Leadership at the Expansion Stage

From: Leadership at the Expansion Stage: Dos and Dont’s

The key defining attribute of expansion stage organizations is that they are expanding rapidly to capture a market opportunity and capitalize on their product or distribution advantage. It then behooves the leader to be even more aware of the rapidly changing circumstances, especially when it comes to how they affect the wants and needs of his or her constituencies (customers, partners and employees).

Being generally resource-constrained, younger companies typically try to stretch their people, encouraging them to wear many hats and multi-task, and of course no one is more overloaded than the CEO and his or her management team. In such a situation, it is very easy to focus on hard KPIs such as sales, marketing return, net promoter score, etc., and rely on those numbers and trends alone to manage the company. Yes, those numbers are good indicators to help one “manage” a business — planning projects, organizing people to execute according to a plan, controlling the pace of the project and ensuring its output. But that is not leading! It’s just supervising the execution of a plan. To really assess the situation, numbers alone are not enough because they do not tell the whole story — especially the human dimension — and it requires the leader to be extremely perceptive and responsive to changing circumstances in order to push the company ahead.

So much easier said than done.

what are people paid for?

New post on Chron.com on What Are People Paid For? This is a cross-post so please comment on the Chron site if interested.


schipulmug.jpg

Ed Schipul

Two questions I like to ask in the interview process are below. (Oh don’t worry, most job applicants don’t take the time to google things like “schipul interview questions” so I’m pretty sure I’m not giving anything away.)

The first question is quite simple:

What is the goal of business?

The answer is simple:

To make money.

Now before you run me out of town on suspicion of being a citi-group-harvard-educated-asset-denuding-specialist, I’d like to differentiate between a business and the leadership. A business is a cold-hearted piece of paper that lives and dies on the oxygen of money. This does NOT mean the leadership can behave themselves in an unethical way. It just means that the business itself lacks a soul and that the soul must be transplanted in through ethical leadership and ethical employees working to create “greater value than cost” for clients. And the business must make a profit or at some point it will fail. And we all would lose our jobs. That sucks. Thus profit is good.

I would say about 50% of the applicants get the “what is the goal of business?” question correct. 25% say it out right. (I like that group.) 25% say it apologetically like they are embarrassed to admit they like money. (Baroo? Ya, check it. Money is awesome.) And 50% of the applicants just ramble on about “providing a service” and “interacting with customers” and “making management happy” and blah blah. For those applicants I always wonder “gee, are they going to work for us for free?” Yes take care of the customer, but you have to make a profit or you aren’t a business, are you? You can do both.

Regardless of the answer to the “what is the goal of business” question I always explain the correct answer and why. I wish someone explained that to me when I graduated from TAMU with stars in my eyes and a political science degree, bent on saving the world. (Then life happened. Now I’m a capitalist. Harumph. I’ll get another go at it when I retire.)

Regarding social responsibility I highly recommend reading James O’Toole on “The Ethics of Human Capital.” From the article:

I believe it can be argued reasonably that the creation of an ethical corporate culture is the prime role, task, and responsibility of a virtuous leader. For that to be the case, an ethical corporate culture would be defined as one in which all the stakeholders of an organization are treated with due respect. That is, the legitimate needs of customers, owners, suppliers, host communities, and employees would be both acknowledged and addressed by an organization. – James O’Toole

The second question I like to ask? It’s about compensation. It is:

What are people paid for?

I’ve never had an applicant get this one fully right. They usually respond with “taking care of the customer.” And I ask “so everyone in customer support at Amazon makes exactly the same?” They say “No.” I ask “Why?” and nobody gets it. My response is below (Note: I googled it extensively but can’t find the original source. This is my interpretation and if you know the source please tell me?)
Blue Acrobat at OVO! by Cirque de Soleil in Houston

What are people paid for? People in a business are paid for two things; responsibility and expectations.

  1. People are paid first for their level of responsibility.
    1. With power comes responsibility. Responsibility is hard. A manager should usually make more money than their employees. They have more responsibility.
    2. Responsibility does NOT mean strictly “management.” We have some awesome employees with huge amounts of financial or technical responsibility that are compensated for this while they don’t directly manage any “people.”
    3. Level up – organizations should give employees the ability to take on responsibilities that are smaller to prepare them for more responsibility later. Examples are things like managing the training schedule, managing interns, advanced reporting and research to help business decisions, keeping the break room clean, making sure we have paper in the printers. All of these things are responsibilities. If you are above cleaning the coffee pot you won’t work at our shop. (But I get that some people worship MBA’s, I am just not one….)
    4. Most applicants agree that paying people for their responsibility is fair. Tenure is nice, but younger more ambitious employees can and do pass up more senior employees in compensation. That is fair.
  2. People are next paid for “what they are EXPECTED to do.” This one is more complicated. The good news is the employee is in complete control of managing their superiors’ expectations of them. Examples:
    1. Events – Events change expectations.
      1. If your star quarterback just won the super bowl they should be paid quite well next season. But wait! What if the day after winning the super bowl they crash on their motorcycle and shatter their throwing arm in 10 places? Well, then their new pay rate is zero. Harsh, but that one event completely changed your expectation of what they will do next season. To protect the other players and the owners, you can’t pay someone you think isn’t going to do anything the same as someone you think might win the super bowl. (Hopefully football teams take out insurance to take care of their players!)
    2. Tasks – Small tasks EXACTLY equate to bigger tasks. Humans are consistent like that.
      1. If you ask someone to clean the coffee pot and you get a delayed “<pause….> OK” then you can BET that is exactly how they will treat your 100k/year annual account. The applicant will TELL you they will differentiate, but once they settle in, small responsibilities are the best indicator of how they will handle larger responsibilities. An intern who doesn’t want to load the dishwasher to help out on their first day is best fired immediately. Pride is deadly. Servant leadership rules.
    3. Training – consume training like candy.
      1. Training is good for the employee because nobody can ever take knowledge away from you.
      2. It prepares them for greater responsibility (see 1 above)
      3. It means they are ready for new opportunities down the road. “Just in time training” is crap, be trained BEFORE the opportunity happens or else it is just an “event” and not an opportunity at all.
      4. If you don’t know a technology an employer is looking for, invest $30 in yourself and learn all you can at sites like Lynda.com or YouTube. (Side note: last Thanksgiving they asked me to ‘carve the turkey’. Why? Why would you let the guy who doesn’t spend much time in the kitchen ruin the bird on the most important family meal of the year? Luckily, I solved it with training on turkey carving. True story.)
    4. Hard Work and Initiative.
      1. Ideas vs Results – A well meaning employee says “hey I have this great idea for the company!” An employee that you expect will rock the world later has an idea, prototypes it, takes it as far as she can take it without company resources, and then schedules a meeting with you to go over “initial results and research.”
      2. I once had a sales job applicant interview with me and he started the meeting by showing me a six page marketing plan he had developed for the company. He presented it in its entirety and I was floored! Who wouldn’t expect this guy to be a rock star? (Side note: the plan was completely wrong because he didn’t know our revenue model. But WHO CARES?! This guy’s initiative and demonstrated work ethic was unbelievable. Sadly I lost him to a competitor.)
      3. Tabitha, who recently joined the company, set herself apart by doing her entire resume as a pop-up book. A skill she learned by watching YouTube videos in less than a week. THAT is initiative. And I am very glad she joined our team before a competitor hired her!

Compensation is a loaded conversation. Job applicants always have some idea of what they think they should be paid (not what they are “worth” but what they think they should be “paid” – big difference). The ones right out of school are told some industry average, some too high, some too low, by the University. Those numbers don’t add up. And I have yet to talk to an applicant who says “the school told me I should be able to create X value for the corporation. I realize the money paid to me initially is earned by the other workers and I really appreciate them taking a risk on training me.” Ya, that doesn’t happen. Ever.

See? That second question, what are people paid for, is a LOT more complicated. But there is an answer. And YOU are in control of setting expectations of yourself. So in many ways, people are very much in control of their income. They just frequently prefer to hide behind the “management hasn’t promoted me” excuse without working hard to increase their responsibilities and the expectations of what they will do in the future.

I would love your feedback on this post. And despite the last paragraph of my last big post, on this one I welcome your IDEAS! – Thanks!


Chron.com on What Are People Paid For? This is a cross-post so please comment on the Chron site if interested.

buffett’s 2011 letter – lessons for entrepreneurs

Some interesting excerpts, ones that I found interesting anyway, in Buffett’s 2011 annual letter. I read it every year and if you are interested in business you should too. I don’t own any Berkshire stock. I just like how Buffett thinks. All bold emphasis added by me. red train

On Railroads, Trucking and the Environment (for the PR curious, check Bernay’s work for Mack Trucks in 1949)

…railroads have major cost and environmentaladvantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. (pg 3)

Rail moves 42% ofAmerica’s inter-city freight, measured by ton-miles, and BNSF moves more than any other railroad – about 28% of the industry total. A little math will tell you that more than 11% of all inter-city ton-miles of freight in the U.S. is transported by BNSF. Given the shift of population to the West, our share may well inch higher. (pg 14)

On being optimistic in the current economic environment:

No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and1941, America’s best days lie ahead. (pg 3-4)

On the folly of economic reporting periods to understand the value of a company:

Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of the earth’s movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit. (pg 4)

On hiring well. Talent is the secret to business:

Our trust is in people rather than process. A “hire well, manage little” code suits both them and me. (pg 7)

On the mobile home industry (they own Clayton) and the government’s policies that relate to home ownership:

To explain: Home-financing policies of our government, expressed through the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the price advantage that manufactured homes offer.We finance more manufactured-home buyers than any other company. Our experience, therefore, should be instructive to those parties preparing to overhaul our country’s home-loan practices. Let’s take a look.  [Net Losses as a Percentage of Average Loans in 2010 for Clayton was 1.72%]

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.

But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford. (pg 16-17)

On selecting talent:

One footnote: When we issued a press release about Todd’s joining us, a number of commentators pointed out that he was “little-known” and expressed puzzlement that we didn’t seek a “big-name.” I wonder how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959. Our goal was to find a 2-year-old Secretariat, not a 10-year-old Seabiscuit. (Whoops – that may not be the smartest metaphor for an 80-year-old CEO to use.) (pg 19)

On Net Income and why it is useless to measure the health of a company:

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and measuring its progress.Let’s focus here on a number we omitted, but which many in the media feature above all others: net income. Important though that number may be at most companies, it is almost always meaningless at Berkshire. Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like.

We have that flexibility because realized gains or losses on investments go into the net income figure, whereas unrealized gains (and, in most cases, losses) are excluded.

…Charlie and I have never sold a security because of the effect a sale would have on the net income we were soon to report. We both have a deep disgust for “game playing” with numbers, a practice that was rampant throughout corporate Americain the 1990s and still persists, though it occurs less frequently and less blatantly than it used to. (pg 21)

On real valuations and being unable to pinpoint a number:

Our inability to pinpoint a number doesn’t bother us: We would rather be approximately right than precisely wrong.

John Kenneth Galbraith once slyly observed that economists were most economical with ideas: They made the ones learned in graduate school last a lifetime. University finance departments often behave similarly.Witness the tenacity with which almost all clung to the theory of efficient markets throughout the 1970s and 1980s, dismissively calling powerful facts that refuted it “anomalies.” (I always love explanations of that kind:The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential,anomaly.) (pg 21)

On the social responsibility of conservative financial practices (no leverage) and keeping cash on hand:

Charlie and I have no interest in any activity that could pose the slightest threat to Berkshire’s well being. (With our having a combined age of 167, starting over is not on our bucket list.) We are forever conscious of the fact that you, our partners, have entrusted us with what in many cases is a major portion of your savings. In addition, important philanthropy is dependent on our prudence. Finally, many disabled victims of accidents caused by our insureds are counting on us to deliver sums payable decades from now. It would be irresponsible for us to risk what all these constituencies need just to pursue a few points of extra return.

On NOT paying dividends and instead reinvesting. Always a growth stock in a way:

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month. Our net worth has thus increased from $48 million to $157 billion during those four decades and our intrinsic value has grown far more. No other American corporation has come close to building up its financial strength in this unrelenting way.

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in oureconomy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008 (pg 24)

And towards the end of the letter he does what a good business man should. HE ASKS FOR YOUR BUSINESS!

The best reason to exit, of course, is to shop. We will help you do that by filling the 194,300-squarefoot hall that adjoins the meeting area with products from dozens of Berkshire subsidiaries. Last year, you did your part, and most locations racked up record sales. In a nine-hour period, we sold 1,053 pairs of Justin boots, 12,416 pounds of See’s candy, 8,000 Dairy Queen Blizzards® and 8,800 Quikut knives (that’s 16 knives perminute). But you can do better. Remember: Anyone who says money can’t buy happiness simply hasn’t learned where to shop.

GEICO will have a booth staffed by a number of its top counselors from around the country, all ofthem ready to supply you with auto insurance quotes. [etc…] (pg 24)

If I have quoted it above. Particularly if it is bold. It is an opinion I agree with. I think the man speaks the truth.

 

3 Rules to be a Billionaire

There are three rules to becoming a billionaire in business. First the business rules, then the story: Hugh MacLeod gets even with Shel Israel

  1. Sell at a profit.
    1. You have to sell at a profit. You can’t sell at a loss and make it up in volume. Any fool can reach 10M in sales by simply selling $10 for $1. Granted he will have lost at least 9M, but he will have achieved 10M in revenue! The point is you have to sell at a profit.
  2. Love what you do.
    1. You can’t sustain unless you love what you do. At least in your initial business. Sure you can tough it out for a year. Two years. Three or four. But you can’t sustain 10 to 20 years if you don’t love it. You have to love what you do (at least in your initial business!)
  3. Have a recurring revenue model.
    1. You MUST have a recurring revenue model. It takes too much energy to make a sale no matter what your profit margin is. Your customer must come back to you, and refer business to you, or you won’t make it.

The story of the three rules of becoming a billionaire:

Years ago I heard Ken Jones` speak. Now Ken has never been accused of having a shortage of ego (#heh, forgive me Ken). And I heard him speak at an IABC, or maybe a PRSA function in Houston when he told the story. I remember it as “so I talked to a man who was in the room with these three billionaires and he asked them “what is the secret” and their reply was the three rules.” I probably got that wrong, or paraphrased it poorly, but what I do know is as follows.

I have had 5 dba’s counting my current 13 year old company. 2 were play dbas for home businesses that I can barely remember. 1 dba (1994/95 ish) was real for web design but failed. The next was a corporation with a partner that never made real money and basically failed. (I never said I was a fast learner!) Then this corporation started in 1997 *almost* failed in the recession of 2001 and 2002 because we did not have a recurring revenue model. I learned my lesson. Follow the three rules.

More? Take a class from Ken at U of H for more. But know what you love before you show up because they can’t teach you that. Business is tough; stack the deck in your favor. And don’t believe that crap from wall street. Go sell something. No seriously, go SELL SOMETHING!

No One Makes it Alone – NO ONE.

Ninja Squirrles Cooperating
Ninja Squirrles Cooperating

Reading Gladwell‘s book Outliers, and this quote grabbed my attention.

He’d had to make his way alone, and no one — not rock stars, not professional athletes, not software billionaires, and not even geniuses — ever makes it alone.

I have always disliked the phrase “self made man” because in my experience I have never met one. Ever. We have this vision of a Galt-esque intellectual warrior who single handedly drives to success. And while this archetype may exist, they don’t achieve this success without innumerable amounts of assistance from people.

So the next time you hear someone say they are “self made”. Or a friend describe someone as a “self made man”. Please call BS. And buy them a copy of Outliers.

The photo? Two squirrels cooperating by the vision of the artist Elaine Bradford.