they are just a waste of time.

Be ready – those animal spirits will return.

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[1] Chicago musher takes on Alaska’s Iditarod - http://www.suntimes.com/lifestyles/travel/2093135,iditarod-alaska-dog-race-moon-031010.article

[2] “a spontaneous urge to action rather than inaction” often measured in terms of consumer confidence -  http://en.wikipedia.org/wiki/Animal_spirits_%28Keynes%29

Driving Growth

The economy seems to be awash with anxiety about the poor prospects for business growth, not to mention jobs. We are at risk of descending into inveterate hand wringing from which no good can come. It’s time to look around for what’s working (somewhere, something is ALWAYS working out well) and figure out how to apply it to our business or company.

According to Peter Cohan, “[New] jobs [and revenue growth] are going to come from innovative companies that are either jumping on a wave of growth in demand or creating a new wave through path-breaking technology.”[1]

After studying more than 30 leading startup companies, Cohan suggests the following general lessons for managers in mature, established firms:

• Tailor your product to 1 million customers

• Lock in customers for the long-term and keep renewing the relationships

• Create more network value than competitors

• Reinvent the business from the customer’s perspective

• Use peer pressure to sell your products

Cohan’s lessons are not panaceas, but they look like a good place to start.

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[1] Peter S. Cohen, “Common Threads of Startups for Driving Growth,” financialexecutive, October 2009, p. 37

Desperately seeking serendipity

Companies and equity markets are engaged in one of those ugly dances around an old truth: piles of cash and earnings based on cost cutting are a poor recipe for improving stock prices and expanding multiples. Investors crave growth. Growth in revenues now often leads to growth in earnings later. Multiples and prices seldom move up until investors believe the story and see the path.

CEOs, in turn, are becoming a bit frantic. Where are the new revenues to come from? Especially those expanding streams of revenue growing into the future as far as the eye can see? Steve Jobs is unique and therefore a poor model for the rest of us.

What to do? An article in the current issue of The Economist [1] suggests an approach. The writer opines on the benefits of knowledge and ideas gained from chance encounters through greater attendance to urban networks, industry confabs and online social networks. There is certainly value here although unpredictable in frequency and adequacy. It’s a tough strategy to bet the business on.

 “One aspect of [the] original definition of serendipity that is often missed in modern discussions of the word is the "sagacity" of being able to link together apparently innocuous facts to come to a valuable conclusion.” [2] The potentially helpful chance encounter delivers a benefit only if the acquirer is prepared to recognize and receive it. [3]

Thanks to the global reset of the Great Recession, the coming decade will be unlike anything most of us have ever seen. Owner/CEOs and other business leaders must fundamentally re-think their assumptions, large and small:

• The earth has shifted beneath our feet. What does the new world look like?

• What parts of our framing worldview remain true and which parts must be discarded?

• The land is rising in some places and falling in others. On which do we stand?

Forget the past and open your minds to the future. Sit, watch and listen for new ideas. [4] They will surely come to those who are patient and focused.

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[1] “Schumpeter: In search of serendipity”, The Economist, 7/24/10, p. 67

[2] http://en.wikipedia.org/wiki/Serendipity

[3] “In the fields of observation chance favors only the prepared mind.” Louis Pasteur - http://en.wikiquote.org/wiki/Louis_Pasteur

[4] The notion of “sitting for ideas” was attributed to Dr. Elmer Gates by Napoleon Hill in Success Through a Positive Mental Attitude

We live in interesting times

My recent holiday reading included Dennis McCarthy’s Here be Dragons, a primer on biogeography. Biogeography integrates the theories of natural selection and plate tectonics to explain the diversity and dispersion of plants and animals as our physical world has changed radically over the eons.

A few thoughts came to mind, which might put our recent financial and economic turmoil into perspective:

• Stability is an illusion – Change is rampant, overwhelming and usually unpredictable. We often look back with fondness to those “good old days of yesteryear.” The phenomenon probably results in part from our human tendency to remember the good and forget the bad. Life is more like a roller coaster, and sometimes it just leaves the tracks.

• Progress is erratic and uneven – Technological and other breakthroughs often seem to come out of nowhere when in fact they have been preceded by (and often built upon) years, decades, or millennia of effort resulting in miniscule incremental advancement. While we can certainly work on it, we can’t count on it.

• Survival, let alone prosperity, is not guaranteed – Sometimes things just don’t work out. Thousands upon thousands of species have vanished from the Earth in very short periods of time (geologically speaking) upon the breakup of continents or the arrival of periodic ice ages. Remember the dinosaurs?

It’s time to re-prioritize – personally and professionally – on what’s most important to you right here, right now. There’s nothing wrong with letting tomorrow take care of itself a bit.

Applying the boomerang principle

I have long been fascinated by the boomerang used in various forms since pre-historic times as a weapon, hunting stick, or for sport. The returning boomerang is thought by some to have developed from the flattened throwing stick, still used by the Australian Aborigines and some other tribal peoples, including the American Navajo Indians. [1]

The boomerang principle is a special case of the first law of thermodynamics [2] applied to human interactions – doing good things for others will bring good things back to you. It’s similar to the concept of karma as described in the Indian Vedas. [3]

The boomerang principle results from giving more than you receive; from creating value for a client which is far beyond the amount of your fee; from delivering a product whose value to the customer is far beyond its price; from helping another person solve a difficult problem or overcome a great obstacle with no thought of compensation.

When you do these things, good things will in deed come back to you. Your reward may come in the form of direct compensation from a happy client or customer, referrals for new clients or customers, the psychic income of helping another person, or indirectly in the form of energy reflected back to you from the cosmos. But it will come.

Try the boomerang principle – offer value, sound advice, and genuine helpfulness in every business interaction and good things will come back to you.

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[1] http://en.wikipedia.org/wiki/Boomerang

[2] The first law of thermodynamics, an expression of the principle of conservation of energy, states that energy can be transformed (changed from one form to another), but cannot be created or destroyed. http://en.wikipedia.org/wiki/First_law_of_thermodynamics

[3] “If we sow goodness, we will reap goodness; if we sow evil, we will reap evil.” http://en.wikipedia.org/wiki/Karma

Challenging strategy and structure

Regularly challenging and testing a company’s strategy is one of a CEO’s, and directors’, most important tasks. A great strategy is only as good as the fundamental business and market assumptions on which it was based and the professional rigor with which it is executed. If the assumptions are faulty or incomplete or execution is found to be lacking, the strategy will fail.

Poor strategy execution tends to be visible, but what about those assumptions?

• Are the assumptions about market opportunities and obstacles fact based?
• Does the management team fully understand the implications of those assumptions?
• What external events or other factors could change or nullify the assumptions?
• Is the strategy tied directly to the key assumptions and related data?
• Can the company actually implement the chosen strategy?

And then there is the matter of organizational structure. Classic b-school principles suggest that structure should follow strategy. Figure out what the strategy should be and then organize to implement the strategy. That’s all well and good IF you have within the organization all, or most, of the talent necessary to implement the strategy. Few organizations are so lucky. Now what?

An alternative principle suggests that structure (and to some extent strategy) must flow from the team available to run the business. If you have 75% of the necessary players, recruitment to fill the gaps becomes a high priority. If the highest value strategy is not executable by the current team, the choice is ominous – settle for a sub-optimal strategy and/or change out the team.

In the short run, addressing strategy, structure and talent become a bit like solving simultaneous equations – each element is dependent on the other two and they all have to be addressed simultaneously. Are we having fun yet?

Banking on banks?

Banking on banks could be hazardous to your health. A recent article in The Economist [1] reports new data indicating that small businesses are a drag on the employment rebound from the recession. Large firms have resumed hiring but small firms continue to shed jobs.

The culprit? According to The Economist, one of the biggest causes is tight credit. With banks still skittish about bad debts, only the most credit-worthy companies can qualify for new loans to expand their businesses – and hire more employees.

While lack of credit is a likely cause, subdued confidence in the future is also at work here. Entrepreneurs and other business owners are almost by definition optimists – who else would take the risks? But investing for the future also requires confidence in a stable business and economic environment. Such confidence has been in short supply.

Continuing upheaval in global financial markets, impending increases in government healthcare mandates, business regulation, and tax rates do little to inspire confidence that investments made today will result in reasonable prospects of returns on those investments in the future.

In this environment business owners must:

• Carefully evaluate current and future market opportunities

• Develop business plans based on conservative financial assumptions

• Establish and guard rainy day funds and backup lines of credit as if there business lives depended on them (which they might)
  

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[1] May 15, 2010, p. 38

KISS* applies to more than sales

Most sales professionals are familiar with the KISS formula - “Keep it Simple, Stupid!” New sales professionals have a tendency to want to tell a prospect everything they know about the product or service they are selling without regard to the prospect’s knowledge, needs, or interest, and the sales manager or trainer must continually remind them to dial back on all the technical stuff.

Josh Cunningham’s recent post about his web philosophy on joshcanhelp.com reminded me that the KISS formula could add value to most business activities, not just sales. Here is my take on Josh’s version of the KISS formula:

1.      Look for the path of least resistance.

How often do we struggle to solve a problem with a big, complex (“impressive”) solution when a much simpler option is readily available if only we will open our eyes and look around? Sometimes that means asking others for advice, sometimes just doing a bit more research.

I once had a neighbor who seemed to always have the answer for everything from appliances, to TVs, to lawnmowers. After the first two times, I just called Jim when I needed to buy something. He already knew what and where the best deals were.

2.      Have a goal in mind

Remember the distress call from Apollo 13? “Houston, we have a problem.” Clearly, the goal for the Apollo 13 crew was to get home safely. Not every business challenge has such a straightforward desired outcome.

What do you do with the customer who constantly demands special privileges every time he calls? What about the brilliant scientist in R&D whom no one wants to work with?

Thinking carefully about your desired outcome will help you better weigh the available options.

3.      Always consider performance

Everyone wants improved performance. But like goals, performance monitoring requires that metrics be defined and agreed upon before the task or process begins. Only then can performance be objectively assessed.

Cunningham was referring to web page performance – how quick does a page load? How long does it take to refresh? Customers and prospects are impatient: keep them waiting for very long and they will go somewhere else.

Investors think the same way. Managers work for investors, not the other way around. What do investors want? Usually, dividends and share appreciation. Figure out how to do it and give it to them.

4.      Put your best foot forward

In the modern globally interconnected world, we, as individuals, as well as our companies, are always on display. There is virtually no room to hide on the Internet. Misbehave or treat a customer shabbily and sooner or later it will come out thanks to YouTube, twitter, and Facebook.

There’s enough foolishness and nonsense in the world. Just do it because it’s the right thing to do. The rest will take care of itself.

6 Critical Areas of Business Management

Here are 6 critical areas that every business owner must constantly monitor and manage:

Business Planning – Business planning involves a regular review of your strategies and tactics for achieving your business’ goals. How is the new store location doing? Is your web site producing a steady stream of sales leads? Are the Friday specials attracting new customers?

Financial Management – Is the business profitable and generating sufficient cash to pay bills, salaries and needed capital improvements? How strong is your banking relationship? What is your backup plan if sales slow down?

Project Management – Major projects and initiatives such as marketing campaigns tend to work out better if carried out on the basis of a well thought out and executed project plan. What are the tasks to be accomplished? Who is responsible for each? What resources are required? When will the tasks be accomplished?

Ownership Transition Planning – Every business needs a succession plan to address continuity in the event of illness, disability or retirement of the owner and other key managers. Lack of a transition plan may result in the business losing value or being unable to continue as a going concern.

Human Resources Management – Your people are your most important asset. Without your associates, who would service your customers and support your business? What types of associates does your business need? Where will you find them? How will you attract and retain them? Despite the recession, good people are always in demand.

Marketing/Business Development – Marketing is about finding, attracting, and connecting with customers. Business development is usually taken to mean developing new markets or major business partner (vendor or customer) relationships. Both are important components of a successful business strategy, but don’t forget about sales. Your sales activities are the one which actually close transactions with customers, move product and bring in the cash.

Rate your performance in each of these areas with a simple one-page, two-column analysis for each area. Label one column "What's working well" and label the other column "What's NOT working well". List 5 or 6 positives in the first column and 5 or 6 negatives in the other. Then at the bottom of each page, list the three most important actions which you could take to improve your performance in that area.

After completing this process for all six areas, summarize and prioritize all of the potential action items, and resolve to work on the top three or four items over the next three months.

You will be amazed at what you can accomplish!

Connections Drive Success

Our last post described the power of entrepreneurs to succeed through:

1. Opportunity

2. Ingenuity and

3. Hard Work

Much of that entrepreneurial power comes from contacts and connections – the more contacts we have, the more ideas and opportunities we will be exposed to. The more connections we make, the greater the number of partners, investors, suppliers, and resources we will be able to call upon.

Here is a great example of making contacts and connections. Jason McKinstry, an information technology (IT) services professional with Sogeti, USA LLC in Charlotte, North Carolina saw the need for a better networking mechanism for business professionals in the Charlotte area.

In June 2008, McKinstry launched the Charlotte Business Professionals Group on LinkedIn.com. Eighteen months later, the Group has nearly 5,600 members! [1]

LinkedIn builds on the phenomenon popularized by the play Six Degrees of Separation by John Guare. Also referred to as the "Human Web", the concept refers to the idea that, if a person is one step away from each person they know and two steps away from each person who is known by one of the people they know, then everyone is, at most, six steps away from any other person on Earth. [2]

LinkedIn lets you post a detailed work and education history, write and receive recommendations, join industry groups and correspond with others giving a user a complete online presence that also shines when you are seeking a job. [3]

The larger your network becomes, the greater its power to help you achieve your goals!

___________

1. Last September, McKinstry launched CharlotteBP.com, a companion web site to the LinkedIn Group containing feature articles, commentary, and other resources to support the Group’s members.

2. http://en.wikipedia.org/wiki/Six_degrees_of_separation

3. http://www.charlotteobserver.com/408/story/913069.html

Where there's a will, there's a way (or two or three)

Entrepreneurial success in business is often driven by the combination of three forces:

1. Opportunity - someone has an unmet product or service need

2. Ingenuity - an entrepreneur figures out how to address that need and make a profit doing it

3. Hard work - the entrepreneur stays the course, doing whatever is necessary to make the product successful

And sometimes, the entrepreneur must overcome additional or unusual obstacles to reach his / her goals. Here's an example from Smartbrief on Entretreneurs about Doing business the old-fashioned way:

"Miller Farm, a Pennsylvania producer of nutrient-rich foods, has more than doubled its sales to $1.8 million in just four years -- without the benefit of cell phones, Web access or office machines. The Amish-run family business relies on snail mail and a single landline telephone to maintain connections with the outside world. The company also uses trade show appearances to help bring more foodies into the fold." (Read the full article at BusinessWeek )

The Amish farmer in the story is a classic entrepreneur - he saw an opportunity, figured out how to meet the customer need while staying faithful to the Amish community's constraints and way of life. And he did it with a farm!

Maybe some of our best business opportunities are just outside our windows.

What’s your business worth?

Every business owner dreams about what his/her business might be worth – the bigger the dream, the better they feel. But what is that business really worth? Only as much as someone will pay you for it.

Here then is the real question: how do you figure out what someone might pay you for your business? Investment bankers would say, “Let’s run a process (quietly put the business up for sale) and see who comes and what they offer.” But that’s not practical if you are really not yet ready to sell or if you are worried about the impact on customers and employees if word leaks out that you are shopping the business around. Such processes can also be time consuming, distracting for management, and potentially expensive.

Another avenue is to ask an investment banker or appraisal professional to prepare what’s called a “range of values” study based on comparable company sales, public company trading multiples, and discounted cash flow analyses. Such studies can provide you with indications of your business’ value under various scenarios. The fees charged for these studies may be modest or significant depending on the size and complexity of your business.

And then there are the “rules of thumb” – those quick and dirty formulas for estimating the value of a business based on the ranges of prices other people have paid for similar businesses over time. [1] To be useful, business valuation rules of thumb should be market-driven, that is the result of actual sales. While valuation rules of thumb do not take into consideration all of the factors which might affect the value of a specific business, they are a useful starting point.

Here are two good resources to consider in your search for appropriate rules of thumb:

• 2010 Valuation Survey of Architecture, Engineering, Planning & Environmental Consulting Firms, published by ZweigWhite is an excellent resource for business owners and managers in those professions.

• For a more general resource, check out the 2010 Business Reference Guide: The Essential Guide to Pricing Businesses and Franchises, 20th Edition.

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[1] In the Introduction to his book Rules of Thumb, Tom Parker calls a rule of thumb “an easy-to-remember guide that falls somewhere between a mathematical formula and a shot in the dark”.

Riding the roller coaster

Coming to another year-end always reminds me of the roller coaster. You know the one: it’s the one you ride every day.

Running a business is like riding a roller coaster. You work, work, huff and puff climbing that big hill to get your business going (or get it out of the ditch). Finally, one day, you reach the top, and with a great sigh of satisfaction, you start to relax to enjoy the view for a bit. But, while the car has slowed to a crawl, it has not stopped moving, and then…

Flying down the other side you go fighting the next crisis, competitor, or just the next quarter’s numbers. And they call this fun? And here’s the best part – as long as you stay on the ride, it never ends. Round and round you go…

What are some of the lessons here?

• Life, nature and business run in cycles / seasons – get used to it unless you have a craving to be road kill.

• Different strategies work best at different points in the cycle. Think about approaching a sharp curve in the road. You slow down, or even brake, a bit as you enter the curve, and then you re-accelerate coming out the other side. This maneuver lessens the chance of a crash while maintaining your overall momentum.

• Anticipating change works better than reacting to it. Recognizing your approach to the top of the ride allows you time to grab the rails anew and take a few deep breaths before going over the top, thereby reducing the chance of losing your hat, your wallet or your lunch.

Facing a sudden challenge or crisis with a calm demeanor works a lot better than wide-eyed panic. Trust me on this.

Partnerships can be perilous

Partnerships, joint ventures, and strategic alliances seem to be all the rage. Companies engaging in these activities are usually seeking leverage beyond their means, either by marrying their ideas with other people’s money or by gaining access to markets and customers not easily reach on their own. These are all good reasons.

But partnerships and alliances often have limited useful lives. Managements change on one side or the other, their interests diverge, the world changes, or frequently the arrangement just fails to create the expected value for one or both of the parties. And then divorce looms – sometimes messy and protracted depending on how complicated or intertwined the arrangement had become.

Here are a few partnership arrangement rules of the road:

1. Don’t rely on a partnership or alliance as your principal business strategy unless no other avenue to market exists.
2. Consider any industry precedents as a basis for negotiating the best possible governance and dispute resolution provisions up front.
3. Assume the relationship will eventually break down and begin planning for its successor early on.

Expect the best but plan for the worst.

Speed is not the problem

Debates run rampant these days about whether businesses (or governments) are moving fast enough to solve their problems. Speed is not the problem.

The real challenges are:

• Leadership
• The Right Plans
• Decisiveness
• Steadfastness
• Patience

Effective transformational change requires leadership. This week’s example: Ed Whitacre, GM’s new chairman, is taking firm control of the carmaker with a swift reorganization of GM’s creaking management bureaucracy.

Before taking action a leader must have the right plans. How does one know which plans are the right ones? Start by identifying which ones are not right:

• Plans that have not worked in the past
• Plans that protect vested interests and inhibit initiative and change
• Plans that rely on top-down management direction or government regulation

Plans, once developed, must be implemented decisively. Time is always of the essence, and a failure to move swiftly can severely limit the effectiveness of the chosen plans because competitors and enemies are not sitting still waiting for us to make our move.

Steadfastness means staying the course even when results are sparse and support wanes. Making course corrections to address changing circumstances does not mean fundamentally changing your objectives.

Patience and urgency are two sides of the same coin. Effective action often requires that a leader move quickly, but that does not mean that results will come quickly. They usually do not. Bringing about effective change is more like turning the proverbial battleship – it will take awhile. Stay with it and you just might get there.

Truth telling

As children most of us were taught to always tell the truth. As we grew to adulthood, we learned that there were multiple versions of the truth and some kinds of truth should not be spoken such as those that might hurt other people’s feelings (like telling your sister her dress was ugly – even if it was!).

Telling the truth in business can also be hazardous to your health and we’re not talking about illegalities or allegations of impropriety. For example, investment analyst “sell” ratings remain highly problematic, even unpopular. [1] Investors and analysts benefit when stock prices rise; few benefit when prices fall.

But “truth telling” is a critical element of efficiently functioning markets, and the same is true for business organizations. Here are three examples:

• CFOs talk about “creating one version of the truth” – all units and personnel using the same information systems so that everyone is looking at the same set of numbers.

• Savvy general managers and CEOs routinely talk with outsiders and people down the organization to find out what’s really going on rather than rely on the sanitized reports that come up through their staffs.

• Investment decisions based on inaccurate or erroneous information will likely yield sub optimal returns, if not losses.

Are you telling / hearing the truth or are you just kidding yourself?

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[1] “A Tough ‘Sell’ for Jeffries Analyst,” WSJ, 11/20/09, p. C1

The demise of professional services firms

The headline of a recent article read, “Consulting Firms Must Become Real Businesses to Survive”.

The theme of the article is obvious and the author went on to enumerate some of the areas in which professional services firms must change their ways. Like all periods of transformational change, there is good news and bad news here.

Improving business practices has clearly been necessary for many professional services firms including architects, accountants, attorneys, and consultants. I have advised and worked in such firms and the opportunity for improvement has been enormous.

On the other hand, most professionals join professional services firms to “do the work” rather than run or be part of a business. Something important is at risk of being lost when clients become “customers” and not “clients.”

Advisory professionals have a higher calling than just making sales and booking hours or fees.  Their job is to be there when you need them and do for you what is in YOUR best interests, not what is in theirs.

Truly good advisors become successful because their clients become successful. It should not be any other way.

There are goals and then there are GOALS

A coach on LinkedIn recently asked the question, “What stops you from achieving your goals?”

The initial responses from other participants in the discussion included:

• Other people
• Losing hope
• Lack of skills or competencies
• Our beliefs

I have a different theory – we do not or cannot distinguish between little "g" "goals" and big "G" "Goals".

Little "g" goals are all those things we say we want to do but lack the conviction down in our gut to achieve. Sometimes, these goals are transient or simply unrealistic. We are not really motivated, and therefore we do not make the necessary, all-out effort.

Big "G" Goals, on the other hand, are those Goals which grab us where we live, which are aligned with who we are, and which are inherently desirable and achievable IF we are willing to commit the resources and make the effort. If a goal is not truly aligned with who we are, we will not likely make that commitment.

How do you distinguish between a “goal” and a “GOAL”?

For me, big “G” Goals define themselves via an internal clarion call that shouts in my mental ear: “This is it! Now is the time! Go for it!” Failed little “g” goals may litter the landscape, but my personal track record on the big “G” Goals has been pretty good.

Life is about contracts

Did you know that life is about contracts? I thought only lawyers worried about contracts, and then I read the following:

“Life is always about contracts that you make with people. Very few of them are written. Most of them are implicit, and most evolve out of a course of dealing and understanding. And if you are good for your people, they’ll be good for you.” – Lloyd Blankfein, CEO of Goldman Sachs [1]

In the broad sense used by Blankfein, contracts include commitments, promises, arrangements, bargains, compacts, conventions, pacts, pledges, understandings, allegiances, and loyalties. They are comprised of the myriad daily transactions that build up mutual trust leading to long-term relationships, be they personal or business.

As business owners and entrepreneurs, we develop implicit contracts with our customers, suppliers, employers, lenders and investors. While more and more of these relationships are today based on formal written contracts, those contracts by no means capture all of the dimensions of the relationships involved.

Some formal contracts are the foundations of relationships. In other cases, they are the fences setting the bounds but not defining the relationship’s potential. But relationships based solely on formal, written contracts seldom have the resiliency necessary to sustain themselves when the ground twists and turns beneath our feet.

Think of the potential – every person you meet or deal with has the potential for a mutually beneficial long-term relationship. Your actions and reactions during those interchanges will form a large part of that future relationship tapestry.

What kind of pictures are you painting?

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[1] Quoted in “The Most Influential People in the Boardroom,” Directorship, October/November 2009, p. 33

Changing of the seasons; changing of the guard

The changing of the seasons at Lake Sunapee is clearly marked by two events:

1. Peak leaf-peeping, usually Columbus Day weekend, and
2. The hoisting of Indian Cave’s sailboats onto dry ground on October 15

We can deny the leaves, but when the boats come out of the water, the season is over.

Indian Cave Marina in Sunapee Harbor

Depending on your business, the season may be over, or just beginning. These natural turning points provide an ideal time to:

• Review recent results,
• Make necessary changes, and
• Plan for next year or next quarter.

Yes, I know that the economy is experiencing upheaval, and we supposedly live in unprecedented times. None of that, however, relieves managers of their responsibility for managing their businesses for growth and profitability.

Over 90% of the people are working. They continue to buy all manner of goods and services. There is money to be made. Your job is to find it and bring it home!

Managing Business Risks

The first risk management problem for both executives and directors is identifying the risks they need to be worried about. Some of the biggest problems are stealth risks – they seem to come out of nowhere.

At a recent seminar for corporate directors, the seminar leader, Dr. Krishna Palepu of Harvard Business School, suggested the following matrix as a good place to start.

Types of Risks

- Strategic – did you pick the right strategy?

- Execution – can you effectively execute the strategy you picked?

- Reputation – how could your corporate reputation be damaged?

- Compliance/Fraud – something bad happened; will it be caught in time?

- Legal – regulators, customers, etc sue the company.

Sources of Risks

Internal

- Pressure to perform – the hill is too high

- Incentives – the compensation system encourages inappropriate behavior

- Rationalization – people have a unique ability to convince themselves that what they are doing is okay when it is not.

External

- Competition/markets – aggressive competitors or changing markets

- Regulatory changes – someone changed the rules or the level of enforcement

- Technology – new technologies make what you are doing obsolete

- Society – the larger society decides it does not like something you are doing

While not exhaustive, the above lists can point you in the right direction.

The Coming Leadership Deficit

"Members of Generation Y are less adept at handling ambiguity, Jason Seiden writes. That doesn't just make them more difficult to manage, he suggests, it may require a complete rethinking of what leadership means. Companies will have to readjust their organizational charts to put decision-making power in the hands of the few people on staff who can handle it, while career paths will become more structured, he argues."

Read more at SmartBrief/SmartBlog on Workforce (10/5)

This article introduction from today's SmartBrief on Leadership reminded me of a recent conversation.

A group of people were assembled to talk about the resolution of a potentially serious business problem. When I inquired as to the basis for this particular assemblage of people from throughout the organization, I was informed by the convener that the situation at hand required the skills of a group of thinkers as opposed to doers.

Thinkers versus doers - what does that mean? Seiden talks about the problem in terms of discomfort with ambiguity. Doers like clear direction with defined rewards and penalties. They struggle with uncertainty and ambiguity.

Decision making - deciding what to do - requires thinkers. The decision makers must develop a direction and an action plan for moving forward despite rampant ambiguity and uncertainty. No leader ever has all of the facts or other information they would like to have before making a major decision.

Once a strategic decision has been made, doers become critical to its successful execution.

Organizations need both thinkers and doers - we just need to have the right people in the right roles.

Chasing excess profits

Every entrepreneur dreams of capturing excess profits. Excess profits greatly increase the value of a business and therefore the wealth of the owner(s). Excess profits are the reward for the outsized effort and risk undertaken by entrepreneurs.

What do we mean by “excess profits”? In economics, “excess profits” is usually defined as profits earned by a business in excess of the opportunity costs of labor and capital employed in the business. They often result from oligopoly or monopoly situations where one or a few companies dominate a particular market either through differentiated products (initially) or market muscle (eventually).

Can excess profits be sustained? Research conducted by McKinsey [1] suggests that strategic differentiation (and therefore sustained competitive advantage leading to excess profits) is inherently unsustainable in most markets. Competitors constantly “scrutinize one another’s products, prices and marketing” reacting quickly to counter any competitor initiative which might allow the competitor to gain an advantage. As strategic differentiation diminishes, industry margins shrink as well.

What about companies like Google and Microsoft? They are exceptions proving the rule. Both achieved market dominance in their respective spheres through technological innovation combined with aggressively seizing a first mover advantage. [2] But such companies are few in number, and competitors, emerging technologies, or anti-trust regulators will eventually erode their market dominance. Nothing lasts forever.

What’s an entrepreneur to do? Relentless innovation must drive everything you do, and then run like hell lest someone be gaining on you.

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[1] “When best practice isn’t enough,” McKinsey Quarterly, August 2004

[2] While neither company was the initial market innovator in their respective spaces, both were able to quickly pull away from the pack and thus gain the equivalent market power of a first mover advantage.

Leveraging Leadership

The September issue of our periodic email newsletter to clients and friends has been posted to our website at Companies in Transition – September 2009. The theme of this month's issue is leadership and it includes the following articles:

• 5 Dimensions of Leadership - Leadership is often hard to define. Rather than try, many people simply say, “I know it when I see it.”

• Judgment is the Foundation of Leadership – Good decisions are usually based on the exercise of good judgment.

• Practicing the Art of the Possible – All leaders seeking to bring about significant transformations struggle to bridge the gap between who they are and who they hope or wish to become.

• Confident, upbeat consistency carries the day - Employees, like voters, recognize that their personal fates often depend on the actions of their leaders.

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Planning and Planting

Fall is for planning and planting. Approaching Labor Day and the end of summer, many business owner/CEOs and their management teams are beginning to think about planning for 2010 – not an enviable task given the roller coaster of the last year.

Planning itself is the critical act, not so much the exact shape of the plan that results. Bywords for 2010 might include:

1. Conservative assumptions – the current recession is unprecedented in modern times. No one really knows what a recovery will look like or when it will become meaningful.
2. Multiple scenarios – Economists talk about recession-recovery cycles in terms of V’s, U’s, W’s, and Lazy L’s (you don’t really want to know about that one). Each type of cycle could require a different response from your business. Prepare thoroughly for the most likely variations.
3. Flexibility – The greatest learning of last year’s market contractions was how quickly the markets and economic environment can change. In the face of such volatility, those who were able to move nimbly tended to fair better.
4. Contingency plans – Your scenarios should include extreme variations (sales down 40-50%) even if the likelihood is low. See 3 above.

Then comes the fall planting when you consider and commit to the business and operational investments that will drive your revenue and profit plans for next year. Making those investments may require reducing other costs now, but they are absolutely essential to your future success.

The flywheel begins to turn

A few weeks ago I wrote about a new business development project in which I am involved. The flywheel is finally beginning to turn, but there is still a lot of panting and I’m wheezing for breath (mentally) some days.

Project activities have become more routine (read: several hours of grunt work each day), but interest is building slowly, bit by bit, and a few other people have signed on to carry part of the load. Missionary work is slow, tedious stuff.

That chance lunch encounter last month brought me three business opportunities last week, none directly related to the biz dev project and yet all were potentially complimentary. I had to pass on the first due to a conflict, the second sounds really exciting and the third can only help the cause.

And to top those off, a fourth opportunity appeared in last night’s email!

What would we do without a bit of serendipity?

It’s about Results

Apparently there is a social workplace conflict brewing [1] between those who are perpetually committed to self-improvement and those who just come to work every day. On one side are those who tend to be fanatical about self-improvement, be it networking online or working out at the gym. On the other side is the rest of the working population.

Progress leverages ideas, not frenzied activity. For me, self-improvement is not about expanding my IQ or enhancing my physique (both hopeless causes) but about learning from others, as well as by doing myself. I much prefer to implement an idea that has worked successfully elsewhere rather than try to re-invent the wheel.

Benjamin Franklin is one of my heroes. Claiming to be the laziest man in the world, Franklin was always looking for a better, cheaper, simpler way to do things. His inventiveness was driven not by hyperactivity but by a desire to accomplish his goals with the least effort possible.

In the end, it’s about results; it’s not about effort, showmanship, publicity, or taking credit. Self-improvement efforts only matter if the results improve. Acknowledge the effort, but only reward the results.

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[1] Michael Schrage, The Self-Improvement Vortex

Playing for time…

Surviving during the recession is often about playing for time. A California architectural firm hangs on by reducing staff due to lack of work. A large insurance company pushes vendors for lower prices and bigger guarantees. Sales of high-end golf equipment have gone AWOL in some markets. And on and on…

Other companies are making time. I’ve heard three new startup stories in just the last week. At least one software company is preparing for an IPO. And would-be entrepreneurs are coming out of the woodwork.

It was the best of times; it was the worst of times… [1] The relative mix of those doing well versus those not doing so well is clearly out of balance compared to our recent history, but at 9.5% unemployment, 90% of the people are still working. They need services and they are buying products. Companies focused today on emerging consumer trends, needs, and desires will be tomorrow’s winners.

The times are what we make them. The choice is yours. What will you do?

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[1] Charles Dickens in A Tale of Two Cities

Looking for a few good “yes men”

Successful entrepreneurs mimic the Marines – they actively recruit a few good “yes men” for their teams. [1] This may sound counter-intuitive. We usually think of “yes men” (or women) as subordinates lacking independent value who follow their bosses around constantly telling them what they want to hear. Never mind the facts, let alone the truth…

But there is another kind of “yes man” – the kind of whom Napoleon Hill would have approved. [2] Hill championed the notion that successful people surround themselves with associates and advisors who are of like minds – who see the world as they do, who share the same goals, and who are willing to do and give whatever is necessary to achieve those goals. [3]

These “yes men”, like the marines, are comrades in arms. They are loyal, committed and disciplined, but that does not mean they are incapable of speaking the truth because the mission must take priority over everything else. And sometimes that means they most go toe-to-toe with the boss to ensure that decisions made and actions taken are based on the best available information (facts) and in accord with the reality of the world around them (truth?). You as the CEO should want them to do that lest you find your company in the ditch.

Hence the term – a few “good yes men” – like minded and committed – yes, timid – no. The marines clearly got it right. Have you gotten it right?

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[1] With apologies to the U.S. Marines

[2] Author of the seminal work, Think and Grow Rich

[3] Hill called such a group a Master Mind Alliance

Craving simple answers to complex problems

Humans suffer from a dreadful condition – we crave simple answers to inherently complex problems. Healthcare, climate change, and financial regulation – people on each side of these debates demand immediate, specific policy choices to address their specific concerns (and to be paid for by someone else). But none of these “solutions” are cheap and they all come with the potential for massive unintended (harmful) consequences.

Business leaders are seldom immune to the malady. One CEO verbally trounced his chief sales officer for “missing the numbers” without any concern for (or awareness of) the complexity of the company’s sales cycle. A marketing executive was adamantly determined to pursue his plan without regard for the company’s shifting market position. Analysts and investors expect stair-step growth in revenues and earnings.

Here are a few helpful principles for managing this condition.

NOTHING lasts forever – Just as “trees don’t grow to the sky,” neither do housing prices, booming economies or stock prices. The natural world we live in is inherently seasonal and cyclical. Our mistake comes in assuming that we can extrapolate from whatever is happening currently. Maybe we can but only in the short run. And then there are those sudden, unexpected discontinuities. Prepare for the fall. Expect the unexpected.

The Muddle in the Middle – Very little in this world is truly black or white, or right or wrong. The vast majority of things come in varying shades of gray including ethics, public policy and business strategy. Significant business and policy decisions involve costs, tradeoffs and invariably unintended consequences. 

Ask lots of questions and listen – Except in extreme emergencies, thoughtful, consultative decision-making usually results in better decisions, and better outcomes. Scientific discovery and technological innovation come in fits and starts. Why should anything else be different?

Life is a Rubik’s Cube – Finally, take your time; the solution seldom comes any faster by furiously twisting the pieces.

Doing the Biz Dev Dance

Someone invited me to lunch recently to pitch their concept for a new business service. I am familiar with the target market and therefore was a reasonable sounding board. [1]

Obeying the Golden Rule – Having recently pitched a new biz dev project myself, I was keenly sensitive to listen intently and respectfully to the new idea. The concept is high-minded and potentially of high value, but I questioned whether the market timing was right for the proposed offering.

I offered several suggestions for test marketing the proposed service, including targeted roundtables and an email survey, to see if it might develop some legs. The conversation was engaging and stimulating as we massaged the growing variations on their original theme, but I also sensed some disappointment that I did not personally embrace the proposed service.

It’s a delicate balance – you don’t want to get a reputation as a naysayer lest you lose out on the opportunity to hear early on about interesting new ideas. On the other hand, concepts left unchallenged can become expensive failures, and that’s not in anyone’s interest.

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[1] Lesson #1 from Biz Dev 3.0 Fundamentals in 5 Easy Lessons