Chief Executive Boards Blog

Sunday, July 5, 2009

When is Your Independence Day?

The July 4th weekend reminds us of the political, religious and economic freedoms we enjoy as Americans. As part of that economic freedom, we Americans enjoy the most fertile climate in the world for business formation and ownership. Yet many of us have created businesses that demand most of our time -- the exact inverse of freedom.

A great blog article by Bernadette Doyle, "When's Your Independence Day?" reminds me, in her words, "Chances are you started your business to enjoy more autonomy and freedom in your business. So, in the words of Dr. Phil, 'How's that working for ya?'"

It's an excellent article, and worth your time and reflection. In it, she raises several key points:

As Robert Kiyosaki explains in his book The Cash Flow Quadrant, there's a huge difference between business ownership and self-employment. If you own a business, it will run whether you're there or not. If that's not the case, you're actually self-employed -- you don't own a business -- you own a job.
If you believe you can't be away from the office for a day (or a week), she's talking about you
It doesn't have to be this way
You need a different plan
You probably need someone (or a group of someones) to help you with that plan. Not coincidentally, she suggests a coach or a Mastermind Group.
And, finally, she writes, "No matter where you are starting from, you could be experiencing business in a whole new way, making more than you ever dreamed possible and doing so in a way that is fun and enjoyable for you."

You can't believe the number of "business owners" I talk with about Chief Executive Boards International who tell me "I just don't have the time to do that." I can scarcely keep myself from challenging, "Are you serious? You don't have the time to spend eight of the 200 working days in the year away from the office, figuring out how you can spend most of the 200 working days of the year away from the office??"

CEBI Members, sometimes hearing this excuse from people they nominate for membership, tell me "That's a person who really needs this." In fact, CEBI members say the advice, counsel and support of their fellow members results in more enjoyment of their business, more income, and more free time to enjoy the money.

Are you a person who really needs a better plan? Who owns a job and would like to own a business? Who needs someone (or several someones) to help you with that?

If you don't choose CEBI, wouldn't it be helpful to choose some other resource, coach, advisor or Mastermind Group to help you create some freedom from your business? Think about it.

If you've successfully reduced the dependence of your business on yourself, please click Comments below and share with others how you did that.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Tuesday, June 30, 2009

It's Better to be Alone Than in Bad Company

At a recent Chief Executive Boards International meeting, a member mentioned that one of his inside sales people had put up an online "store" site, selling products very similar to those his company sells.

The member didn't realize the cancerous implications of keeping such a person on the payroll, and his Board didn't waste any time mentoring him on the need for swift and sure action to get this employee out the door. There is no excuse or resolution for a breach of trust -- it's time to terminate the employee and get on with life.

One member quoted his immigrant mother, who has a 2nd grade education, saying, "It's better to be alone than in bad company." A profound observation worth remembering.

Bad company attracts people of bad character. And your company attracts people of bad character, if you either hire or retain people of bad (or even questionable) character. These are insidious forces, and have ways of propagating that's both subtle and cumulative:

Imitation -- People see others behaving unethically, and they copy that behavior
Reduced Inhibition -- People see others behaving unethically, and they conclude that the company doesn't care, or perhaps even condones such behavior, so they drop all boundaries of ethical behavior and assume "anything goes."
Self-Selection -- People tend to join up with those of like mind. Unethical employee behavior, believe it or not, tends to attract unethical employees. In this same conversation, another member cited his experience with having to completely shut down a remote office, after digging into problems of poor financial performance. Turns out most of the employees were drug users, and some were dealing drugs out of company trucks!! More on organizational cultures......
Self-Separation -- It's been said "bad money drives out good." It's equally true that people of bad character drive out people of good character -- they just don't want to be around people they don't trust or respect. You lose good people as a result of keeping bad ones.

So, when is it time to do something about a character problem? This week. More....

You may have acted to terminate a person of bad character, and then been totally surprised about what others told you after the fact. If you've had such an experience, please click "Comments" below and share it with others.

Monday, June 29, 2009

Get a Good Deal on a Lease -- Act Now

A Chief Executive Boards International member asked his fellow members for some cost-reduction ideas to save his business from a severe cash crunch. In the next breath, he mentioned his lease was up for renewal within the next year. It happens that this member is in a specialized business in a specialized building in a severely depressed local economy.

The members unanimously advised him to run, not walk, to the landlord, requesting several things:

An immediate rent abatement, or rollback -- perhaps to or below the original base rent (before escalators) of the current lease.

A renegotiated renewal at an even lower lease rate -- asking also for an option to terminate in the case of sale, liquidation, or bankruptcy

At least 2 months' rent at $0, commencing with the start of the new lease

The members' rationale was straightforward. First, you don't get what you really need without asking. And, secondly, the lessee (CEBI member) is holding all the cards in this deal. It's highly unlikely the landlord could find a replacement tenant any time soon, and he probably knows that. The peace of mind that the lease is even renewed at all should be worth something in rent reduction. And, finally, the lessee knows that the landlord owns the building free and clear -- he's not in his own cash crunch trying to meet debt service demands of a mortgage holder.

Tough times call for tough actions. Have a look at your own lease, and if you see a renewal in the future perhaps now is the time to renegotiate that. You'll never have more bargaining power. Here's a recent article from Inc. Magazine with a multi-part strategy for getting your rent reduced: http://www.inc.com/magazine/20090501/how-to-get-a-good-deal-on-a-lease.html This article makes the important point that you probably don't want to go this one on your own, and further that a good real estate Attorney might be more help than a Commercial Broker.

If you've had some success in reducing your lease expenses, please click "Comments" below and share that experience with others.

Thursday, June 25, 2009

I Followed My Board's Advice -- And Focused on My Strengths

I heard from a Chief Executive Boards International member that he had taken his Board's advice about an issue facing his company, and that the results far exceeded his expectations. I asked the member, David Dorn, founder of Red Oak Medical, a provider of specialty medical equipment, to write a guest article for Chief Executive Blog, which turned out to be half experience and half testimonial. Here's what David had to say:

"I was reminded at a recent CEBI board meeting of the singular importance of profitability to the survival of my business. It may seem obvious, but with the various challenges facing my company simultaneously, I see in retrospect that I lost focus. Our company had been through a difficult time of declining revenues, and in order to maintain profitability, expenses had to be cut. At previous Board meetings I heard members report on the benefits they experienced in their companies after confronting the difficult issue of letting employees go and taking action in this regard when necessary.
"This has always been a challenge for me. I made the decision to let our Director of Operations go, who was the highest paid employee on payroll and had at one time been a key employee in our organization. The reality in the moment was, however, that we could no longer afford her as a manager. I expected to save money, but what I was surprised to find was that our company actually became more efficient operationally without her in that role. Payroll expenses came more in line, and our internal operations became smoother.

"Another key piece of advice I got from my CEBI Board members was to focus on my strengths, or what I do best – and delegate all other tasks. I brought in a financial controller so I could focus on sales. This resulted in increased revenues in Chicago, our main market area. In addition, we have been able to move forward with our initiative to cultivate new satellite markets. I hired new sales reps to open our first two new territories: Indianapolis and Milwaukee. Both have gotten off to a strong start.

"The guidance and business intelligence I have gotten through my participation in CEBI have been instrumental in helping me to develop professionally and keep my company healthy and growing."

David is not alone. While his own experience may seem obvious to you as a reader, it's likely that something similarly obvious is getting in the way of your company's growth. If you're a CEBI member, bring that continuing obstacle up at your next Board meeting.

If you're not a CEBI member, Click here for information on how to become one.

About our guest author: David Dorn is founder & owner of Red Oak Medical, a provider of CPAP equipment, supplies and services to patients in Chicago, Indianapolis and Milwaukee.
Red Oak's dedicated team of professionals are committed to helping patients derive the maximum possible therapeutic benefit from their CPAP treatment.
Learn more about Red Oak Medical at http://www.redoakmedical.net/"

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, June 22, 2009

Front of Mind -- Maintaining Visibility with Prospects and Customers

I made a presentation that was surprisingly well received at the 2009 Spring Summit of Chief Executive Boards International. The topic was, "Front-of-Mind -- Better, Faster, Cheaper." The point was that prospects, and even customers, forget about who you are, what you do, and how you might be able to help them. And they do so frighteningly quickly.

Click the icon on the right for a Video Blog Article on what Front of Mind is all about, and why you'll want to consider E-Marketing tools as part of your customer contact arsenal.

My own testimonial: This stuff works. CEBI has been sending an E-Newsletter to both members and prospects every month for the past 18 months, and the results are amazing. Here are a couple of typical email responses we've received lately, 1-2 days after sending a monthly newsletter.

From a prospect who first inquired in March of 2006: "I am ready to join your organization"
From a prospect who first inquired in January of 2006:

"Terry, I think it is time for me to join your organization"

We've had no other communication with these two people (both now members) for over 2 years. Our E-Newsletter alone kept CEBI on their radar until they each decided they had a need for a source of some new ideas.

If you've had some success with E-Marketing tools to keep your message in front of prospects and customers, please click "Comments" below and share them with others.

Sunday, June 21, 2009

Look for People with a Lot of Tools on Their Belts

In a recent meeting of Chief Executive Boards International, the discussion turned to the current largest-ever pool of available talent for hire. One of the members mentioned he had just hired someone who had "a lot of tools on his belt." Interesting mental image -- remember Schneider, the building super on the 70's sitcom "One Day at a Time"? Well, maybe not quite like that....

Seriously, in many businesses, particularly smaller ones, breadth is a lot more valuable than depth. We can generally outsource for special skill needs. What's more scarce is the person who is good at a whole lot of things, rather than excellent at only 1 or 2 things. A friend of mine, Joe Trotter, used to call these kinds of people "decathletes" (a combination of speed, power, jumping ability, and endurance).

If you're trying to explain what you're looking for in a broadly-talented candidate, try using phrases like, "a lot of tools on his belt", or words like "decathlete". These word pictures help another person understand your meaning and remember it in a more vivid way.

And, once again, don't overlook gray hair, a common attribute of broadly-experienced people. In his recent newsletter, John Mauldin of Outside the Box quotes David Rosenberg of Gluskin Sheff drawing the following insight on the latest unemployment numbers:

" ..the only segment of the population that is gaining jobs is the 55+ age category. This group gained 224,000 net new jobs in May while the rest of the population lost 661,000. In fact, over the last year, those folks 55 and up garnered 630,000 jobs whereas the other age categories collectively lost over six million positions. This is epic."

Other people are scooping up this talent pool, and you can, too -- just don't wait too long.

If you're doing some hiring and have made some amazing talent "finds", please click "Comments" below and share them with others.

Sunday, June 14, 2009

Leverage -- The Capitalist's Best Friend

In recent meetings of Chief Executive Boards International, members have brought up number of topics relating to both recovery and growth strategies. This week, the topic of "Leverage" came up. Now, the term leverage in most business owners' minds relates to financial leverage -- leverage of money or capital. And that usually conjures up thoughts of debt, which with some business owners shuts down the conversation.

But just a minute. Can't almost anything be leveraged? What does that mean, anyway? I think it means you get more out than you put in. Let's look at the physics of where this term came from. A lever, sitting on a fulcrum, applies leverage to a physical task. The "price" of that leverage is distance moved by the load (less than that moved by the force).

The "output" of that leverage is the multiplication of force, allowing, for example, the movement of a 400# load (not something most humans can lift) with a 100# force -- interestingly, in the opposite direction, which can be applied by almost any human weighing over 100#.

So, how do the concepts of leverage apply to the 4 factors of industrial production -- Manpower, Materials, Machinery and Money? Let's have a look:

Manpower -- You leverage manpower by buying hours from employees and selling them for more than you pay for them. Easy to see in a service business -- In my IT services business, I used to buy hours for about $40 (payroll) from employees and sell them for about $125 (billing rate) to clients. Not a bad model. In manufacturing, the hourly cost is built into the manufacturing cost, which is supposed to be far less than your selling price. You scale a manpower-leveraged business by selling (and buying) more manpower. Classic case -- professional services.
Materials -- Leveraged by selling things for more than they cost you. In the case of a distributor, you buy an item for $75 and sell it for $100. Not a bad model, especially if you never touch or inventory the product. Again, in manufacturing, the materials cost is rolled into the manufacturing cost. You scale a materials-leveraged business by selling (and buying) more materials. Classic case -- distribution.
Machinery -- You buy a machine that's capable of producing widgets in quantities far beyond the "per-unit" cost of the machinery (considering capital cost, maintenance, depreciation, etc.) In the manufacturing model, most of the leverage over the past 200 years has been in machinery. Machines make things better, faster and cheaper than people do. You scale a machinery-leveraged business by selling more products and buying more machinery. Classic case -- basic manufacturing.
Money -- You buy (borrow or invest) money at a rate far below the productive value of the money. Money invested in inventory selling at 8 turns/year has a huge ROI, considering it presently costs only 4-5%. Money invested in machinery (or other fixed assets) should produce an ROI of at least 25% -- in many cases taking out manpower. You scale a Money-leveraged business by selling (and buying) more money. Classic case -- Banking.

But the lesson that came out of most of these conversations among business owners was the leveraging of the owner himself (or herself). You leverage yourself by figuring out your own "best and highest use" of an hour -- the one thing you can do for an hour that earns the company the most money -- and buying other people's time to do absolutely everything else. It doesn't matter that they do it worse than you -- as long as you're not spending more total salary dollars than you can earn yourself by pursuing your "best and highest use." That's sometimes called "opportunity cost" -- the cost (in lost opportunity) of you spending an hour doing something yourself rather than an hour at your best & highest use.

Many businesses initially grow because the owner is the primary rainmaker -- the lead salesperson. If that's you, don't do anything else, at least in the early going. Buy other people's time to take care of the zillion other things that are needed to manage a business.

You'll quickly realize that you're selling most of your waking hours and sales are flat. I've learned over the years that regardless of the business, there's a physical limit to what one person can sell. So, without stopping your own sales efforts, hire a sales person and attach him to your coattails. Show, train, coach and mentor until that person can sell. If that doesn't work, fire him and get another one. Again, it doesn't matter whether he can sell as well as you. You're probably paying him 1/4 your own hourly income, so you're actually ahead of the game if he's only 1/4 as good as you are (you have 25% more sales). If he's half as good, you've leveraged yourself by 50%. Then get another one. Eventually, you'll need to offload managing that sales force to a sales manager. Again, not as good as you, but not as expensive either.

And then we come to the pinnacle of the business owner's best and highest use -- working "on" the business. Developing and communicating vision, charting direction, managing and monitoring the company's strategies. One of our members took a hard look at how he was using his own time, and concluded "My company has been without a CEO 80% of the time."

Are you performing at your best and highest use within your company? If you've discovered ways to leverage yourself, please click on "Comments" below and share them with others.

Tuesday, June 9, 2009

Acquisitions -- Why Buy when You Can Build?

In a recent meeting of Chief Executive Boards International, a member brought up a failed acquisition attempt. This member is in a pure advisory service type of business, and had attempted to acquire another practice in his same market space.

After hearing some details of the failed deal, the Board gave him a completely different perspective on the acquisition, a regular occurrence in these meetings. Turns out the member was looking a business, represented by a broker, at a valuation of roughly 3 times gross revenue. The member was proposing $1 million cash, and $3 million owner financing over 7 years. A handsome price to buy only a client list. The deal failed due to the buyer's inability to obtain financing on the $1 million.

The Board questioned not only the lofty valuation, but also the buyer's likely "conversion ratio" of the existing clients. In any personal service business, there's a degree of chemistry between the client and the provider, and that might be tough to transition to a new organization. At any rate, the existing clients have a reason to shop around as a result of the change of ownership.

Then came the paradigm-shifting difference in perspective. The question was asked, "If you were willing to fork over $1 million in cash to buy this business, what would happen if you invested $1 million, say $250,000/year, in stepped-up marketing and sales activity in your existing business?" "Why", the member said, "I could explode my growth with that amount of sales & marketing effort." And then, of course, he wouldn't owe the other $3 million on the back side, either.

A strange thing happens when we use our taxable income, rather than cash flow analysis, in considering an acquisition opportunity. IRS allows Goodwill (most of the purchase price of a service-based acquisition) to be amortized over 15 years, straight line. Thus, the first $1 million of the purchase price looks like only a $67,000 annual hit to earnings, despite the fact that you're either $1 million poorer or $1 million more in debt. Somehow, in the mind of the business owner, that's "less bad" than four years of $250,000 in additional sales and marketing expenses, making the income statement look $183,000 worse (in all four years).

What's that reason? I think it's ego. We get our sense of accomplishment and self-worth all tangled around our income statements and tax returns. We forget about our long-term strategy, the long-term value of growing our businesses, and the ultimate "end game". We just say, "That's going to cost me $250,000 in profit -- I'd never want to sacrifice that." In fact, $183,000 less taxable income actually saves most business owners at least and additional $80,000. So, the Government is helping you defray the cost of that additional sales & marketing expense. Not to mention that it's fun to say on the golf course, "I acquired a business." Lots more sex appeal than "I grew my business with money I saved by not acquiring one."

We've completely ignored interest in this simple analysis, both of which tilt it further in the direction of "grow your own" vs. "buy". To be more rigorous in comparing cash flows, one could look at the loan amortization cash flow of the $1 million over, say, 7 years at, say, 6%, and do this example on that basis -- $175,000/year in growth funding vs. debt service.

Now that you think about it, what would benefit your business more -- a $1 million acquisition or $250,000 "invested" in a pure growth strategy for each of 4 years running?

So, you never want to acquire a business, right? Of course there are exceptions -- I'm not arguing that acquisitions are never a good idea. Here are some of the litmus tests that could be applied to an acquisition that might make it worth a serious investment:

A platform company -- It's surely easier to build a business from an established brand, organization, facility, customer base, etc. than to start one from scratch. Even then, you need to have a clear-cut vision for how you're going to transform the acquired business into something far more successful than the one you're paying for.
A new platform for your own company -- An acquisition in a new product/service segment that would be expensive to break into from scratch. An expansion into a geography where the seller has facilities, customers, brand recognition, etc. that would cost you a lot to establish.
Intellectual property -- The seller has specific know-how, whether patent or trade secret protected, that you can't figure out any other way to acquire (or can't acquire separately from the business).
Human Capital -- This one is dicey, and assumes you can win the hearts and minds of key players the seller has groomed over time, to fill holes and gaps in your own management team.
Eliminating a Competitor -- If you're in a narrow niche, and you can take a meaningful competitor out of action, there may be some benefit to your base business, as well as the acquired portion.
It's really cheap -- Some businesses sell in distress. If you come across a real distress sale that you're completely convinced you can turn around in MONTHS, not years, you may have a bargain on your hands.
Leverage -- You don't use your own money, and your return is many times the cost of the money you do use.

Bob Pritchett, author of one of my favorite business books of all time, Fire Someone Today, says, "In acquisitions, the buyer is the loser." If you're thinking about an acquisition, order the book and read only Chapter 18. Pritchett makes the case that the seller always knows more than the buyer will ever learn in due diligence, and there's a litany of things that you won't see, including the difficulty of integrating newly-acquired entities (and people) into your company.

So, Pritchett suggests, "Ask crazy questions", like, "If I am considering buying customers or employees, what would happen if I took the acquisition cost and offered it directly to the customers or employees in cash instead of paying it to the business they are associated with?"
Which is very close to the question this Board posed to the member -- "What would happen if you took the acquisition cost and spent it on growing your own (already successful) business?"

If you've experienced an acquisition that either validates or disputes these ideas, please click "Comments" below, and share your experience with others.

Saturday, June 6, 2009

Are You Voting Yourself Unnecessary FICA Taxes?

If you're an S-Corporation or C-Corporation, you may be voting yourself an additional tax burden by the way you choose to pay yourself -- through salary and bonuses (W-2) or through shareholder distributions.

If you're an LLC, you have the choice of paying taxes as an S-Corp, thus making the ideas in this article applicable to yourself, as well.

We're talking about FICA and Medicare taxes, which apply only to your W-2 income, not your shareholder distributions of retained earnings, one alternate way to withdraw money from your company.

At a recent Chief Executive Boards International meeting, a member said he was putting cash back into his company to keep it afloat during a period of negative net profit and cash flow. Not pleasant, but it happens sometimes. When asked whether he was still taking a salary, he replied "Yes, and I've reduced it to $90,000." The discussion that followed centered on the tax he was voluntarily paying (FICA and Medicare) by continuing to pay himself well, despite a lousy year and the need to return the same money to fund the company's temporary losses. The problem is that he's taking a voluntary 15% haircut on those W-2 dollars -- both the employer and employee sides of the FICA/MC tax. In fact, if he immediately reduced his salary to a still-reasonable $40,000 (for running a small company at a net loss), he'd save both the employer and employee sides of the FICA/MC tax, or 15% -- $7,500 per year.

Disclaimer: This article is not tax, legal or financial advice. It is an invitation to examine the way the Social Security System actually works, so you can use your best judgment in setting your own compensation as a business owner.

There are widespread misconceptions and misunderstandings about FICA and medicare taxes and how they benefit business owners long term. Those misunderstandings tend to cause people to pay more than they need to and get less benefit than they expect.

First, let's qualify this discussion to the case where there's a single owner or a small number of owners who can manage both salary and distribution decisions between themselves.

Then, let's examine how the Social Security system actually works and what benefit you're getting for any "discretionary" difference in salary you award yourself (what you actually pay yourself, vs. what IRS determines to be "reasonable"). For every $10,000, of that discretionary difference, you're voluntarily kicking in $1,500 to the Social Security system. Now, this discussion is just about what you're paying yourself in salary from an S-Corp or C-Corp, BEYOND what's considered "reasonable" by the IRS. ZERO is not "reasonable". What's "reasonable?" Some use an old CPA "rule of thumb" that salary should be at least 60% of total owner/operator's cash compensation, the 40% remainder being shareholder distributions. Some say 50/50. Others use an "hourly wage" theory. Here's a long thread of discussion, although dated, that's most interesting (and colorful): http://www.taxalmanac.org/index.php/Discussion:S_Corp_Owner_Salary_vs._Distributions

Most people willingly pay FICA/MC taxes, thinking they're "building" their eventual Social Security benefit. When you examine the mechanics of how your contributions actually affect your benefit calculation (available at http://www.irs.gov/), you might be inclined to change that viewpoint. The problem is in the underlying math. The core calculation for Social Security benefits is a thirty five year average of earnings -- the 35 highest years' earnings during your working career, using the thirty-five highest years of W-2 income, as adjusted for inflation. Here's the detail on how that works: http://www.ssa.gov/OACT/COLA/Benefits.html

The devil's in both the average and the "highest years" part. If, for example, you pay yourself $100,000 when $50,000 may be "reasonable", you'd think you're adding $100,000 to the average calculation. If you have 35 years of salary history, however, you're only replacing a lesser year that's adjusted for inflation -- perhaps to, say, $30,000. Thus, you've contributed $7,500 in additional FICA/MC for only a $70,000 boost to your total 35-year income (affecting its average by only $2,000 when divided by 35).

Now, here's the other part -- how your payout is actually calculated from that 35-year average. Having lived with a progressive income tax system (the more you make, the higher marginal tax rate you pay), you might not be surprised that Social Security benefits are progressive -- in reverse -- the more you made (and paid in FICA), the lower marginal payout rate you get. Here's the actual math, based on this year's adjustments (monthly benefit):

90 percent of the first $744 of average indexed monthly earnings, plus
32 percent of average indexed monthly earnings over $744 and through $4,483, plus
15 percent of average indexed monthly earnings over $4,483.

So, if your indexed average lifetime earnings top about $54,000, your incremental benefit rate is only 15%. An Engineer's starting salary beats that.

With that in mind, let's examine the choice you're really making -- whether to give yourself a marginal raise of, say, $10,000/year (just considering the raise itself). And, for simplicity, let's assume that's not just washing out a prior inflation-adjusted year. That raise would boost your lifetime earnings by $10,000, but after you divide by 35, it actually changes the 35-year average by only $286. And, if your career inflation-adjusted average beats $54,000, your incremental Social Security benefit increases by $43. per year. Even in the next-lower bracket, it increases by only $92/year. Combined employer/employee FICA + Medicare on the $10,000 raise is a haircut of $1,500. Does that sound like a good deal to you? Of course, a $10,000 pay cut saves you $1,500 you can invest right now. At only a 6% long-term return, that's $90/year income, starting right now, and you still have the $1,500!

It's even worse if your spouse is on your payroll. Since your spouse automatically gets 50% of your own Social Security benefit, it's highly likely that her (or his) Social Security contribution is totally lost (unless his or her 35-year average income is more than 50% of yours -- rare, but possible.

Social Security is not a system that's built to favor or benefit high-income individuals. It wasn't designed for that. What you have to decide is how high you want your income subject to FICA & Medicare taxes (W-2) to be, and develop a rationale for why that's "reasonable", if ever questioned. In a lousy year, "reasonable" could arguably be a pretty small number.

Note that $106,800 (for 2009) is the maximum salary to which FICA applies, and is also the maximum amount applied to your 35-year average income calculation. The Medicare cost component of roughly 3% (employeer + employee sides) applies for all W-2 compensation in excess of $106,800.

Disclaimer: Information contained in this article is neither legal, financial, nor tax advice, and may contain inadvertent factual errors. If, however, these ideas cause you to re-examine your own salary, please check with your own legal, financial and tax advisors to be sure it's right for your specific situation.

Footnote: If you're serious about analysis, get your recent "Social Security Statement" (they send those out annually) and then go get the Indexing Factors for Earnings: http://www.ssa.gov/OACT/COLA/awifactors.html Enter your estimated retirement year, and you get the factors by which your earnings history is indexed to today's dollars. Multiply those factors by the respective years' earnings history. Then sort (descending) the resulting annually-adjusted amounts and total the best 35 years.

If you have viewpoint to share on this topic, please click "Comments" below and share those ideas with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, June 1, 2009

3 Wealth Creation Systems -- Which One are You Betting on?

About 2 paragraphs into this article, you may wonder, "where's he going with this?" Stick with me -- there really is a meaningful point here.

In their book Revolutionary Wealth, Alvin and Heidi Toffler asserted that there have been only three basic systems of wealth creation since the dawn of mankind -- agriculture, industrial production and knowledge.

I recently experienced a 40-year reunion of my high school class in a small farm town in rural Kansas. The population when I lived there was 1400, and has now declined to about 900. I was awestruck by the decline in business activity and infrastructure.

Main Street is deserted on Saturday -- there were no cars parked on either side of a full city block in the central business district. The town used to be served by two rail lines, one on either end. One set of those tracks is completely gone, and both former stations are vacant lots. All three farm implement dealers --each of whose owners had kids in my class-- are out of business. The bowling alley is closed. There's only one small grocery store (used to be three). There isn't a restaurant open for breakfast. The former cattle auction complex is a vacant lot. And, finally, only 16 HS seniors graduated in 2009, only two of whom are headed to a 4-year college. This is for a consolidated high school serving half a county!

40 years before, the same high school graduated 44 seniors, with at least 20 continuing on to 4-year degrees. This "brain drain" fortells an under-educated future population -- something Kansas has never before dealt with.

Relating this to my brother last night, he asked "Why is it that the opportunities, earning power and standards of living appear to be higher for people leaving these small communities and moving to cities?" A very insightful question, I thought.

I'm no demographer or economist, but the answer I gave him was this: The economic system of agriculture is not leverageable by the addition of people. You can't throw more people or more money at a section (1 square mile, 640 acres) of land and grow more wheat (at least not much more). I use this term "leverage" a lot, and here's what I mean by "leverage" as applied to the traditional factors of production, land, labor and capital:

Land -- Required in massive amounts by agriculture. An acre (44,000 square feet) of land will produce about 40 bushels of wheat at a price of about $7/bushel -- $280 of annual output per acre.
Imagine the productive capacity of 44,000 square feet of manufacturing, or 44,000 square feet of office space housing software developers. Or even 44,000 feet of warehouse space for a distributor.
No contest -- land used for almost anything else produces thousands, perhaps millions of times the economic return per acre of agriculture. Much higher "leverage" for most any alternative use of land.

Labor -- You can't grow more wheat by throwing more labor at an acre. You generally can, however, increase the density of people in a plant, an office or a warehouse and increase output. In industrial or knowledge-based models, you leverage manpower by buying hours from employees and selling them for more than you pay for them. Easy to see in a service business -- In my IT services business, I used to buy hours for about $40 (payroll) from employees and sell them for about $125 (billing rate) to clients. Not a bad model. In manufacturing, the hourly cost is built into the manufacturing cost, which is supposed to be less than your selling price. And that's scalable -- if you can sell more, you can hire more and make more. This is leverage of labor -- not a choice in agriculture.

Capital -- Generally fixed assets, such as machinery and buildings. In manufacturing, you buy a machine that's capable of producing widgets in quantities far beyond the "per-unit" cost of the machinery (considering capital cost, operation, maintenance, depreciation, etc.) Or you expand a building and fill it with lots more such machines.
In the farming model, most of the leverage over the past 100 years has been in machinery (replacing labor) -- massive harvesting combines allow one person to harvest all the wheat on a section of land in a few days. Add a couple of truck drivers and you have a harvesting crew. With the exception of irrigation (not so practical on a wheat farm), you can't produce more wheat per acre by throwing more machinery at it -- thus, leverage of machinery is not a choice in agriculture.
Then, there's leverage of financial capital. You buy (borrow or invest) money at a cost (interest rate) far below the productive value of the money. With the exception of irrigation, you can't invest more money in an acre of land and produce more wheat -- thus, there's even limited leverage of money in agriculture. In fact, it's arguable that if you didn't inherit the land -- if you actually had to borrow money at the historical average prime rate of about 8%, you couldn't make money in wheat farming at all.

So, in answer to my brother's question, I'd say that agriculture, which is roughly 10,000 years old, has reached its limits as a wealth producing system, and has been eclipsed by both industrial production and knowledge work as systems far more effective in leveraging the traditional factors of production -- land, labor and capital. Unfortunately, those economic systems also argue for higher-density worker populations -- cities.

Thus it follows that people have been leaving and will continue to leave communities dependent upon agriculture as an economic system and migrate to communities able to leverage their "labor" far more highly.

This essay is admittedly limited to economic analysis, and completely ignores quality of life factors. Having grown up in a farm community, I can vouch for the fact that there isn't a much more comfortable, safe and relaxed place to live, work and raise kids. Those things have a value to many people, and are the intangibles that keep the still-needed people (although in smaller numbers) living and working in the small US communities that produce most of the world's food supply.

Toffler predicts that industrial production will be next to decline in importance as the third system of wealth creation, knowledge, asserts its intrinsic advantages.

So, are you betting on industrial production as your wealth-producing system? It has some limitations of its own, although not as pronounced as those limiting agriculture. Here's another chapter, comparing and contrasting the leverage of industrial production with that of knowledge.

If you've come to some realizations about the basic wealth-producing potential of your own business model, please click "Comments" below and share those ideas with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Sunday, May 10, 2009

Plan Now for Your Upcoming Needs for Cash and Credit

Thankfully, the popular press has decided that the recession is beginning to moderate and that a recovery is beginning to show itself. I'm not an economic forecaster. I am, however, listening to business owners across the country every day, particularly at events like the recent national Summit of Chief Executive Boards International. And I'm hearing business owners say things like "My quote volume is up", "I'm hearing from customers who had projects on hold", and "Our backlog is holding steady, rather than shrinking."

While admittedly not highly scientific, our recent Main Street Economic Survey of over 100 small-to-midsize businesses revealed an anticipated upturn in 3rd or 4th quarter 2009, with 2010 being a return to an "average" year of growth in both revenue and profitability.

Regardless of the timing, as a recovery picks up steam, businesses that are still standing are positioned to grow remarkably. That is, if they've prepared themselves to do so.

Most business owners focus on their income statements. While the income statement will look great during an upturn, when business is growing and accrual basis profitability is growing. Key words in that sentence -- "accrual basis". Many business owners neglect forecasting their balance sheets. And it's not directionally hard to predict that a business that's steadily growing both revenue and profitability will, in fact run low on cash. Why is this counter-intuitive statement true?

It's the lurking devil of timing. Here's the scenario:

Revenue turns up, requiring more labor, which needs to be paid for weekly. It requires more overhead, which needs to be paid for monthly. It requires more material and/or inventory, for which most businesses get 30-day terms, but is generally needed around 30 days before it gets turned into revenue.

The upturn in revenue, therefore, produces a "giant sucking sound" on the bank account, as those resulting cash needs have to be met before customers pay.

Most healthy businesses run an average of 45 days between billing and collection of receivables (Days Sales Outstanding = DSO). And that 45-day average is from the date billed. Generally the additional material, inventory and labor required at least some cash even prior to that 45-day clock starting.

So, the collection of not only the cost but also the margin resulting from these increasing sales lags the cash outlay by roughly 60 days (if you're on top of your receivables, and maintaining a DSO of 45 days or less). That produces what I call a "bow wave" of receivables -- for each month's growth in revenues, the receivables grow by double that amount (since they take almost two months to collect). Example: If revenues grew $100 last month, that money is still in receivables and adds to this month's additional increase of $100 in receivables for a total growth in receivables of $200. And next month will be the same, assuming your continued growth month-to-month.

And then what? Continued for any period of time, the accrual basis income statement continues to look great, and the balance sheet looks like:

More Inventory

More Receivables

Less Cash -- (it became inventory and receivables) and subsequently less and less cash, the more prolonged and successful your growth cycle becomes

which can also result in the need for:

More Fixed Assets (machinery)

resulting in

Even Less Cash

So, what's the solution? Granted, some of your growing cash requirements can be met by profit, collected through receivables, although delayed by the DSO. Sustained long term, however, you're going to need cash from elsewhere to fund these working capital accounts. That's where banks and credit lines come in. They're in the business of providing that working capital, so the owner doesn't have to put even more of his own capital at risk in the business, and can, in fact, harvest some of that increasing profitability into his own personal investment portfolio. Why not, since you're probably paying taxes on it already (if you're an S-Corp or LLC)?

Perhaps an upturn for your business isn't just around the corner. Perhaps it is. Either way, you're going to need some more cash to fund that success whenever it happens, and now is a great time to get that Line of Credit (LOC) secured and in place. It's more of a hassle and takes more calendar time than you think, so don't wait until you actually need the money.

And how much? Your CFO could forecast it for you. Or, given the simple example above of funding just the additional receivables for a 60-day estimated lag, if you expect your business to grow by, say, $1 million annually (roughly $80,000/month), you'd need about $160,000 to cover just the additional receivables. Perhaps securing a $200,000 LOC would be a good start. That way, instead of the business being strapped for cash, you can distribute the expected $100,000 in pretax profit to yourself and invest it in something outside the business.

Oh, yes, there's an additional counter-intuitive dimension to this. As your growth subsequently flattens, even at a higher level, that "bow wave" of receivables flattens also, and, in fact, the checking account grows, as those prior months of previously-growing revenue become cash. Likewise, it grows even more if the business takes a dip -- you actually begin harvesting cash out of the reduced receivables that result from the reduced revenue. That's when the need for the line moderates or goes away and you pay it down.

If you've learned some things about how to effectively use debt in your business, please click "Comments" below and share those lessons with others.

Sunday, May 3, 2009

What Elephants and Epidemics Can Teach Us About Innovation

Twice a year, a small group of Chief Executive Boards International members and spouses participate in a Chief Executive Retreat. These two to three day events, including no more than 16 couples, take place at small, 4.5 to 5-star boutique resorts.

At a recent Retreat we used Frans Johansson's book, The Medici Effect (What Elephants and Epidemics Can Teach Us About Innovation) as a workbook for some innovation/creativity exercises during the member sessions, with some remarkable results. You'll want to get the book yourself -- this article includes only a few key ideas that Johansson fully develops, illustrates and supports with examples.

Johansson cites the Medici family of ancient Florence, Italy, as an example of what can happen when people from all different backgrounds, experiences and talents come together to share ideas, experiences, and world views. The result was a new world, based on new ideas -- The Renaissance, spanning the late 14th century to the early 17th century.

He divides ideas into two distinct groups -- directional ideas and intersectional ideas. Directional ideas are defined as those that originate and pursue essentially the same directional path as past ideas from the same body of knowledge. These include ideas for refinements, enhancements and improvements of existing products, services, practices and processes. There's nothing wrong with directional ideas. They are the most-practiced, and most-taught. They are the cornerstone of continuous improvement. They are taught in Engineering, Medicine, Law, and MBA schools.

Directional ideas, however, rarely result in a breakthrough innovation. They are, rather, the things that drive quality, time and cost reduction -- Better, Faster and Cheaper. They are the tools of managers, rather than innovators.

Intersectional ideas, on the other hand, produce leaps of progress in new directions. They become the roots of years of directional improvement, and can affect the world in unprecedented ways. Thus, intersectional ideas lead to innovative, rather than simply improved results.

What gets in the way of intersectional ideas? Johansson coins the term "Associative Barriers" -- the natural, cognitive barriers, developed in the human brain over millennia, that search for order in things, group concepts together and provide the structure of our thinking. They are prized by many as problem-solving skills, including intuition and logic, allowing a talented problem-solver to quickly arrive at a solution that will work. They are the result of our experience, education and mentorship. One could draw the conclusion that education itself, particularly in technical fields, is the enemy of innovation.

Innovation, however, requires low associative barriers -- thinking that doesn't follow the prior directional line. Sometimes referred to as "outside the box". But how do we get there? Johansson suggests:

Learn from people outside our own field (and comfort zone)

Mix a range of cultures and cultural experiences

Look for people who simply have low associative barriers (sometimes known as "creatives" for that reason)

Put ourselves in situations outside our natural networks. That's the mission of Chief Executive Boards International -- "We Share Ideas." Perhaps better stated as "We Share Ideas, through interactions of members with different experiences, backgrounds and talents."

And, finally, Johannsen offers some exercises that can be used to reduce associative barriers. We tried a few of those exercises at the Retreat, and the results were surprising. One of the most interesting was the "thought walk" -- a stroll around the resort, each member individually noting things he or she saw that might have some intersectional relevance to an innovation challenge posed by one of the members. A means of randomly combining concepts, which breaks down associative barriers.

The member who posed the business challenge that was the topic of the "thought walk" was amazed at the imaginative ideas generated by other members' random combination of concepts. He left the session with several ways to pursue his problem that had never before occurred to him.

The Medici Effect is a good read, an interesting perspective on history, a set of examples of innovation and several effective exercises to help a group break down the associative barriers that keep intersectional ideas from coming to the surface. Link to "outline" book review...

If you've read a book lately that you think might be of interest to CEOs and business owners, please click "Comments" below and share it with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, April 27, 2009

8 Easy Places to Find Content for Your E-Newsletter

The 2009 Spring Summit of Chief Executive Boards International included an all-member Forum session on Business-to-Business E-Marketing. Members shared both questions and ideas on how to use web-based tools to enhance the sale of complex products and services to other businesses.

Of course, selling consumer products (books, shoes, electronics, etc.) on the Internet has been honed to an art. But how can a business that doesn't have relatively simple products to put in an online "store" use the tools of the web to reach their customers and prospects?

One of these tools, an E-Mail Newsletter, provides direct, regular "touch" of customers and prospects, reminding them of your company and your message, and refreshing their "front-of-mind" recall of same. Many companies have resisted E-Newsletter marketing, saying, "I (we) could never come up with enough content to put out an E-Newsletter on a monthly, or even quarterly basis."

In the Forum session, members shared the variety of rich sources of content for E-Newsletters, much of which is readily available, either within the company or the industry at large. Of course, a newsletter should contain original content. But it doesn't all have to be brand new. For example, consider repurposing or recalling content you already have on hand, such as:

Application Data -- Application Notes, Field Engineering Reports, and "best practice" FAQs. Write a couple of sentences highlighting a current industry issue or situation, and then link to the article.

Articles or White Papers -- Easy to re-position or recycle as current information of interest.

Press Releases -- If your press releases and announcements aren't already posted on your website, post them ASAP. Then occasionally reference a press release in your newsletter.

Case Studies -- You may have case studies of product applications or services you've provided customers or clients. Post these as pages on your website, and occasionally summarize one in a couple of paragraphs in your newsletter, then link to the complete case study.

Blogs -- Your company may use blogging as a means of quickly capturing ideas from customers or staff. Surf your own blogs and highlight interesting posts in your newsletter. Industry or Trade Association blogs are another such source of fresh, timely content.

Ask the Expert -- Perhaps your site has an "Ask the Expert" section, and hopefully you're posting the answers to these inquiries to enhance the content of your site. Occasionally pose one of those questions (or a variation on one) in your newsletter and link to the answer.

Purchased Content -- There are numerous sources of newsletter content available for license. These can be ready sources of ideas in a "slow month".

Trade Publications -- Your industry probably provides an online magazine. Write a two or three sentence "teaser" about one of those articles, and then link directly to the industry publication's article.

The important thing about an E-newsletter is not that it's all new, original content. What's important is that it's relevant content that the reader finds valuable and usable. Don't fall for the temptation to put a lot of commercial content into your newsletter. If your newsletter works, there will be plenty of time for that.

Remember, your E-Newsletter is content all its own for your website. Be sure you post an "archives" page of your past newsletters on your website -- each one becomes another page, therefore enhancing the "importance" of your site to search engines and crawlers. Check out the CEBI Newsletter Archives page as an example.

If you have questions, comments or experiences to share about E-Newsletters, please click "Comments" below and share them with others.

Friday, April 10, 2009

The Bezzle -- Is it Happening in Your Company?

Members of Chief Executive Boards International meet regularly to share ideas, observations and concerns. Curiously, something that ISN'T on most business owners' or CEOs' radar screens is employee theft -- generally charged (if prosecuted) as embezzlement.

Some business owners regularly review their internal controls to be sure they have precautions in place to prevent or discover employee theft. Most don't. As a result, they're surprised and angry when an employee theft comes to light.

Embezzlement happens in all scales, in all sizes of companies. Here are a series of articles on embezzlement in small, closely-held companies:

An employee forging checks to a fake company

An outsource provider falsifying invoices

An employee giving himself a raise, plus a separate case of an employee skimming checks

One of the more sophisticated embezzlement schemes of recent memory is the Enron scandal. Enron execs "stole" money from investors in a surprisingly simple scheme. They conspired to falsify company results in a web of interlocking businesses -- each one reporting "profits" from selling things back and forth between each other. Investors, believing they were buying into a high-performance energy company, provided plenty of capital, bidding up the stock price. As the deal began to unravel, Enron execs, who had generously awarded themselves low-priced stock options, cashed in and pocketed the money. The company collapsed and employees, investors, suppliers and bondholders were victimized.

A more recent example, perhaps the granddaddy of embezzlement, is the Bernie Madoff scandal. Bernie stole money from investors in a Ponzi Scheme -- taking money from investors, and pocketing it himself (where in the world has he hidden $50 billion??). He embezzled from his own company, thereby stealing from his investors. A fox watching his own chicken coop. As that tale unravels, it appears he also paid his accomplices well -- New York has just charged the former chairman of GMAC Financial Services with civil fraud. Apparently he was receiving a commission of roughly 20% on funds he channeled to Madoff from his wealthy clients. And he didn't think that was unusual??

And, finally, the "creative" investment vehicles of this decade, including securitized mortgages and derivatives, permeated the financial services sector, accounting for the depth and breadth of this recession and the resulting stock market decline. And, distressingly, so "creative" and complex were these schemes that even the institutions promoting them didn't seem to understand them. Madoff and the Enron execs were out-and-out thieves. The crooks in a pyramid that securitized bad mortgages stretch all the way out to the brokers who falsified borrowers' incomes on loan applications -- it's going to be tough to round all those guys up.

A recent article on National Public Radio tipped me off to the curious coincidence of timing in the two blockbuster embezzlements (Enron and Madoff) coming to light -- an economic downturn followed by a stock market selloff -- Enron in 2001 and Madoff in 2009.

The article pointed out that John Kenneth Galbraith identified this segment of a market crash as "The Bezzle" in his 1954 book The Great Crash of 1929. The Bezzle is the period in a market downturn when embezzlement comes to light -- when the laws of gravity are restored and there's no longer upward market momentum bringing more victims in to reassure (and bail out) the prior victims.

Galbraith writes:

"To the economist, embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or even years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely, not in -- the country's businesses and banks. This inventory -- it should perhaps be called the bezzle -- amounts at any moment to many millions of dollars. It also varies in size with the business cycle.
"In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression this is all reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks."
John Kenneth Galbraith
The Great Crash 1929

One thing that a recession flushes out is The Bezzle -- there's no place to hide and the perpetrators are run out into the open. You may have been damaged by the Enron fraud. No doubt you've been damaged by the recent meltdown of financial institutions, leading to a credit crunch, leading to a stock market selloff.

Perhaps you're more damaged than you think. If Galbraith was right, the "inventory of undiscovered embezzlement" may extend into your own company. Somebody may be stealing, and it's most likely discovered when you dive into the books yourself to look for the profit leaks in a weak year. Even if you didn't find any evidence of embezzlement, do consider a financial controls audit -- it could be good insurance against the next cycle, when you become "relaxed, trusting, and money is plentiful."

If you've found an employee theft scheme that you're willing to share, please click on "Comments" below and share it with us.

Theft and Embezzlement -- Another Interesting Case

I'm constantly amazed at the amount of employee theft and embezzlement that persists in American companies, large and small. And also amazed at the fact that most business owners and CEOs are convinced "It's not happening here."

Another of those stories surfaced recently in our local market (Upstate South Carolina). In that scheme, a man operating three local businesses (apparently fronts pretending to be trucking, warehousing, etc.) was charged with mail fraud and money laundering that took place over a 6-year period. The amount of the fraud? Four Million Dollars! Like many, this was an imaginative scheme.

The victim was a $20 million Oregon-based company owned by a private equity group. The scheme was built around falsified freight invoices, charging for freight that was never hauled. You might suspect an "insider" accomplice in such a scheme -- surely somebody would notice all that freight cost and ask some questions, wouldn't he? From news accounts, it sounds as if the person approving and forwarding those invoices was a contract employee of the scammed company, located in yet another state! Apparently he invented the scam, and the recently-charged local guy just helped step it up by providing even more fake invoices (for a 50% cut).

Simple deal -- one guy produces invoices. Another, as a work-at-home contract employee, approves and submits them as legitimate and the company pays them. The guy generating the fake invoices was apparently also very good at fielding questions about those invoices from "real" company employees. Considering the 2700 miles between company headquarters and the perpetrators, one can assume nobody drove past the "freight terminal" and realized there were no trucks.

I believe such stories include great lessons for business owners, such as members of Chief Executive Boards International. They're tipoffs to things we should be watching in our own businesses every day, and pitfalls we don't have to suffer if we learn from the misfortunes of others.

If you have a tale of an imaginative embezzlement, fraud or employee theft scheme, please click "Comments" below and share it with us.

Tuesday, April 7, 2009

Occam's Razor -- A Modern Guide to Decision-Making

Ken Keller, a great friend of Chief Executive Boards International, suggested another idea that may be of help to CEBI members and readers.

Occam's Razor (aka Ockham's razor) is a problem-solving principle attributed to a Franciscan friar, William of Ocham, a 14th-century English logician. The principle is that the explanation of any scenario, observation or problem should be reduced to the simplest terms and simplest assumptions possible.

This is remarkably confirmed by Joe Busby, another friend of mine who has applied incredibly sophisticated neural network and pattern recognition tools to the analysis of massive arrays of manufacturing process data. Know what Joe found? In several cases, an amazing correlation between yield in continuous manufacturing process and outdoor temperature and humidity! Think about it -- a production line making plastic film is instrumented with hundreds expensive sensors and quality measuring devices. Yet, Joe found that the primary factor in making good film at high yields was ambient temperature and humidity.

So, how can we use this in a typical business? It's the philosophical origin of the KISS principle (keep it simple, stupid). In the category of problem solving:

Look at all the asserted root causes of the problem. Pick the simplest one -- likely to be the closest to correct

Consider the proposed corrective actions. Pick the simplest one -- likely to be the one most easily implemented and the one most likely to solve the problem.

When looking for opportunites:

Look at the proposed opportunities, and the complexity of pursuing them. Pick the simplest course -- likely to be the one most successful.

Consider the simplest strategy to pursue an opportunity as the preferred strategy

Ask really simple questions -- likely to get the simplest answers
- What do my customers want from me?
- Am I delivering it?
- The way they want it?
- Are my costs in line?

Action on a sub-optimal strategy is preferred over inaction and further analysis in pursuit of the "best" strategy

Simply stated, when there are two competing ideas or solutions, the one that is simpler is better. What's your experience with simple vs. complex explanations? Or simple vs. complex strategies? Please click on "Comments" below and share your experience with others.

Friday, April 3, 2009

Grey Hair is on Sale -- 7 Reasons to Hire Older Workers

The "bring your own agenda" nature of Chief Executive Boards International meetings has recently led to some different views and ideas on where and how to fill job openings as business is (or will be) picking up.

The 2009 recession has disrupted numerous businesses, careers and lives. Some particularly disadvantaged casualties are now job seekers in the 50+ age bracket. Many of these people are highly skilled, hard workers who find themselves jobless due to factors far beyond their control. Many have been highly paid in the past, now hampering their marketability in a perverse way. They're simply considered too expensive for many small and mid-size businesses.

This, like other collateral damage of this recession, is a huge opportunity in disguise for savvy business owners. These people not only need work, they need a place to contribute and to be valued. And in many cases they need those things (along with health care benefits) worse than they need the great salaries they enjoyed in the past.

As the recovery from this recession (yes, there will be one) progresses, you're going to need more help. You're still standing, and many of your competitors aren't, thereby putting lots of growth opportunities on the table. Look at this 50+ age group far more seriously than you have in the past. Consider their salary requirements highly negotiable. Many, for example, will be happy to trade salary for time off. Who says you need a 40-hour employee in every position? How about a 30-hour employee for a 25% discount? Let them work it in three 10-hour days, and you've probably got a deal. Many are likely to be so sure of their skills that they'll work for a reduced salary and a performance-based bonus.

Here are at least 7 reasons you should be not just considering, but seeking out workers over 50:

Work Ethic -- The widely chronicled difference in the view of what "work" is between the boomers (now turning 62) and Gen-x (30-somethings) and Gen-Y (20-somethings) will feel good to you, particularly if you're a boomer yourself (over 45).
Maturity -- These are grownups. They understand that if the plane leaves at 7:30 am and they're not there, it's going without them. They realize there are things they don't know. They can look beyond themselves.
Organizational Skills -- These workers have years of experience inside organizations, large and small. They know how things work and how to get things done. And many of them have well-developed leadership skills that may not be required by the entry-level job but will become valuable to you elsewhere.
Responsiveness -- When you communicate with these people, whether by email, phone, or in person, they'll answer you. And they understand "I need you to...." or "We need to..." as a directive, not a suggestion.
Functional Expertise -- If you're hiring for a specific functional specialty, why not look for years of experience, hard knocks, and perhaps continuing education in the field? Many older workers have all that.
Loyalty and Commitment -- These people are not looking for the next rung on their career ladder. You're it. If you treat them even close to fairly, they'll be with you as long as you want them.
Cost -- Most of your workforce takes fringe benefits for granted, particularly health care coverage. Not this group -- they've faced the world without health care coverage, priced it on the open market, and know what it's worth (if available at all). And many will be happy to exchange schedule flexibility for salary. Their income requirements may be lower than you think, or than they used to be.

Consider the value to your business of an experienced, expert and hardworking resource. Granted, he or she may not be a 20-year employee. Chances are, however, a displaced person hired in his or her mid-50s will be around for 10 or even 15 years, if you wish.

What's your experience with hiring older workers? Or if you've used creative compensation, flexible hours or other strategies to hire highly experienced, senior employees at a bargain price, please click on Comments below and share your experience with others.

Wednesday, March 25, 2009

Sometimes You Have to Explain it a Different Way

Incentive compensation systems have become a more common topic in Chief Executive Boards International meetings lately. While incentives are common among sales people, you'd be surprised how they drive behavior in other job descriptions.

I heard a remarkable anecdote last week that underscores this point. I heard it from a general manager of a professional services business, in a sector that's hard-hit by the current economic downturn. He's going all-out to secure new business, but it's become clear that some staff and cost reductions are essential to maintain breakeven.

At a recent company meeting (not a new thing -- he's been doing them regularly), he announced an across-the-board 10% pay cut for all employees (including himself). And then he did a brilliant thing -- he announced that anyone who billed 160 hours in a month (most months have 168-176 billable hours) would earn his 10% pay cut back for that month.

He was stunned when a couple of people came up after the meeting, and said "I think I may be able to find some more billable hours." To his credit, he kept his composure -- I'm guessing what he wanted to say was something like, "And despite the fact we've been struggling to increase revenue for the past 6 months, that idea is just now occurring to you??"

There's a reason for this. Even small groups of employees suffer from "crowd anonymity" -- they think someone else is going to do it, or that you're talking to someone else. When it gets personal -- like, "a 10% pay cut that you can recover if you'll do what I've been talking about", somehow they start to get it.

In this case, this general manager is now getting questions almost daily from a staff that wants to make sure they get their billable hours in, and earn their pay cut back. Suddenly, a group of people who "sort of" understood that the company needed them to bill every hour they could is actually doing that. Amazing -- it took a connection between their wallet and their billings to escalate billed hours per month to the top of their minds.

There's actually a second chapter to this story. He subsequently modified the program to a "sliding scale" that incrementally restores the 10% cut, beginning at 80% of available hours billed, increasing to full salary at 100% of available hours billed. Interestingly, this is a clever way to introduce an incentive program to a previously straight-salary workforce.

So, if your company is in need of employees stepping up to the plate, you may have to step up your communication -- from just asking them to pitch in to explaining it a completely different way. Here's a more thorough article on "Incentive Compensation Systems that Work."

If you've successfully communicated to your employees the need for a major change in behavior, with or without a compensation plan change, please click "Comments" below and share your experience with others.

Friday, March 20, 2009

Credit -- Use it or You May Lose it

News Flash: Banks, credit card companies and other lenders are reducing "dormant" lines of credit. Why might that be a problem? We'll explain later -- first, some background.

Credit is a topic that's surfaced regularly in recent meetings of Chief Executive Boards International. Granted, most business owners are borderline allergic to debt. That emotional bias aside, debt is one of the tools in the business owner's toolbox, and it's there for a reason.

Simply stated, debt is a good thing whenever you can

Be confident of available cash to service the debt (from within the business or elsewhere)

Get a far better return on the capital from investing in something than the interest rate on the debt

Have a fallback strategy by which to retire the debt if you absolutely had to (with cash from within the business or other sources)

Get over your debt allergy

"Cash is King" -- seen almost daily in the business press, has rarely been more true. A more financially sophisticated view might expand that to "Available Cash is King." In fact, your existing credit lines qualify as available cash. And CEBI members are making good use of available cash right now, for things like:

Buying durable inventory at distressed prices (from suppliers or competitors)

Buying equipment and machinery at distressed prices (from almost anyone)

Buying real estate at distressed prices

Investing in people, promotion, training, maintenance, etc. to ensure the company's market strength in a recovering economy

Pulling cash out of the business and investing it personally in good opportunities (distressed equities, real estate, etc.)

Let's agree, then, that keeping your credit lines open and available is an essential strategy -- in case of a short-term need for cash for almost any reason. And at current interest rates, almost any use of capital will return 2x - 10x (or more) the cost of renting the money (interest).

The news flash you should be aware of is that banks and other lenders are reducing lines of credit that aren't being used. Credit card companies are reducing limits or cancelling credit cards that aren't being used.

So, what's with this lender behavior? Simply stated, it's the way bankers think. They see a credit line as a potential need for cash, of which they might have short supply. And in some arguably circular logic, comprehended only by bankers, they see taking an unused line down from $250,000 to $100,000 as somehow making themselves $150,000 better off -- despite the fact it wasn't being used anyway. Oh well.

How might you keep this from happening? I may be a good practice to just exercise each or most of your credit lines on occasion. You fire up your standby generator every month or so, right? It doesn't take much diesel fuel, and you don't run your plant on the generator all day, do you? Wouldn't make sense. You do this to be sure the generator will be there when you need it.

Likewise, you can exercise your credit. How much available credit do you have in your wallet? For many of us, it's over $100,000. And if one of those credit cards goes away, it's correspondingly less. Fact is, your credit score is based on your current outstanding balances as a ratio of your total available credit limits. Why not use each of those cards regularly to keep the issuer interested (even if you pay it off every month and don't pay a dime in interest)? They're happy as clams with a 2%-3% merchant fee for an average of 20 days' float. It's easy to see, also, that getting limits raised on your credit cards works in your favor -- just make the phone call.

At today's interest rates, exercising a $100,000 hit on your revolving LOC for a week costs you maybe $100 in interest. Do it every 90 days or so -- good insurance. You might want to do the same with your home equity line. If you don't use it, you may lose it.

The premise of this article is that you're a savvy business owner who sees (or is watching for) opportunities to invest available cash in high-return strategies, and that your credit lines can provide that cash quickly when those opportunities come up. It further assumes that you shouldn't be the source of that cash. Instead of keeping $100,000 on hand in the business for a "rainy day", pull it out of the business, out of reach of creditors and lawsuits, and use $100,000 from the bank. Don't spend it -- invest it in an asset for your own balance sheet.

Think about it -- would you rather have an additional $100,000 on your personal balance sheet and $100,000 of debt on the company's, or zero on both?

The idea that debt isn't intrinsically bad and that available credit is an essential business strategy is provocative, and not a widely held view among business owners. Whether you agree or disagree, please click on "Comments" below and let us know.

Thursday, March 12, 2009

Roles & Responsibilities -- Director, Manager, Supervisor or Coordinator?

We're happy to say that the Chief Executive Boards International Blog is becoming something of an "ideabook" for small and midsize businesses. A few weeks ago, I received a request from a blog reader, asking if we might suggest some "criteria for determining what level of responsibility an employee should have to be titled Director, Manager, Supervisor, or Coordinator."

An interesting question, and, I believed, something that might be a useful reference for lots of small and midsize businesses, like those whose owners and CEOs are members of Chief Executive Boards International. In general, smaller companies have a hard time with title alignment, and perhaps a set of guidelines is a good place to start. So, here's my point of view:

Coordinator -- The people with whom she works have NO organizational reporting lines -- they don't work for her, and she can't do anything about getting them hired, fired, or raises granted. Supervisors are important, but not in control -- their job is to do the best they can with the situations they're given to coordinate. They're a span-breaking mechanism. See: http://www.chiefexecutiveblog.com/2008/01/do-you-have-too-many-direct-reports-six.html

Supervisor -- Deals with individuals and tasks. People are directly responsible to the supervisor (they work for her and no one else). Supervisor may or not have hire/fire/salary authority. They surely do have recommendation authority over who gets hired, fired, or a raise. And they get to say what someone must do, vs. a Coordinator, who's just telling them what they should do. They're a span-breaking mechanism with authority.

Manager -- Deals with groups and priorities. Allocating resources to the most important projects and initiatives. Mostly a tactical perspective -- takes things that Directors & VPs have defined as important and makes them happen. Key element among managers is finding a way to get done what the organization (read Directors and VPs) has defined as important, done. They should be measured on results expected. They make hire/fire decisions, and make them quickly. See: http://www.chiefexecutiveblog.com/2008/01/when-do-you-decide-to-do-something.html

Director -- This title should be a real big deal (as should VP). This is a person who decides where we're going, not how we're getting there (left to managers). A person who has a sense of mission, some vision, and who's adding energy to the system. Someone without whom the organization couldn't move forward. They set organizational goals, either themselves, or collaboratively with the Managers. See: http://www.chiefexecutiveblog.com/2008/01/employee-goal-setting-that-works.html
They define the direction of change, and effect change. See: http://www.chiefexecutiveblog.com/2008/01/newton-was-right-effecting-change-in.html

If you haven't done so recently, I'd recommend you read Jim Collins' book Good to Great. Here's a "Leadership Pyramid" offered by Collins. Supervisors should be operating at Level 2.5, Mangers at Level 3, Directors at Level 3.5, and VP's at Level 4. The CEO should be operating at Level 5 (if you're not operating at Level 5 most of the time, see: http://www.chiefexecutiveblog.com/2009/02/20-ceo.html).

If you have other viewpoints or alternate definitions for these jobs, please click on "Comments" below and share them with us.

Monday, March 9, 2009

Beforemath 2 -- Are You Ready for Less Business?

A contingency plan, by definition, is a degree of readiness for an event of some reasonable likelihood. Generally, the timing thereof is beyond your control. So, you imagine the possibility, imagine the impact and define your response. We've used the term "beforemath" to describe this degree of readiness. Here's an everyday example of "beforemath."

At a Chief Executive Boards International meeting, a member shared his "beforemath" plan for further slowdown in his industry. He's looking at the general uncertainties in the economy, and is concerned that perhaps his business will slow down to the point he needs to take actions to reduce his fixed costs.

He has predefined a couple of "triggers" that will determine whether he kicks his beforemath plan into action. Namely, two consecutive months of a net operating loss of $20,000 or more or a drop in his backlog of unexecuted work to ten weeks or less. Easy things to measure, and he won't have to think about whether it's "time" if either of those happpen. This is an important part of a beforemath plan -- to know exactly when you're going to invoke it.

His beforemath actions are a predetermined set of cost reductions, staff reductions, etc. that will reduce his fixed costs, allowing him to operate at neutral cash flow or better at a reduced level of revenue.

Do you have a beforemath plan that's similarly specific? Please click "Comments" below and share it with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, March 2, 2009

Why Isn't My CPA Asking These Questions?

A surprising number of business owners think their CPA is watching their books for things to be concerned about. In my experience, that's rarely the case. Here's what some Chief Executive Boards International members discovered about that assumption: http://www.chiefexecutiveblog.com/2009/02/how-much-is-not-having-cfo-costing-you.html

In my business coaching practice, I generally find myself drilling into a client's financials, asking questions like "What's this?", "Why did you book it that way?", "Why is gross margin % bouncing around month-to-month like a random number generator?" etc. And as I explain why those things are important, it's almost predictable that the client will ask, "Why hasn't my CPA ever asked me any of this stuff?"

And my now-practiced response is, "Did you hire him to do that?" They look at me quizzically, and then I ask, "Did you hire him to coach you, to help you improve your business, or did you hire him just to do your taxes (and perhaps an audit)?" At that point they realize that, as conventionally defined, a CPA is not a CFO. There is a huge difference between the two. Let's take a look at a quick comparison between them:

CPA	CFO
Compiles financial statements from client-provided data	Plans, considers and decides how financial transactions will be booked, consistent with the objectives and strategies of the business
Works mostly in the past -- from historical data	Plans, forecasts, budgets and projects the future financial performance of the company, in light of the company's objectives, strategies and capacity to perform
Delivers financials weeks or months after the close of the accounting period (month, quarter, or year)	Focuses on a clean, quick, and solid closing of the books within days of the end of the period. Generally has daily or weekly real-time key indicators of performance or trouble, shared with key players in the company.
Compiles financial statements in accordance with statutes and practices consistent with the type of business	Analyzes results in the context of the company's objectives, strategies, and owners' intent for the business. Establishes key indicators that provide early warning for management
Compiles financial statements that can be relied upon by 3rd parties, such as banks, creditors and investors	Works to maximize the value of the business to the owners, including investors, while remaining within loan covenants, creditor requirements, etc.
Assumes you (the owner or CEO) are going to read and understand the financial statements as delivered	Makes certain you (the owner or CEO) understand the financials, the trends and the issues they identify. Reads them to you, if necessary.
Does what he's hired to do -- generally Taxes and Audits -- including mid-year tax planning, quarterly estimates, and appropriate posting of expenses	Does what he's hired to do -- help you strategize, plan and operate your business to your maximum financial advantage, within the law.

In reviewing the above, it's probably obvious why your CPA probably can't be your CFO. He's not in the game. You haven't been paying him to come over, sit in your planning and management staff meetings, and get fully engaged in the business. He has, in most cases, no perspective by which to help you plan, forecast or monitor financial performance. Because you haven't invited him in (and paid him to come).

Now, please don't misunderstand -- I'm not saying the services of your CPA aren't valuable -- they are. And I'm not saying you can't engage your CPA or someone else from his firm as a part-time CFO. Most CPAs would be thrilled to have a client actually engage them to help improve the performance of the business.

You'll have to pay him to do that -- probably a monthly retainer. You'll have to spend time with him, and you'll have to think to schedule and invite him to meetings where strategic or major tactical initiatives are going to be debated and decided. In the case of most of my coaching clients, I find myself filling that role, at least partially. I have one client who has a former corporate CFO, who now works for the client's CPA firm, on a monthly retainer to perform the duties and services in the "CFO" column above.

In this case, he's hired the same guy to wear both hats, and the two engagements are explicitly different -- a part-time CFO on retainer, and a CPA working on a conventional fee schedule, doing conventional reporting, tax and audit work.

Think about it -- is your company without a CFO? Can you really afford that (or do you know how much it's costing you):?

If you've either hired a full-time or engaged a part-time CFO in addition to your CPA, please click "Comments" below and let us know how it's working out for you.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Friday, February 20, 2009

Why Kindle if You Don't Have to?

Tobin Wolverton is President and founder of thatworks, a business interiors and office furniture provider. He's also a member of Chief Executive Boards International. During a recent meeting, he mentioned that he was thrilled with a Christmas gift he'd received -- an Amazon Kindle.

I asked Tobin to write up his experience with his Kindle, and here's what he has to say about it:

"As a slightly late adopter of technology, I usually wait a year or so to purchase the newest gadget. But typically after purchasing the newest gadget I always wish I had made my life easier by being an early adopter!
"I love my MP3 player for music and my Blackberry for keeping in touch quickly. But my newest favorite device is the Amazon Kindle – a revolutionary device for books!

"While similar in application to an MP3 player for the ability to download and listen to music, the Amazon Kindle allows you to download and read a variety of books, moving seamless from one to the other, with one device. No longer do you need a stack of books on your nightstand or in your briefcase. The Kindle allows you to access to many hundreds of books on just the internal memory – and provides an SD memory slot for even more books if needed. And Amazon allows you to access to many newspapers, magazines and books (literally hundreds of thousands) that can downloaded wirelessly at your command – wherever the Sprint wireless network is available.

"As a business owner I always like the bottom line and I am sure you are now wondering what the costs are for this device. Once you purchase the Amazon Kindle for about $350 the wireless is free and the books/magazines and papers are less expensive than you can purchase them locally. I sat on the sofa a few Sundays ago and downloaded the New York Times Sunday edition for $.75! Books are typically $9.99 or less. The savings of your reading material will more than offset the cost of the Kindle over time. [Ed. note -- Amazon has just released the next generation -- the Kindle 2]

"I am finding I am reading more than ever, especially business books and historical fiction, because the materials are more easily accessible. If you are wondering how you can keep it all together while gaining access to new ideas consider the Amazon Kindle as the latest tool of technology to help you."

It's been amazing to me that in the two weeks since that meeting, I've heard two other people bring up Kindle in casual conversation. Based on this microscopic market sample, it's my prediction that this product is reaching a "tipping point" -- a point where it begins to spread virally, by means of a "word-of-mouth epidemic" : http://www.chiefexecutiveboards.com/bookreviews/bookreview039.pdf

So, if you, like most Chief Executive Boards International members, are looking for ideas to improve either your business or your life, you'll find them in books. And you may find those books for a fraction of the time and effort of buying and waiting on them, on your Kindle.

If you've also discovered Kindle, please click "Comments" below and let us know how you like it.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Saturday, February 14, 2009

How Much is Not Having a CFO Costing You?

At a recent meeting of Chief Executive Boards International, a member voiced the concern that his company was getting into a cash bind, and he was getting worried. As the Board asked more questions about that, it turned out he didn't have a line of credit for his business. Incredible, in these days of 5% interest. It was just something he hadn't taken the time to set up. As the Board asked more questions, it turned out that he wasn't exactly sure why he was getting into a cash bind -- something to do with "a lot of inventory" and "some slow-paying customers", he thought (maybe).

As the Board drilled a little further into this, he said he really didn't have timely monthly financials he trusted. Bingo. At that moment he aligned himself with, in my own experience, the majority of small business owners who have financial statements that are late and lousy -- they're completely useless as tools to manage a business. At the worst, they're just wrong -- actually presenting a business owner with a mistaken picture of where he is.

Again, in my experience coaching business owners, the first thing we generally find is that the financials are lousy. Most owners pay attention to the things they know -- the core business -- and don't pay much attention to the financials because they don't themselves have a finance background. Generally, they use their financials once a year (or perhaps quarterly) to figure out how much to pay in taxes.

Another member at the table said, "You need to get that fixed immediately. My company is in serious financial trouble today because I didn't realize a year ago that my financial statements were faulty. I didn't realize that each month's apparent profit was offset by costs being charged to prior months that hadn't been closed. I thought I was recovering, and in fact I was digging a deeper hole."

Not having rock-solid, timely financials is like flying with no altimeter, no compass and no artificial horizon. The FAA won't allow that, and for good reason. Those pilots crash.

Yet another member said, "I very nearly sold my company into failure. I realized I was having financial problems that I didn't understand, and finally bit the bullet and hired an experienced CFO I couldn't afford -- for $80k. After a couple of days examining the books, she came in, wide-eyed, and asked, "Are you scared?" [Ed. note: I HATE it when a CFO gets wide-eyed] "She had discovered that by the time we shipped and paid for everything I'd sold, and the customers waited 45 days to pay us, we'd be out of cash. [Read: Game over] "Not having a CFO almost cost me my company."

He went on to say that with her help he survived that scare, and then his new CFO installed systems, controls, forecasting and disciplines that not only saved his company, but also were worth several times what he was paying her (in improved results). Thankfully, just in time before he became another small-business failure statistic -- road kill on the entrepreneurial highway.

So, we're hopeful the member who brought this up gets his financials shaped up into the decision-making tools they're supposed to be. And that the member in trouble because of lousy financials caught it in time to recover. And we're thankful to a member who once again reminded us that failure to fully understand the company's financials is one of the top 3 causes of small business failure. He was standing at the edge of a financial cliff without realizing it, and when he looked down he didn't like what he saw.

Most business owners imagine that their CPA "would let me know if something was wrong." That's an unrealistic expectation for at least two reasons. First, although there are a lot of exceptions, most CPAs do not have CFO experience. They report the news, they don't forecast or shape the news. Secondly, it's generally not their job, as they perceive it. If you hire them to prepare monthly statements and do your taxes, they actually believe you're going to read (and understand) the monthly statements and that the data you gave them to prepare them was accurate. It's like wondering why the scorekeeper at a football game didn't call better plays.

If you've had an awakening to the need for better and more timely financial statements, or the need to hire either a part-time or full time CFO, please click "Comments" below and share your experience and knowledge with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Tuesday, February 10, 2009

Aristotle's Rhetoric Revisited -- 5 Ways to Improve Your Closing Ratio

A good friend of mine, Ken Keller, is a retired CEO who I greatly admire. Ken invited me to lunch last week. He has been following the growth of Chief Executive Boards International since I bought the business from its founder in 2004. At that time, he immediately recommended CEBI to one of his business coaching clients, who remains a member to this day.

We were talking about things we at CEBI have learned about marketing, positioning and selling CEBI over the past 5 years. I made the observation that our selling breakthrough has been the realization that selling even a simple membership in a great organization is a relationship-building process. Like myself, Ken learned to sell large-ticket items through personal visits, buying lunches, etc. That simply isn't practical, selling a lower-ticket annual membership to people across half of the US.

So we've learned to build relationships electronically -- first through fax-back, then phone, then email, then newsletters, more email, etc. A lot of electronic "touches" that get us closer to prospects and also keep us closer to our members.

He said, "You know, Aristotle's Rhetoric described all that in the 4th Century BC." And I thought this E-Marketing stuff was new! Ken's a well-read guy.

He went on to explain that Aristotle's Rhetoric was an essay on the art of persuasion, sometimes called The Rhetoric, The Art of Rhetoric, or A Treatise on Rhetoric. Some historians believe it was never intended for publication, but may have actually been a collection of his students' notes, taken at his lectures -- Sort of an ancient forerunner of blogs.

Ken's lunch-table summary of the Rhetoric was:

Good Character
Good Will
Good Sense

Sometimes more academically described as:

Credibility (ethos)
Emotions and psychology of the audience (read: prospect) (pathos)
Reasoning (logos)

Curiously, sales training and sales people have spent an inordinate amount of time on the third element -- the "good sense" or "logic" of the sale. Hence "features and benefits", demonstrations, calculations of ROI, economic justifications, and on and on.

Aristotle's point, and Ken's as well, was that these actually need to be taken in order:

First -- Good Character. The prospect has to trust you and believe that what you say is true. There's a credibility-building phase in a relationship that has nothing to do with your company or what you're selling.
Second -- Good Will. The prospect has to believe that you do, in fact, care about an outcome that's at least as beneficial to herself as to you. It's important that he believe you're more concerned with a good outcome for him than an order for yourself

Third -- Good Sense. Ultimately, you'll need to roll out the features and benefits, the economic justification, the ROI calculations, etc.
Another good friend of mine, a career sales person of big-ticket capital equipment, once said, "In most cases, the buyer decides what he wants to do and who he wants to do it with, and then works up a set of numbers that justify his original decision. Roughly translated -- decision made on the basis of Good Character and Good Will, then justified by Good Sense.

A Sandler Training franchisee said it another way: "A customer has to trust you enough to give you money to solve a problem."

There are other instances of Aristotle's Rhetoric, sometimes to define organizational values. Rotary International has a code of conduct for its 1.2 million members called the "4-Way Test":

Is it the truth?
Will it build goodwill and better friendships?
Is it fair to all concerned?
Will it be beneficial to all concerned?

It's not hard to connect the dots between Aristotle's Rhetoric and those ideas, is it? Besides a code of conduct, I believe the 4 Way Test was also intended to persuade people that Rotary was a group of people to whom they would want to belong.

So, how can you use these ideas in your business and your selling activities? Here are five ways you can deploy Aristotle's Rhetoric -- a set of selling principles known for 2400 years:

At the outset, ask the prospect about herself and her company -- find out what matters to her. She'll tell you what she will buy if you can let her do the talking. This is very difficult for most sales people.
Find some "common ground" -- something in common that would build her trust in you. Perhaps your prior experiences that relate to what she's doing, what your kids do, who your spouses know, mutual acquaintances, etc. People tend to see others being of good character if they have things in common -- particularly mutual acquaintances.
Help her understand that you're there to help her -- if that results in an order, fine. If not, you've done what you came to do -- help her become more successful. Good will is just that -- the willingness to help someone whether there's an order in it or not.
Then go for the logic -- the features, benefits, ROI, etc. Enough said -- you know how to do all that, or you can find an army of people in your company who do. Many of them claim to be sales people -- they just don't sell very much.
And, above all, behave in a manner that always underscores your Good Character, Good Will and Good Sense. Your prospects and customers instinctively apply that value system, even if they don't articulate it themselves.

If you have some ways you keep Aristotle's three elements of persuasion in their proper order, please click "Comments" below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Wednesday, February 4, 2009

Prompt Payment Discounts -- Seductive and Expensive

In a discussion about cash flow and accounts receivable management in a recent Chief Executive Boards International meeting, the subject of prompt payment discounts came up. In fact, the idea of a prompt payment discount was suggested to a member who was trying to figure out how to accelerate payment of some accounts receivable.

You're probably familiar with prompt payment discounts. You might normally offer payment terms of "Net 30", which means that you expect the customer to pay you within 30 days of the invoice date (or the customer's receipt of the invoice -- interpretations vary). If you quoted the customer Net 30, he is in fact contractually obligated to pay you in 30 days. While few customers would expect you to do work you didn't quote, or expect to pay you less than the total amount you quoted, many are totally cavalier about this important (and legally binding) component of the quotation/purchasing process.

Prompt payment discounts offer "dual terms" of a discount for payment sooner, and the full invoice amount for payment later. Usually stated as something like "1% 10, Net 30", meaning if the customer pays within 10 days she can simply subtract 1% of the invoice, pay it short and keep the money. And you'll write off the 1% as a sales discount.

Now, this is a minefield -- fraught with interpretation and abuse. First, when does the 10-day clock start and stop? Does it start when the invoice is dated? Mailed? Received by the customer? Entered by the customer in accounts payable? And, then when does it stop (the last date the customer can legitimately take it)? The date on the check? The date of the postmark? The date you receive it? The date you book it as income? You get the picture. So, the 10-day compliance becomes somewhat in the eye of the beholder. AND many customers (especially big ones) will take the 1% discount and pay you in 45 days, anyway, and then dare you to come collect it.

The seductive part is that 1% seems like a small price to pay for getting your money sooner. And it many times just disappears as a discount from revenue, rather than showing up as a cost. This seduction was pointed out by a member who said, "That's really expensive financing." Explaining further, he converted the 1% discount into a cost of money (interest) equation. Let's say for simplicity's sake that the customer actually pays in 10 days a bill he would have otherwise paid in 40 days. So, you got your money 30 days sooner. What did that cost you? Well, if it was a $100 invoice and he took a $1 discount, that's 1% per month interest -- 12% APR to "borrow" that money from your customer for 30 days. Here's another way to look at the 12% calculation -- you send a $100 invoice every month, and every month he pays it in 10 days instead of 40. What you've gotten is actually the first $100 10 days sooner than you would have. Yes, you accelerated all the rest by 30 days, too, but how much bigger was your bank account for any given month than it otherwise would have been? Not $1200, but $100. So, what happened was you "borrowed" $100 from the customer for 30 days, renewing that loan 12 times, at a cost of $12 in discounts over the 12 months. 12%, right?

The alternative? There's nothing wrong with debt, particularly to fund working capital (AR being a big piece of most people's working capital). If, instead of borrowing the $100 from the customer, you'd have gone to your bank and borrowed it in the first month as part of a revolving line of credit, you'd probably have paid about 5% APR. Keep in mind that the customer was going to pay each of the bills every month anyway -- you just got the benefit of not having to fund the first month's delay, right? So, who would you rather borrow from a bank at 5% or a customer at 12%? More importantly, you can pay the bank back on any days when you have excess cash, and your cost of money is zero for those days.

Or look at it yet another way. Let's say EVERY customer took your 1% offer (after all, they're earning 12% interest by doing so, why wouldn't they? Let's also say your business is a "median" performer at, say, 8% pretax operating profit to sales. Except that you take a 1% haircut on operating profit because of all those discounts. What's 1% of 8%? 12.5%, right? So everyone in the company has to work 12.5% more hours, you have to buy 12.5% more material and get 12.5% more orders to support your prompt payment strategy. Whether you actually need the money or not -- you're stuck with living by the terms you offered. You could make a tiny improvement in your operation, become awash with cash, and still be working 12.5% harder because of your discount offer.

Now, all of this assumes your credit is good and your collateral is solid. If you can't get a bank to loan you money for working capital, you have worse problems than a prompt payment discount will solve.

You might do better with a late payment penalty. In this case, you have to invoice the customer for the late fee. And you have to aggressively pursue collection of the late fee. They're hard to collect, and you'll find yourself writing off some, but they do make the point -- you deserve and expect to be paid on time, and you'll take action if that's not the case.

If you have some favorite ways of accelerating cash flow by reducing Accounts Receivable, please click "Comments" below and share them with us.

The 20% CEO

In a recent meeting of Chief Executive Boards International, a member said he was realizing that his accessibility in the office (open door policy -- supposed to be a good thing, right?) had evolved into his getting continuously interrupted and dragged into day-to-day operations. His senior managers found it easy to consult him on decisions they should have been making themselves. (Employees love this -- it exonerates them from accountability for their own decisions if they get the boss's agreement. Or, worse yet, get the boss to make the decision -- total absolution. See: http://www.chiefexecutiveblog.com/2008/02/want-your-employees-to-be-independent.html)

If it wasn't others interrupting him, it was his overhearing conversations in the hallway, and jumping into them himself. Again, a compulsive behavior for many CEOs who realize that they can, in many cases "do it better" than any given employee any given day. In most cases it's a fact. And in most cases, not the best and highest use of the CEO's time.

Then he said something stunning. He said "I actually looked at how I'm spending my time, and discovered that it's on doing a lot of things a CEO shouldn't be doing. In fact, I discovered that my company doesn't have a CEO 80% of the time."

WOW! -- You could have heard a pin drop in that room. It was like he'd taken a 2x4 and whacked most of the other members up the sides of their heads. Members' heads cocked sideways, and I could see the wheels turning as they did their own math. And then the frowns as they didn't like the result. And the pens and pencils scribbling that observation into their meeting notes. In fact, 50% of the members at the meeting listed that one epiphany as something they took away from the meeting.

Be honest. How much of your time is actually logged doing real "CEO stuff"? So, what percentage of the time is your company without a CEO?

If you're a CEBI member, you're at spending at least eight days a YEAR on "CEO stuff". That's more than a lot of midsize business owners, in my experience. If you're not a CEBI member, give a listen to what member Harry Loyle has to say about that question, among other things: http://www.youtube.com/watch?v=4aKoYfbiSos I know Harry's company is not without a CEO 80% of the time.

If you've discovered your company is without a CEO for more than 25% of the time, click "Comments" below and let us know what you were doing with the other 75%. And how you're going to change those habits so your company has the CEO it deserves -- the majority of the time.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, January 26, 2009

6 Ways CEBI Members are Taking Advantage of Market Turbulence

In more than one recent meeting of Chief Executive Boards International, members asked what others were doing to "make lemonade" out of a turbulent investing climate. As always, I'll remind you that anything you see on Chief Executive Blog or the Chief Executive Boards International site is an idea, not a recommendation. Consult your own financial advisor to be sure any strategy is right for you. Here's what our members said:

Capture Unrealized Capital Losses -- This is a surprisingly little-understood strategy that's not all that hard. There are two important things to remember:

A. Capital Losses can offset up to $3,000 of ordinary income in the year the loss is taken. Losses in excess of $3,000 can offset either short-term or long-term capital gains. And they can be carried forward indefinitely to offset future capital gains.

B. The "wash sale" rule -- If you sell a security, you must wait 31 days to buy back into that same security, or it's ruled a "wash sale" -- as if it didn't happen at all.

So, if you have stocks or mutual funds that are now worth less than you paid for them, you can sell them and capture those losses for 2009. But then what? Of course, you could sit on the cash for 31 days and then buy them back, which would be a good thing if the price goes down and a bad thing if the price goes up during the 31 days. Or you could just buy a different, and probably similarly depressed, stock in the same industry or mutual fund of the same style the same day. A simple plan if you don't mind changing horses.

A more sophistocated plan for mutual fund investors who like the funds they're in could be to sell your "underwater" mutual fund shares (being careful to specify those original lots that are actually worth less than your basis), and then buy an Exchange Traded Fund (ETF) of the same class, on the same day. For example, sell a large-cap mutual fund and buy a large-cap ETF. Presumably, your favorite fund and the ETF would track each other relatively closely for a period as short as 31 days. On the 31st day, sell your ETFs and repurchase the same mutual fund. Any market variations in the meantime will either generate additional captured losses or gains that will be offset by the captured losses. And you won't suffer the potential risks of market timing -- being out of the market in case it soars upward while you're out.

Perhaps the TV precaution "Don't try this at home" is appropriate. You may need an investment pro to execute this for you -- getting out of your mutual funds and into an ETF and back requires some technical savvy.

Reallocate -- Some members feel the market, if not at its bottom, may be close enough. Those members are reallocating cash and fixed income assets back into equities (now that they're underweighted in equities due to their decline in value). The preferred way to do this would be dollar-cost averaging. Take the amount you want to reallocate and invest it over, say 5 or 10 installments. You could do that over 5 or 10 weeks, 5 or 10 months or 5 or 10 quarters, depending on your own assessment of the market. This way, you buy more shares if the price is lower and fewer shares if the price is hign. Discipline is important -- pick the same day of the week, month or quarter, hold your nose, and execute your plan.

Right now, you may be at greater risk being out of the market than you are being in the market. History suggests that there will be single weeks of huge gains at the turn. If you're on the sidelines, you'll never catch up.

Buy troubled assets -- If you have cash or credit lines (at record-low interest rates), you may be able to pick up equipment, inventory or real estate at prices you won't see again. One CEBI member said "I'm looking for vendors who need orders worse than they need margins." Some members are looking at second homes or income-producing real estate at "distress sale" values. As always, due diligence is everything. Consider hiring a your own pro's to assess, evaluate and appraise anything you're considering buying. And use your credit when doing so. An asset where you invest 20% cash that appreciates 20% is a 100% return on your invested cash, vs only a 20% return, had you paid cash for it. At today's interest rates on long-term financing, that would take a long time to break even in interest savings. Use other people's money where it makes sense for you.

Free up cash from your least-productive asset -- your personal residence. Ron Wiley, the founder of CEBI once said "A house is not an asset -- it's a liability." And having owned six of them, I'm inclined to agree. This is perhaps the most emotionally charged strategy that surfaced, as some people take great solace in knowing "my house is paid for." Nothing wrong with that viewpoint. Others, however, see their house as simply part of their capital structure, just like any other asset or liability on their balance sheets.

Considering that anyone with good credit can get cash out of this non-productive asset by refinancing for 30 years at 5% or less -- rates we may not see again in our lifetimes -- it's too compelling to not mention. If you just found another investment with a 5% return, it's a breakeven. And if you're generally invested in liquid assets, you'd have the comfort of knowing that if you had to, you could sell one of those assets and pay off the house again -- probably in less than 48 hours.

There are potemtial AMT consequences to this strategy -- do proceed carefully. If you refinance and spend the money, of course, you lose the game.
Free up cash from your business -- Many CEBI member companies are LLCs or S-Corporations. You've already paid taxes on a lot of money that's tied up inside your business -- it's on the balance sheet, usually as fixed assets, working capital or real estate. For the moment, long-term interest rates are at the lowest we'll see in a long time. The economy will pick up, and when it does, so will inflation, prices and investment interest rates. Some members are lining up long-term debt at today's bargain rates, pulling that cash out of their businesses (off the table -- you're protected from creditors and judgements by your corporate veil) and investing it in other things on their personal balance sheets.
Do the math. Financially savvy people understand that a 5% debt and a 5% investment of the same amount are a wash. The return from the investment exactly covers the interest cost of the debt. If you can tilt that equation just 1 or 2 percent in your favor, you're making money in your sleep. When you're making investment decisions, if the opportunities and risks are similar, it's just about comparing the interest rate on a debt or the ROI on an investment.

Do nothing. Probably the strategy of choice for most Americans right now, who seem to be paralyzed by the current economic climate. However, CEBI members are not most Americans, and are generally used to making the best of the cards that are dealt. Try 1 through 5, or something else that makes sense to you.

Remember, anything you see on this blog in an idea, not a recommendation. Consult your own financial advisor to be sure any strategy is right for you.

If you have current-economy business or investing strategies that aren't mentioned above, would you click "Comments" below and share them with others?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, January 19, 2009

Business Lessons from Flight 1549

The world was both impressed and relieved by the miraculous outcome of Flight 1549's ditching in the Hudson River this week.

To be sure, an amazing number of things went right for both the crew and the passengers. That aside, there are a number of business lessons we can extract from this accident, and several of them might make some useful "word pictures" to help your management team understand the fundamentals of business planning and strategy -- particularly when things take an unexpected turn.

First, the advantages of luck and good timing can never be discounted. Most business owners, if they're honest, can cite one or five or ten incidents of either good luck, good timing, or both that have propelled their businesses forward. Never discount luck or timing, and never fail to capitalize on either luck or timing, should they befall you.

But back to what Capt. Sullenberger and his First Officer could control. A great saying among pilots is "You never want to run out of airspeed, altitude and ideas all at the same time." The business analogies? Airspeed is a lot like cash flow, and altitude is a lot like size and scale (business volume). And ideas are ideas -- the "do-differents" that are essential when you're running out of airspeed and altitude.

So, what actually happened in this accident? First, a completely unforseeable event -- a bird strike taking out BOTH engines. The luck part was that it wasn't 30 seconds or a minute earlier -- they had been able to get just over 3,000 feet of altitude -- with few feet to spare for the landing they pulled off.

The crew figured out immediately that with no engines, more altitude was not an option, and then made an instinctively correct decision -- putting the nose down, hastening their descent, but maintaining (or perhaps even gaining) airspeed. Not bad luck, either, that Sullenberger's experience included certification in gliders -- he was no stranger to flying an unpowered aircraft. This was a critical and experience-based decision (remember he was also a fighter pilot). A less experienced hand could have easily stalled the airplane, and simply fallen out of the sky like a rock.

And then they quickly discarded unworkable ideas -- forget LaGuardia, forget Teterboro. Forget any expanse of unpopulated land -- there aren't any in NYC. And then they communicated their intentions -- they radioed the tower and said "We're gonna be in the Hudson." Another good call, giving the Coast Guard and others a couple of minutes advance notice to start their response. Finally, they communicated with the passengers and flight attendants: "Brace for impact." They didn't have to say that twice -- the flight attendants took over and repeated and amplified that message in the cabin.

And on final approach, that glider experience kicked in and they landed "tail first", bringing the plane to a near-stall (and minimum ground speed) just as it hit the water. They remembered also the pilot's axiom "keep your wings level" -- perhaps the single thing Sullenberger absolutely had to get right -- dropping those two engines into the water at precisely the same time, unlike most water landings where one wing dips, catches the water, and the plane cartwheels into pieces.

Let's also not forget luck -- that a calm, shallow-water channel was available and that it also happened to be surrounded by boats already underway that were able to take on survivors in minutes. Just 15 minutes of additional delay would have claimed several lives to hypothermia in the frigid water.

You can probably extract several business lessons out of this that specifically relate to your business and your management team. For myself, some of those include:

When things go wrong, don't run out of airspeed, altitude and ideas at the same time --

Assuming you still have some altitude (business volume) left, maintain airspeed (cash flow) at all costs. Without that, the game's over quickly. Point the nose down -- shrink the business, if necessary, to maintain airspeed (cash flow). And do it quickly, before you stall.

Ideas -- The stock in trade of Chief Executive Boards International. If you're running out of ideas, reach out to others (such as CEBI members) who may have experience, training or instincts you don't have.

Keep your wings level -- Keep your objectives, strategies and values in focus. Despite adversity, your employees want to see you consistent and level in your thinking and decision-making. They may not like the decisions you make, but they'll respect them if they're consistent and steady, rather than erratic.
Communicate -- Let your key managers know exactly what's going on. They can be part of the solution if they understand the problem. And, of course, you should expect them to repeat and amplify the message to the troops.

I hope you can use some of these ideas or "word pictures" to explain what you're doing and why to either your management team or employees. Sometimes metaphors work best in communicating unfamiliar or abstract ideas.

Perhaps you see some more business lessons in this accident. Would you click "Comments" below and share them with others?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Friday, January 2, 2009

How Much Employee Motivation Can You Buy for $10?

We've had a lot of conversations in Chief Executive Boards International meetings about the differences in world view of those employees known as "Generation X" and "Generation Y". I had an amazing experience that convinced me that companies are actually changing their management approaches to meet the differences in wants and needs of these vs. older employees.

It's quite possible you'll believe, upon reading this, that I've completely lost my mind. I'm still processing it myself, based on that specific concern.

I had an extended conversation about employee recognition with two Gen-X'ers and learned something that totally amazed me. Both of these people have MBA's from prestigious schools and work in large NYSE companies at great salaries. Both have traveled and lived internationally.

And both were talking about their respective companies' practice of handing out small-denomination gift cards to employees as part of their "spot" recognition programs. Now, here's the part where I started to think I was losing it. In these cases, "small" is REALLY small -- $5, $10 and $15 dollar gift cards -- amounts that could get lost in the roundoff error of their respective W-2's.

I apologized in advance, and asked "Would someone who came in on a Saturday to get an important project done by Monday actually be happy with a $10 bonus?" "You mean they're not offended by such a trivial amount?"

Well, I learned, there's something wildly different about a $10 gift card and a $10 bill. I still don't know exactly what. Perhaps it's the "indulgence" element. The hottest gift cards going are Starbucks and I-Tunes, plus, believe it or not, Target. Somehow spending $5 apiece for two coffees feels great if it's the shareholders who are buying. One of these people had received a $50 gift card for something a bit more meaningful, and used it at Target to buy Christmas decorations -- something she might have been too frugal to spend "real" money on. Car wash coupons are similarly prized -- you get your car washed more often than you'd be willing to pay "real" money for.

I also learned that these two companies have a well-developed protocol and process for this. Clearly they've been paying attention to what motivates and satisfies Gen-X and Gen-Y employees. A couple of important things are:

It's not just about the gift card -- The acknowledgement of and recognition for the accomplishment must be public, such as at the beginning of a shift or a staff meeting. One of these companies starts every meeting that way. Being recognized publicly is important to every human, and particularly important to Gen-X and Gen-Y. The card usually comes later, given privately.

It's not assumed that every accomplishment or recognition includes a gift card -- recognize and praise people regularly & publicly, just as you have been, and then the card is occasional "icing" afterwards.

Now, you ask, isn't the gift card ordinary income, subject to the same taxes as a $10 bonus? Yes, indeed it is. In the one case of the $50 gift card, it was clearly stated that this was "$50 after tax." I assume the employer tracks who receives a card, and then grosses up their W-2 at the end of the year. That gross-up is no small deal. Consider Federal taxes at perhaps 28%, State at 7% and FICA at 8%. That takes a $37 gross-up -- to $87 to leave $50 net on the W-2.

I don't know how these companies handle the taxability of $5 gift cards and car washes, and neither did these two employees. What I do know is that the tax code is unambiguous in stating that ANY cash-equivalent amount given to an employee is taxable. The specific ruling on this topic is found at: http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf While not dated, the document was apparently published in 2005. I didn't see any wiggle room in it at all. Perhaps you will.

One would need to control, under lock and key, such cards, just like you would Petty Cash. Good idea -- it's just like cash. And then to stay within the law, you'd need to keep meticulous track of those to whom cards were awarded -- have the supervisor sign a form or something, identifying the recipient. And then turn over those tiny amounts to Payroll to be grossed up and included in the W-2s at the end of the year.

Why would you go to all that trouble? Because it might work! The two people who told me about this were smart, well-educated, well-traveled and well-paid. And both were excited when someone gave them a car wash coupon. Go figure. Do keep in mind that this strategy plays best, I think, in the "instant" world of Gen-X and Gen-Y. In the case of these two companies the workgroups involved were mostly under 40.

Wow, if you can make 50 people happy with $10 Starbucks cards or 10 people happy with $50 Target cards, isn't that a better outcome than giving a $500 bonus to one person on a pay stub? Think about it -- I'm still processing the idea myself.

If you give this a try, be sure to come back in 6 months or so and let us know how it worked for you. I can't wait to hear. Just click "Comments" below.

As always, posts you see on this blog are ideas, not recommendations. Before acting, check with your own trusted advisors to be sure an idea is right for your own situation.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, December 22, 2008

Three Ways to Improve Your Company's Financial Instrumentation

In a recent Chief Executive Boards International meeting, a member made a profound observation from his experiences looking at hundreds of potential portfolio companies for investment by his private equity group.

He said: "Small businesses have an uncanny ability to operate right at or above the breakeven line." I looked at him somewhat quizically, and he explained that "For some reason, people will do almost anything to keep from losing money. For some even stranger reason, they won't go ahead and do enough to actually make some real money."

I had to agree. I have seen companies who wouldn't do anything at all to get better, but when faced with a decline that might put them in the red, they'll take the harsh medicine necessary to keep that from happening. Another member once told me that people respond far more aggressively to a threat than an opportunity. In his words, "How hard will you fight if I say you can make a million dollars vs. how hard you'll fight if I say I'm going to take a million dollars away from you?" Point well made.

So, what causes that "barely breakeven syndrome"? One example, our member said, is the way small businesses react to a business decline. His assertion is that they generally fail to calculate in full the measures necessary to either get profitable or to react to a decline in sales or margins. Here's a likely scenario, with a graph to illustrate.

Let's imagine a company whose gross margins are well above fixed costs, thereby generating a reasonable net profit. Then something happens that puts a squeeze on gross margin -- perhaps price pressures from a competitor, economic factors, rising material costs, etc. As the gross margins drop through the point of breakeven with fixed costs, management acts -- usually a little too late -- to reduce fixed costs. And the fixed cost reduction is just enough to restore profitability. Remember that uncanny ability to operate just above breakeven?

The same scenario is repeated two more times, each generating a moderate losss, until management gets it right, and fixed costs are finally reduced below the falling gross margin. Then, thankfully, gross margins improve enough to restore some profitability.

What should have happened? First, management shouldn't have had to wait for an actual loss month to decide to act. Rather, management should have recognized the profit squeeze and made efforts to forecast the magnitude and duration of the loss in gross margins. Then management should have acted, in time to maintain profitability and to reach a new equilibrium acceptable to the stakeholders. Here's how that would have looked:

In this scenario, management has good financial instrumentation and understands how to read it. Solid monthly financials that accurately match cost and revenue month-by-month foretell the decline of profitability. Backlog tracking and sales forecasts fortell its duration. Management acts with a calculated plan to reduce fixed costs, either month-by-month, or in a single substantial act, to maintain profitability, even during the downturn.

The symptoms, in this member's observation, are twofold:

First, that many small businesses simply don't pay enough attention to the quality and timeliness of their financial data. It thereby provides them not only misleading information, but also provides it too late to be useful. Small businesses likewise generally don't analyze and forecast, but rather react. A small reaction to a small loss. And another and another. Chasing the decline in margin with cost reductions, losing a little money and making a little money month-by-month on the way down.

Secondly, instead of well-defined profit and performance targets that they strive to make, managment reacts most aggressively to avoid losing money. It's like addressing a golf ball on the tee box, where your self-talk is "Don't slice." Any golf coach will tell you that's not likely to reduce your handicap.

So, what can you do to break away from operating at or just above breakeven? Here are some ideas:

Upgrade the quality and timeliness of your bookkeeping and financial reporting. You need solid, accurate revenue and cost information on a weekly basis, if possible -- at worst monthly.
Manage your business on an Accrual Accounting basis, even if you're a cash basis taxpayer. The period (week or month) in which you invoice (realize revenue) should also be the period in which the costs hit the books. If you're making money on an accrual basis, you can't help but make money on a cash basis -- it's just a matter of timing.
Use Inventory and Work-In-Process accounting to make sure costs are collected on the balance sheet, and held until the revenue is realized and the costs transferred to the income statement. Again, you want to keep Inventory and WIP changes from whipsawing your accrual results, thereby throwing your financial instrumentation out of calibration.

If the accounting steps to implement the above concepts are not crystal-clear to you, hire some help from the outside. You could be well-served by investing in some cost accounting and financial report interpretation know-how from a resource you can hire by the hour or on a monthly retainer. This may not be your CPA, but rather someone with a good financial & operations background.

Ask that same resource to compare your company to its peers, and give you some targets for critical performance ratios, like:

Gross margin to Sales
Net Profit to Sales
EBITDA to Sales

That was the other underlying assertion in this member's observation -- that many small businesses simply set their performance sights far too low. Again, in my experience, a reality. I've seen businesses shooting for 4% net profit, when 10% is, in fact, attainable. Think about that one -- 2.5 times as much profit for exactly the same amount of work -- why not?? In many cases, businesses regard "working harder" as a strategy. A value system, perhaps, but not a strategy.

Possible strategies might be raising prices or reducing costs -- two things that would actually improve the Net Profit to Sales ratio. Doing more work for the same mediocre results is not a strategy -- it's a downward spiral. Sometimes it takes an outsider's perspective to jostle a business out of its comfort zone.

Do you believe (or have you observed) that "small businesses have an uncanny ability to operate right at or above the breakeven line?" Would you click "comments" below and share your viewpoint?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Looking for New Market Opportunities?
Consider Unfulfilled Customer Requests

In a recent meeting of Chief Executive Boards International, a member said his company regularly pulls out its old product inquiries and quote requests, looking for a consistent theme of unmet product needs. And they find them. By keeping track of the customers' requests you can't meet or RFPs you don't respond to, you can build a knowledge base over time that can be quite useful.

Then another member who's in a multi-location retail business said: "We've really simplified that. We have a pad of paper beside the cash register where the clerk writes down "What I Could Have Sold Today" (that a customer asked for and we didn't have). She puts it in the bag with the day's checkout slips and we log those requests."

While writing this, I remembered something my Dad did in his hardware store in the 60's. The delivery truck came from the central warehouse only once a week. When a customer asked for something he didn't have, he put down the customer's name and the requested item on a big piece of wrapping paper that was taped to the countertop right below the cash register drawer. He ordered those items to come on the next truck, and then called the customer as soon as they arrived. In almost every case, the customer still needed the product, and Dad had a sale.

So, if you're looking for new products to develop, new services to develop, or new products to source or stock for your customers, make keeping track of "What I Could Have Sold Today" part of your company culture, and then back that up with a system to capture those requests and trends.

If you have some clever ways you identify new and unmet customer needs, click "Comments" below and let us know about them.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Wednesday, December 17, 2008

Grow Your Business -- Look Before and After

"Before and After" is a classic "Wheel of Fortune" category. And it's also a really good strategy for both product management and revenue growth.

At a recent meeting of Chief Executive Boards International, the idea of "Look Before and After" was suggested as a way to identify opportunities with existing customers. In some cases, you'll need to source or develop a new product or service. In other cases, it will identify customer needs that may already be in your bag -- he's just buying them from someone else.

So, here's the idea. Your customer uses another product or service just before or just after he uses your product. Upstream or downstream in the manufacturing process. Upstream or downstream in the white-collar workflow. Upstream or downstream of anything you do for a customer.

That's how UPS and FedEx got into the fulfillment business. They looked at their customers and saw a warehouse full of products and a picking, packing and shipping crew upstream of their pickup. And they said: "Why couldn't we do all of that for our customers?" They're doing billions of dollars a year in logistics and fulfillment as a result. They warehouse, pick, pack and deliver goods their customers never touch.

Want a second reason to do this? Bundling of products or services "before and after" increases the customer's switching cost. He'll have to go find someone else to supply or do those separate things in order to unseat you.

And, finally, you want to be seen as a problem-solver. When you're looking for "before and after" opportunities, ask the customer open-ended questions like: "What's the biggest problem you're having in your _____ process?" (referring to the place your product or service is used -- or before or after) That's a whole lot better question than "How can we help you with other things?" That question requires a LOT of imagination on your customer's part, and won't be nearly as productive. It's much easier for a customer to react (what's the biggest problem?) than to think (how can we help you?).

Teach your sales people to do this, and ask regularly for the results. By the way, if you haven't been on a sales call lately, tag along with some sales people and visit some customers. Look at and ask about "before and after".

If this works for you, or if you have ways you've successfully harvested new needs from customers, please click "Comment" below and share them with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Saturday, December 13, 2008

4 Steps for Personal Planning in 2009

In a recent meeting of Chief Executive Boards International a member mentioned a Japanese Proverb:

“Vision without action is a daydream. Action without vision is a nightmare."

This seemed to me like a great place to start with a personal plan for 2009. I invite you to consider the same. It's so much easier to take things in pieces -- even if you don't already have an articulated strategic plan for your business, start with a strategic plan for yourself. And give this proverb a try as a starting place. Here's how:

Vision -- What's your vision for yourself?
- In 2009? (start here -- come back to the next two time frames)
- By 2014 ? (5 years)
- At age 65? (Or in 2019 -- 10 years -- whichever's greater)
  
  Articulating a vision isn't as elusive as it seems. Try visualization techniques,
  like
  - What does one of those future time frames "look like"?
  - What does a week of a that future time frame "look like"?
  - What does a month of that future time frame "look like"?

Consider the question: "What's important?" In his book The Number (reviewed at a CEBI Summit and in a CEBI Webcast and mentioned in numerous meetings since), author Lee Eisenberg makes the point that life expectancies have stretched. In fact, a couple 65 years old today has a 40% likelihood of one of them living to be 90.
At today's normal "retirement" ages, you could easily have 1/3 of your life left.
So, what's important? It's probably not work, unless you find a vocation that fits what's important or provides plenty of free time for what's important.
Analyze the Actions -- What are you working on? What are you spending your time doing? Are those things consistent with the vision? Here's an idea:

Make a list of how you spend your time -- daily or weekly. Maybe just the top 3 things you spent time on, in descending order of time allocated.

Compare the actions with the vision

Are the actions sufficient to support the vision? (Vision without action is a daydream)
Are you doing enough things to make realizing the vision a likelihood?
Most importantly, are there actions happening that don't fit the vision at all? (Action without vision is a nightmare)

You might also consider applying the same questions to your business:

Is the vision for the business actually articulated?
Are the actions sufficient to realize it?
Are all the actions consistent with the vision? What could we stop doing? Keeping in mind that actions that don't fit the vision could well be creating future nightmares.

If you have a set of thought processes that you use for either personal or business planning, please click "Comments" below and share them.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Saturday, December 6, 2008

Is the Person You Assessed the Person You Think You Assessed?

A member of Chief Executive Boards International brought up a disturbing experience in a recent Local Board meeting. He had done a new hire assessment that he later concluded was counterfeit. He came to that conclusion because he'd used the same tool for dozens of assessments, and this was the only one where the employee's behavior wasn't consistent with the behavior predicted by the assessment. In a short time the employee was terminated for non-performance.

It seemed as if the assessment was that of a completely different person. And he figured out how that could have happened when a friend of his told him a personal secret.

The friend, it turns out, is a marginal salesperson, but persists in applying for sales jobs. The friend's wife is an outstanding sales person. And the friend told our member that in his last job application an assessment was required. And he had his wife do the assessment for him!!

Remember, some people see assessments as a "test" on which they want to score well. They don't grasp that the point of an assessment is to improve the odds they'll succeed in the job by matching their actual skills and talents with the job requirements. They don't connect the dots that they're setting themselves up for failure by having someone else either help with or do the assessment for them.

The lesson? If you're using online assessment tools, which we heartily recommend, have the person do the assessment in your office, by themselves, and in an area where you can keep an eye on them. They shouldn't be using their cell phone or any resources other than their own knowledge.

This observation makes me suspect in my own experience a couple of cases where people have probably had help with assessments done without supervision, and I won't be making that mistake myself again.

If you have ideas or suggestions for making assessments more effective, please click on "Comments" below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Sales Selection and Training -- a "DIY" Project?

In a recent Chief Executive Boards International meeting, a member told his Board he'd found a local provider of sales training with which he was very satisfied. The member is the "chief rainmaker" for his own company, despite having not had much, if any, formal sales training before starting his company.

Realizing that he really didn't know how to train sales people, he figured it wasn't a "do it yourself" project and he needed an outside resource to help him. He turned to a local franchisee of one of the nationally-recognized sales training organizations for help.

What he learned next was amazing. The first thing the trainer wanted to do was a set of psychological profiles, to give himself some clues on where to start with each of the several sales people he was to train. He came back to the client, saying: "In the case of one of these people, I can't in good conscience take your money to train him in sales. His psychological makeup is such that he'll never be successful as a sales person. He has multiple deep-seated attitudes and personality traits that will prevent him from succeeding in sales, no matter how much we try to teach him." Not surprisingly, this person was the lowest performer of the group, and part of the client's motivation to hire an outside resource.

This is what psychological profiles are all about -- helping you better predict success, usually of a new hire. Most credible training organizations, especially in sales, will start by assessing the incumbents, thereby establishing a starting point for their respective programs.

The second chapter of this story is currently being written. The CEBI member has gone to the non-performing sales person, shared the results (with which the person fully agreed), and offered him an alternate, more technically-oriented position. It's up to him how this second time "at bat" comes out.
A similar case in my own business coaching practice comes to mind, and offers an additional lesson on the subject of assessments. Assessments themselves are probably not DIY tools, either, despite the fact you can buy and run them online. I once reviewed some already-completed assessments with a client, who was disappointed that a newly-hired "experienced sales person" hadn't delivered any sales of her own. While the assessment instrument was new to me, after drilling down into the individual behavioral metrics, I asked why he had hired this person -- in my view she had few of the attributes of a successful sales person. He referred me to a line in the summary on the 2nd page of the report, saying something like "Jane should capably perform in a sales role." Why did it say that if she was a marginal candidate?

Remember, litigation abounds. If you were the company doing the assessments, would you add to that sentence "but will probably not be very good at it"? I think that's what they meant by "capably" -- perhaps they should have said "just barely". They didn't say "excellent", "outstanding", "in the top quartile", etc. These assessments have their own code words that are best understood by a professional who has seen dozens, if not hundreds, of runs of the same instrument.

So, besides doing assessments of every new hire, particularly sales people, also spend a few extra bucks to have them interpreted by a pro who knows how to read and interpret them for you.

The next chapter of this second story didn't take long -- the client realized he'd made a bad hire, cut his losses, and the lady is off to another place where, hopefully, she has a higher likelihood of success.

If you have ideas or practices that have improved your sales selection or training process, please click "Comments" below and let us know about them.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Go Wide -- 4 Ways to Protect Your Sales Relationships

A member recently brought up a critical problem in his selling strategy during a meeting of Chief Executive Boards International. He was attempting to extend the services he provided to a large corporate client. The trouble was that those additional services actually threatened the job security of a person he had relied upon throughout his current relationship -- he was pigeon-holed in the organization, because his selling relationships existed at only one level. He came to realize that he was going to have to sell his bigger-picture idea to bigger-picture prospects, two or three layers up in the company.

This situation brought home the words of another CEBI member who presented an Executive Briefing at the November 2008 CEBI Summit. In a mini-seminar on selling strategies, one of the success factors he cited was "Go Wide". What does that mean, outside a football huddle?

It means that you always want to "go wide" in your sales contacts in a customer or client company. You want to set up situations -- make excuses, if necessary -- to meet and establish contact with as many people in the company as possible. Even better, as many people at as many different levels as possible. This might be likened to a military "pre-emptive strike". Lay your traps for a future situation, known or unknown, that might cause you to need sales contacts beyond (and above) your current relationships in the company.

It's also a reminder that the current economic uncertainties can change things in a heartbeat, completely beyond your control. What if, for example, your key contact gets caught in a downsizing or layoff action? Or, worse yet, the department you're selling to gets eliminated? What if your key contact gets promoted, and replaced by someone who knows nothing about you? Or, worse yet, has a prior relationship with a competitor? You need some contacts other than the person you rely on as your ongoing source of orders, in case something happens to him that neither of you expect.

Here are four ways you can "go wide" in an existing client or customer company:

"Meet the Boss" -- This is an explicit strategy in the IBM selling playbook. As early as possible in your relationship, tell your contact: "Jack, we've been working together for awhile, and I think it would be good to make sure our companies are as well aligned as we are. How about if we have lunch and you bring your boss and I bring mine, so they can meet each other? And while we're at it, we'll have an opportunity to remind both of them what a great job we're doing for our respective companies." Who could resist? This gives not only your boss, but also yourself the excuse to make future contacts 1 step up the organization.
Lather, Rinse, Repeat.
"Free Consulting" -- This is especially useful in getting past Purchasing. Offer to bring in a technical resource to assist the next user up the food chain from your service. If you provide MRO supplies to a plant maintenance department, offer to do a "brown bag" lunch for the Plant Engineering department -- the people who design or choose the equipment for which you provide supplies and parts.
Help them Sell -- Offer, or set up a situation, where you become a referral source to their selling effort. Great way to win friends.
Benchmarking -- Companies have benefited greatly by looking at other companies in allied, but non-competitive businesses, comparing best practices. Set up a 1/2 day benchmarking meeting between two of your customers, both of whom use your products or services but who don't compete. They'll learn a lot from each other, and you're the catalyst. The important thing is to draw people off both benches who you haven't met before, again widening your contact base. Of course, you'll want to be a high-visibility "facilitator" of the benchmarking visit.

If you've found ways to "go wide" in your customer or client companies, please click "Comments" below and let us know what you did and how it worked out.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, December 1, 2008

What I Learned at the CEBI Fall Summit

As you know, this blog highlights ideas and lessons that come out of both local and national meetings of Chief Executive Boards International. We just returned from our Fall Summit in Richmond, VA, and we continue to get great feedback about the Summit from our members.

One of our members, author of The Small Business Savings Plan, regularly recaps the list of ideas, observations and suggestions he takes home from a Summit. That recap is at: http://www.chiefexecutiveboards.com/briefings/briefing081.htm

If you're wondering "Could a group of other business owners actually help improve my business?", the answer is yes. Our members give their Chief Executive Boards International experience great credit for their business and personal success. If you haven't discovered this simple, powerful resource, you're missing something.

If you find Tim's notes useful, please click on "Comment" below and let us know.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Saturday, November 15, 2008

Thar's Cash in That Thar Balance Sheet

The phrase "Thar's Gold in Them Thar Hills" started more than one gold rush in the 1800's. Today's translation might be more like: "Thar's Cash in That Thar Balance Sheet".

At a recent National Summit of Chief Executive Boards International, member Al Conway, President of President of ACG, Incorporated, gave an Executive Briefing on business dashboards, including some live demos of real dashboards. As a courtesy to CEBI members, Al also built a "fill-in-the-blanks" dashboard that's focused on today's hot topic -- Cash is King.

Al's dashboard will help you not only discover, but also visually demonstrate to your management team how to find the cash in your balance sheet and recover it. That hidden cash that you can't use, invest or distribute to shareholders (like yourself) is lurking under several other line items.
Click Here for Al Conway's Amazing Cash Recovery Dashboard.

If you find this dashboard useful, please click on "Comment" below and let us know.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Sunday, November 9, 2008

Ask Employees for Help in Short-Term Cost Reductions

A member posed an interesting question in a meeting of Chief Executive Boards International. He was looking for ways to reduce costs for a period of six months or so of slow business, while retaining his employees for a future upturn.

Several ideas and suggestions were offered. A temporary across-the-board reduction of everyone's salary was not a favorite. A reduced work week, on the other hand, had some appeal. Asking "how would you decide whose hours to reduce, another member suggested "ask them". Ask for volunteers to go to, say, a 32-hour work week. You could sweeten that up by offering a Friday and the following Monday off, then leapfrogging a weekend and doing the same again.

A 24-hour work week would keep most employees still eligible for benefits (a detail worth checking if you're considering reduced work weeks), while substantially reducing costs on a temporary basis.
If you're looking for ways to temporarily reduce wage costs, go to your employees for ideas. If they know the company needs to cut costs and also knows the company would like to avoid layoffs or terminations, they may be willing to make some sacrifices of wages in return for time off.

If you have used other means of temporarily reducing costs in your company, please click on "Comment" below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Saturday, November 8, 2008

Even Raving Fans Ask: "What Have You Done for Me Lately?"

I had another "What have you done for me lately?" experience this week.

Interestingly, it came from a company of which I'm already a "Raving Fan". In his book Raving Fans, author Ken Blanchard (The One Minute Manager) coined the term Raving Fans -- customers who promote and advocate for your company, beyond just continuing to do business with you.

In this case, a company of whom I've long been a Raving Fan, American Express, came through for me again. Now, your mileage may vary with American Express, but I continue to pay them for the privilege of carrying their credit cards. Why is that? Simply because every time I've needed anything from American Express, or there's been a problem with a product, a merchant or a questionable charge, they've handled it -- quickly, conveniently and in my favor. They've made good on low price guarantees, they've replaced products lost or damaged after purchase, and they've paid deductibles on rental car accidents with no hassles whatsoever.

What happened in this case was that their fraud unit called me on a Friday, saying a suspicious $1.00 charge had been attempted on my card, followed by three more for $20.00 each. They had denied the charges and wanted to know if perhaps they were legitimate.

After some time on the phone, we determined that, indeed, someone must have picked up my card number, was using it fraudulently, and that the best thing to do would be to reissue the card with a different number. I had several concerns about that, the first of which was that this card had some auto-billing accounts for internet services, etc. The representative told me that they would continue to honor the old card number for 90 days on merchants with whom I had a charge history. One concern checked off.

He offered to have the replacement card here by Monday. Reasonable in most cases, except we didn't expect anyone to be home Monday, and we're leaving for a Chief Executive Boards International Summit on Tuesday. He overheard that conversation with my wife in the background, and said "Would it be helpful to have it delivered tomorrow (Saturday)?" Whereupon I said "Wow, that would be just great."

The completion of this Raving Fan story was when the card arrived by Noon on Saturday, as promised.

Well, that's almost the end. Imagine my surprise when I opened up the UPS Express envelope and saw not the ordinary "Here's your replacement card" enclosure, but one I'd never seen before. Alongside the American Express logo at the top were two lines of text in a 28-point bold italic font:

And then, the body of the message began with "It was our pleasure to get you your new American Express Card as quickly as you needed it."

That's the "What Have You Done for Me Lately?" part -- reminding the customer when you do earn a life-saving merit badge that it was indeed a "wow" event. This is important. It's one thing to exceed a customer's expectations. It's quite another to get the full benefit of that by reminding the customer that you did so. Watch for opportunities to answer your customer's ever-present question of: "What Have You Done for Me Lately?"

Here's another article with more ideas on how to do that: http://www.chiefexecutiveblog.com/2008/05/what-have-you-done-for-me-lately.html

If you have ways you remind customers of your outstanding performance, please click "Comments" below and share them with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Tuesday, November 4, 2008

Hard Decisions -- Which Good Employee Goes in a Business Downturn?

Here's an interesting and useful employee evaluation tool that came up in a meeting of Chief Executive Boards International. A member was wrestling with how to accomplish a reduction in headcount in a business downturn. The member's issue was that he didn't consider any of his employees as non-performers, and was considering tenure or other factors as selection criteria. How do you select among a field of "good" employees those who will be terminated because the business can't afford to retain them?

Totem Poling, a long-established method of corporate head count reduction was suggested, and several members expressed great interest in this tool.

Totem Poling is a graphical name for forced ranking of employees. This works best if done in a reasonable pool of employees -- dozens, rather than hundreds. In a large organization, it's more effective to have this exercise done by division or department, in order to get down to an organizational unit if manageable size (say, 20 employees or less).

Forced ranking is simple -- you take a blank sheet of paper and start at the top, listing the employee most valuable to the organization, followed by the next-most valuable, and proceeding down the page to the least valuable employee. Of course, the parameters that define value are in the eye of the beholder. Is, for example, a rising star more valuable than a reliable, plodding longevite? Those questions need to be wrestled with and realistically answered during the totem poling process.

In his book Good to Great, author Jim Collins emphasizes "Be rigorous, not ruthless, with people". This is an example of a rigorous exercise. It forces the manager (or owner) to get real about the relative value of individual people to the business.

And then, of course, you "saw off" the bottom of the totem pole as far up as your reduction in force requires. This is not ruthless. It's acting for the survival of the business -- the benefit of the majority vs. the misfortune of the few.

And, if that's not your situation -- you're not faced with reduction of staff -- totem poling is also a useful exercise, periodically applied. Would it not make sense, for example, to write salaries alongside the totem poled list of names? You might then ask yourself if the salaries are appropriate for the totem-pole ranking. Or, if not, why not?

Someone once told me that you should be so confident of your salary administration practices that if someone got a hold of the company's entire salary schedule and posted it on the bulletin board, you could easily justify who's getting paid what -- more, less or the same as each other. Not a bad value system to live by, as far as pay is concerned.

If you have experience in making staff downsizing decisions, please click "Comments" below and share it with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Wednesday, October 29, 2008

Sales Happen -- or Do They?

I was at a technology awards event this month where I heard a most insightful quote:

"A sale happens when someone trusts you enough to give you money to make a
problem go away."

There's a lot of insight buried in that sentence. Let's look at the key words:

Someone -- People buy things, rather than organizations, and they buy things for a reason that makes sense to them.

Trusts -- Selling today is about trust. There are a blizzard of products, services and outright frauds out there available for sale. A buyer usually can't properly analyze each to determine the "optimal" solution. He therefore has to count on someone he trusts to help him make the right buying decision.

You -- It's not very much about whether they trust your company, your products or your services. It's more about whether they trust you.

Problem -- Sales happen when someone has a problem -- either something he's fearful about or an unfulfilled need, sometimes for more income. See: "Is your Elevator Speech in Your Customer's Language?"

So, you might ask, "how do I use this?"

First, let's focus on the "trust" part -- the major key word of this quote. Focus your efforts on building trust with the prospect -- trust in yourself. The most powerful trust-builders are testimonials, examples, case studies and referenceable customers -- especially those that take on a personality, rather than generic statements.

Use customers' names in your anecdotes and quotes. For example, "Our Chief Executive Boards members are quick to talk about their CEBI experience. A member named Jeff said: "CEBI is the most valuable thing that I have done to help me grow not only as a business owner but as a father and husband". And a member named David said: "I have found the experience and resources offered by the other members in CEBI to be richly rewarding for me."

Your prospect will pay more attention to a testimonial from a "real person" than a generic benefit statement. For example, "After a CEBI meeting last month, one of our members, Tim, told me: "I leave each meeting with at least one idea I can use, either in my business or my personal life."

And let's focus on "problem". The book Spin Selling asserts that you want to help the prospect identify a

Situation,
the Problem that causes,
the Implication of that problem upon the business,
and the Need for a solution -- yours.

If you don't have all those parts covered in the prospect's mind, you probably won't have a sale.

So, think about your current prospects and proposals. In each case, do you think the prospect actually trusts you enough to give you money to solve a problem for him? If not, figure out a way to get there.

If you have other selling axioms or principles that work for you, please click "Comment" below and share them with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Friday, October 24, 2008

It's Time to Take a Look at Your 401(k) Strategy

Many 401(k) plans operate on a calendar year basis, and right now is a good time to reconsider your 401(k) options as an employer. This topic came up in a recent Local Board meeting. The discussion centered around Safe Harbor provisions, something that must be declared and communicated prior to the beginning of the plan year, and can be changed in subsequent plan years.

Safe Harbor provisions fit into the "fairness" concepts in the 401(k) statute. Congress wanted to make sure owners and executives didn't set up 401(k) plans, forget to tell their employees about them, and then take maximum advantage ( in the forms of maximum contributions and company matches) for themselves alone. So the concept of "participation testing" was implemented. Simply described, the "top heavy" and "highly compensated" tests limit the maximum participation of owners and highly compensated employees, proportional to participation of lower-paid workers. You may have had the unfortunate experience of getting a "refund" of your 401(k) contributions after the fact, due to over-contributing.

These participation tests rarely work out so those who wish to max out their 401(k) contributions can actually do so.

Let's also review the allowable maximum contributions (if not limited by participation testing). Those are $15,500 for most employees, with a "catch-up" provision of an additional $5,000 for those over 50 -- a total of $20,500 annually for that group.

And it's also a good time to point out that a Roth-style 401(k) offering is now available. If you already have plenty of pre-tax deferred income in either a 401(k) or IRA, you can amend your plan to allow participants to designate their contributions as Roth-style, meaning that despite paying taxes on the income now (at historically low tax rates), the income, dividends and growth in net asset value are tax free forever! Of course, the company match contributions, since they're deductible to the company, go into a parallel account that's considered pre-tax.

So, how can you make the most of these extraordinary opportunities for yourself as an owner? The Safe Harbor provisions allow you to make company contributions in either of two ways, thereby nullifying all participation testing. Those two ways are:

A 3% (of salary) match, automatic, across the board, regardless of the employee contribution, for all eligible employees. Eligibility is usually based on a waiting period after initial hire and a minimum number of hours worked in a year, as specified in your plan.
or

A specific (or better, I assume) employer match formula of:

100% of the first 3% of employee contributions

plus 50% of the next 2% of employee contributions.

Thus, for an employee contributing at least 5%, the company would match 4%

In the CEBI meeting where this was discussed, one member said he had done the math, and changing his existing match formula to the Safe Harbor formula would cost him about $30,000 in additional match -- far more than the value of himself and his partner being able to max out their contributions.

A member in another meeting had mentioned that he went to the 3% Safe Harbor option one year, in lieu of pay raises. Now, said the member who had done the matching math, "That's an idea worth looking at." Note that a 3% "raise" through the 401(k) is, in fact more than 3%, considering that both you and the employee also save the combined FICA burden of 15.3%. That saves you 0.23% of salary, and the employee the same amount.

As always, these are ideas, not recommendations. Consult your own legal, benefits and/or tax advisors before taking any course of action, to ensure they are appropriate for your own specific situation.

If you do decide to amend your plan, you haven't a moment to spare -- call your 401(k) fiduciary today and be sure you understand the timeline necessary to get plan changes in place for 2009. You must get your plan amended AND provide notice to Safe Harbor- eligible employees not less than 30 days before the new plan year.

If you have some other ideas or suggestions on compensation or benefits, please click "Comment" below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Tuesday, October 21, 2008

8 Simple Internal Controls for Small Businesses

A recent local news article reminded me again of how expensive it can be for a business to neglect its internal financial controls. In this case, a woman embezzled $750,000 from a Christian supply store over only a year and a half. It was easy -- she just wrote checks to fictitious companies and forged the signatures herself.

Here are links to two more similar stories:
http://www.chiefexecutiveboards.com/alerts/alert008.htm http://www.chiefexecutiveboards.com/alerts/alert007.htm

These are eight simple and almost no-cost financial controls that could save you a lot of money:

Sign checks yourself. If your travel schedule and work processes permit, signing your own checks is an excellent precaution.
If you can't sign checks yourself, authorize ONE other person to sign checks in addition to yourself. You can be the backup signer if he or she is unavailable. If someone else must have signature authority, make sure that person is someone different from the person who writes the checks and has access to the check stock.
Keep check stock under lock and key. Clever thieves can fabricate a check, even without your check stock. Don't make it easier than it needs to be.
Approve Invoices yourself. This is a quick and easy process. Again, if someone else must approve invoices, make sure that person is different from the person writing or signing checks.
Have the cancelled checks mailed to your home, instead of the office. This one is big. Open the envelope and just flip through the checks, verifying the vendors and signatures. Even if you only spend 10 seconds on this, shuffle the checks up so it looks like you rigorously examined them. Then take them to the office, to the person who does the bank reconciliations.
Divide up processes for handling receipts and payments. For example, different people should approve invoices, prepare checks, sign checks and reconcile the checking account. Likewise, different people should be handling incoming cash and checks, posting payments, making deposits and reconciling the checking account.
If you take credit cards, the easiest fraud opportunity is for a person with access to the merchant account to give small credits to a card of their own or an accomplice's. Have your detailed merchant account statements reviewed by someone other than the person who enters the transactions, and watch for credits.
Do background checks on all new employees. People with credit problems will be a problem for you, as financial pressures drive desperate behavior. If they can't manage their own money, do you want them managing yours? A recent story of an employee theft revealed that the person had stolen from a prior employer as well -- the new employer just failed to find that out due to lax hiring practices.

There are an amazing number of ways employees can steal from you. Implementing the eight simple precautions above will close off many of those opportunities.

If you have some other simple financial controls to suggest, please click "Comment" below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Thursday, October 9, 2008

Section 179 Depreciation Limits Reduced in 2009

This is a reminder that came up this month in a meeting of Chief Executive Boards International. You're probably familiar with Section 179 of the Internal Revenue Code, which allows small businesses to depreciate qualifying capital purchases 100% in the year put into service, rather than stretching out the depreciation deductions over 5, 7 or more years.

The reminder is that the current maximum deduction limits were raised by the Economic Stimulus Package, and will be reduced in 2009.

Through the end of 2008:

The maximum Section 179 deduction for 2008 is $250,000. This limit reverts to $125,000 in 2009 and 2010.
The deduction is reduced, dollar-for-dollar, by the total value of Section 179 property exceeding $800,000 put into service in 2008. This threshold is reduced to $500,000 in 2009 and 2010.
Remember, the 179 deduction in any given year may not exceed your total taxable income in that year (you cannot use Section 179 deductions to take you into a net loss).

So, if you plan to exceed $125,000 in Section 179-qualified capital expenditures in a year, make sure they're delivered and put into service by December 31, 2008. As always, check with your tax advisor for the specifics of your own situation.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Sunday, September 28, 2008

3 Ways to be Sure Your Company's Salaries are Competitive

Enlightened business owners and CEOs realize that competitive salaries are one of the key factors in recruiting and retaining the best available employees. There are, of course, others -- particularly among Gen X and Gen Y employees -- that need attention, as well.

On the subject of salaries, how might one know what competitors are paying for comparable work? Of course, some of us are part of industries on which salary data is available through trade associations. For those not part of such a group, once again, I think this Internet thing is going to catch on!

The founder of the real estate site http://www.zillo.com/ has co-founded a self-reporting site for salaries and compensation. Have a look at: http://www.glassdoor.com/. This is a "work in progress" site that's beginning to get traction among workers. Its obvious pitfalls are at least twofold -- that the information is self-reported, and perhaps skewed as a result, and that those reporting are self-selected, not part of a statistically valid sample. I'm no statistician, and my layman's presumption is that some of those issues will work themselves out as the site accrues more users and a larger sample set. What I like about it is the straightforward reporting format and ease of comparing your own company to those represented in the survey.

Two additional salary survey sites you might find of interest are:

http://www.vault.salary.com/ -- Available at a charge of $15/month. Large database of industries and job descriptions.
http://www.payscale.com/ -- claims to be "largest database of online employee salary data in the world." Priced on a "per-report" basis

If you find these or any other sources of competitive salary information useful, please click on "Comments" below and let others know.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Wednesday, September 24, 2008

Can You Name Your 10 Best Customers?

Inc. Magazine recently asked the question "Can you name your 10 best customers?" Good question.

Try it. Before you read further, pull out a sheet of paper and write down the names of your 10 best customers -- those 10 customers who are the highest contributors of gross margin to your business.

Then go get the facts. How did you score? For the average business owner, 6 correct isn't bad. 8 is pretty good.

The conclusion? We're sometimes misled by the demanding, the vocal or the highly visible customer. In fact, a really great customer may simply go unnoticed. And what happens as a result? Perhaps we fail to get all the business that might be available from these best customers, because we don't know for sure who they are. Perhaps we're taking them for granted. Worst case, they take their business elsewhere.

So, what might you do? Maybe go personally visit all those on both your "presumed" and "actual" best customers lists. Ask them how you're doing as a supplier, and what's getting in their way that they'd like a supplier to do for them.

Important: "What's getting in your way?" is a completely different question than "What else can we do for you?". It doesn't require the customer to think -- only to tell you where it hurts. t uncovers needs, in many cases, that the customer didn't even realize he had (or that you could fulfill).

I hope you find the results interesting and valuable to growing your business.

If you act on this suggestion, please let us know what you find. Click on "Comments" below and let us know what happened.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Thursday, September 11, 2008

Anything Worth Doing is Worth Doing Wrong

I found an interesting quote in an email from a business owner the other day. He said of his senior management team, when challenged to develop some of their own performance goals: "We are also learning that they are afraid to make a mistake. I think their fear of failing is outweighing the excitement of contributing."

And he's right. We can sometimes be so directly involved in the business that we're right on our managers' heels, providing minor course corrections and suggestions, thereby unconsciously communicating that mistakes aren't allowed. Yet our logical mind realizes that adults learn by making their own mistakes -- it can be viewed as part of their training cost.

I had a conversation on an airplane last year with a sales manager who had just taken over a new sales force. One of the things he said about that group was "I've had to teach them that anything worth doing is worth doing wrong". What a fascinating idea, and an interesting way to communicate it. I asked him what he meant by that, and he said: "I'm trying to help them understand that there's more honor in trying something and screwing it up than in not trying anything at all."

Other business owners have used terms like "letting go". And it's letting go of a lot of things. Letting go of the fact that nobody does it like (or as well as) I do. Letting go of the fact that someone else will make mistakes and may not run the business at its optimum fine-tuned efficiency that I do. Which would you rather have -- a $5 million business doing 10% net on sales or a $10 million business doing 8%? It's generally hard to scale a business in a culture where people believe mistakes aren't allowed.

If you've crossed a bridge from "no mistakes allowed" to "letting go", please click Comments below and share your experience with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Thursday, September 4, 2008

Are the People You (Still) Have the People You (Still) Need?

A member brought up a familiar scenario in a meeting of Chief Executive Boards International. In short, he said that his own primary strengths were finding prospects, making sales visits, making proposals and persuading prospects to become customers, even at his typically-higher prices than his competition. That's not in itself a problem -- many business owners wish they had someone else to do all that, because they don't like to.

The problem was that the lady he has running his production operation (while he's selling) isn't the kind of leader he needs to take his business to the next level. Rather than a leader, she is more of a "yeller", and he fully realizes that this behavior of one of his key managers is not what he wants or needs. In fact, she may severely limit his ability to grow the business, and demand far too much of his time for damage control.

The Board members were nearly unanimous in their response -- that in many cases the people who help you bring the business up to a given level are not able to help you take it to the next level. In fact, they may become the people who keep you from taking the business forward. This is a real personal conflict for many business owners. They feel guity that they need to make a change, and that many times this means terminating or demoting a person who may have greatly helped them up to this point. So they actually sacrifice the success of themselves and everyone else in the business because of a misplaced allegiance to a person whom the business has simply outgrown.

The Board made several suggestions. First, in the words of Good to Great author Jim Collins, it's not just having "the right people on the bus", but also having them "in the right seats". If it's a good person with good skills, perhaps there's a less-critical job that she could do well. That makes her part of the solution, vs. part of the problem. They also suggested taking a hard look at what's best for all concerned -- for the owner, the business and the problem employee. Many times that's terminating the employee so she can go on with her career doing something she likes and that she's good at in an organization that matches her capacity. Hopefully, before the conflict between the two ruins what's probably a salvageable personal relationship. And the Board further encouraged him to address this sooner, rather than later, doubting that it was going to get better by itself.

Why does this happen? It's because times change, you change, the world changes and the company changes. And some people don't. Some people can grow with all that. Some can't, and the company, the job, or both just outgrow them. Which is too bad, and usually not your fault. Do your best to bring people along, train them, promote them and expose them to new things. If they can't stay on the bike, you need to act.

And, finally, one member summed it up by saying: "If in doubt, go with your gut." In most cases, your gut is right, and you need to pay attention to it. Business owners, particularly successful ones, have amazingly well-calibrated guts. If it doesn't feel right, that's a feeling you ought to pay attention to. When is it time to do something about a problem employee? Click Here for a related article.

If you've had an "outgrown employee" situation that you'd be willing to share, click on "Comments" below and let us know what you did and how it worked out.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Saturday, August 30, 2008

Bank Failure -- A Clear and Present Danger

I've been surprised at how many times this quarter the concern over safety of funds on deposit in banks has surfaced in meetings of Chief Executive Boards International. As members regularly observe, funds on deposit in US Banks are insured against bank failure by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. A limit that hasn't changed in my lifetime! Any balance in excess of $100,000 is at risk if the bank fails. Our members are aware of this limit and are, I now believe, justifiably concerned.

Remember also that the $100,000 limit is per individual or business entity. A $100,000 CD and a $100,000 checking account owned by the same person or company are insured only for a TOTAL of $100,000.

Well, after some research into the subject, I've concluded a couple of things -- that it's a far more real danger than I thought and that there are some reasonable strategies by which to protect yourself.

On the real danger side, consider that, per the FDIC:

"On August 22, 2008, The Columbian Bank and Trust Company, Topeka, KS was closed by the Kansas Office of the State Bank Commissioner and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed."

This is only one of 117 unnamed banks (remember, no advance notice is given) presently on the FDIC's "watch list". So, those depositors were all covered for $100,000, right? Right.

And the rest of the story, as Paul Harvey used to say? Beyond that, there were Forty-six Million Dollars on deposit in that bank in excess of the insured funds, that are unlikely to ever be seen by those depositors. It might have been a whole lot more fun for those depositors to have all withdrawn the money in $1 bills, thrown it out in the street, and watched the scramble. Or to have had a huge bonfire, fed by cash. Same result either way. Gone.

Last Friday, another shoe dropped. Georgia's Integrity Bank was closed by the FDIC on August 29 -- the tenth bank failure in the US this year.

Notice that feeling in your gut? I'm betting everyone who had $200,000 or $400,000 on deposit there is wishing they had taken the time to split that up between 2, 3 or 4 banks.

So, that's potential strategy one -- if practical, spread it out between several FDIC-insured banks. With online account transfers available, the delay time transferring funds with no wire transfer fees is usually less than 24 hours. And your standing Line of Credit should be set up to cover you for an overdraft, just in case something gets delayed. 1 day's interest at Prime isn't much to pay for the peace of mind. Here's a place to find FDIC-insured banks offering online transfers and high yields on cash deposits: http://www.bankrate.com/

Here's a list of six other strategies you might consider: http://www.bankrate.com/brm/news/sav/20080827-insure-excess-deposits-a1.asp
(none of these are recommendations, and any of them may or may not be appropriate for your situation). One may be available through your own bank: http://www.cdars.com/. CDARS actually splits your money up among a number of participating banks for you. And apparently handles that somewhat transparently.

------------------------------------------- New Information -------------------------------------
Since the original publication of this post, we've learned of yet another strategy you might explore. Some banks offer "Brokered CDs". This is an idea much like CDARS, only executed directly between banks. Your bank takes your funds in excess of $100,000 and, like a broker, buys CDs on your behalf in other participating banks. They can do this somewhat transparently, and you don't have to shop all over the state to find enough banks. Each of those is then under the FDIC umbrella of the respective bank in which it's invested.
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If you have implemented one of these strategies, or know someone who's been hurt by a bank failure, click "Comment" below and share the facts with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Sunday, August 24, 2008

You Can Observe a Lot Just by Watching 2

In an earlier article, I quoted one of the great philosophers of our time, Yogi Berra: "You can observe a lot just by watching."

I had an interesting observational experience this week. I was dining at an upscale steak house I'd been to before, and noticed again an inordinate amount of attention by the wait staff to polishing wine glasses. Yes, polishing wine glasses.

The waiters themselves, when not serving customers (key words), were moving from unoccupied table to unoccupied table in their respective areas, picking up the wine glasses one at a time, holding them up to the light, and then polishing them.

I was struck by how similar a restaurant is to a manufacturing process. You have suppliers upstream who provide either raw materials, tooling or fixturing (in this case, a wine glass is probably fixturing). And what you want from those suppliers is a product or part that's ready to go into the production process.

For some reason, the wine glasses delivered to these tables presumably weren't ready to go to production. Apparently that had not only been noticed, but also decided, and also accepted as a limitation of the suppliers (kitchen help).

I say that because waiters are likely the hignest leverage employees in an upscale restaurant -- the most likely to make a difference in the customer experience and the customer's repeat business. and also the most expensive, in terms of net hourly wage (including tips). Perhaps the managers make more, but not always.

Clearly, polishing glassware is not the best and highest use of a waiter's time. They would have been far more effective being more attentive and accessible to customers. Yet they were apparenly culturalized to inspect and polish glassware (with great fanfare and visiblity).

Now, one could argue that's all a marketing ploy -- to make the customers keenly aware of how much care is being taken to be sure he has a microscopically-polished wine glass always available. So what? Is that the typical customer's primary concern in a restaurant -- wine glass polishing? Maybe it's the food? Maybe it's the service? I've just never worried that much about the glassware, myself.

So, what do we have here? A dysfunctional organization, in my opinion. We have the hignest-paid, most valuable employee in the enterprise doing something (polishing glasses) that should be done by someone paid 1/4 as much. A far more effective solution would be to investigate the root cause for why the wine glasses don't get set in the first place ready for customer consumption. And fix whatever problem that is. Push that problem back up the supply chain. If a waiter finds a "defective" wine glass, he should be able to get that problem corrected by the supplier, rather than fixing it himself, shouldn't he? Otherwise the supplier never gets any feedback or gets any better, does he?

Have a look around your organization. Look for "re"-anything. Anything that's being re-inspected, reworked, repolished or redone. And there you'll find an opportunity. Push that opportunity upstream -- back where it came from, and get it fixed at that point.

If you've spotted a "Re-anything" in your business, please click "Comment" below and share it with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, August 4, 2008

Is Your Elevator Speech in Your Customer's Language?

I was talking last week with the General Manager of a service business -- Information Technology Services, to be exact. He was lamenting that he and his new sales person didn't have a very good "elevator speech." What he said he wanted to do was "Get each of our technical resources to write a few sentences about what he or she does, or is really good at." The idea was to distill the elevator speech from those descriptions, then embed it into telephone prospecting, collateral, the website, etc.

So, an elevator speech, constructed with this material, would presumably be something like: "At ABC Technologies, we install and support xx, yy and zz systems using dd, ee and ff languages" (You fill in the blanks with systems and tools that are meaningful to your business). That is, if you KNOW what systems and languages are meaningful to your business.

Just a minute -- is that something the average business owner or corporate decision-maker actually knows?? Doubtful. More important, he probably doesn't care (if he's got his priorities straight).

So, how many organizations build their elevator speeches around what they do or provide? Most, in my experience. We get so focused on who we are and what we do, we completely forget the point -- that what we do is inconsequential to the customer. He doesn't care. He doesn't need to care. That's generally a foreign language to him.

What, then, is the "language" of the customer? A friend of mine once taught me it's PROFIT -- the Esperanto of business languages. It's not even his OWN buzzword vocabulary, which he may be trying to convert to his customer's language. If you don't have something in your bag that makes me more profitable, I'm probably not interested.

And the best part is you don't need to be fluent. In fact there are only a handful of words, phrases and definitions you need to know in order to speak this language. The "big words" are:

Sales (revenue)
Gross Margin (gross profit)
Overhead (SG&A + Interest)
Net Profit (operating income)

Even better, generically speaking, there are only a handful of general things one can do to help any of those improve:

Sales (revenue)
- Raise prices
- Sell more things to existing customers
- Sell to more customers
Gross Margin (gross profit)
- Raise prices
- Reduce material cost
- Reduce labor cost
- Shorten cycle times of production/delivery activities
Overhead (SG&A)
- Improve productivity
- Reduce selling costs
- Eliminate waste
- Reduce assets required (inventory, accounts receivable, equipment, buildings, etc.)
- Shorten cycle times of front-office activities
Net Profit
- Any and all of the above

So, let's try some combination of those "customer vocabulary" words in our elevator speech:

Something like: "We at ABC Technologies help our customers effectively use their business data to reduce costs and improve return on assets."

Now, perhaps we have a CFO's or CEO's attention, and we'll know that when he asks "And how do you do that?" Of course we have to have some credible answers, preferably backed up by case studies or testimonials from other customers.

We've applied this idea ourselves. At Chief Executive Boards International, we've moved from:
"Chief Executive Boards International provides members with peer advisory meetings, both locally and nationally"

to:

"Chief Executive Boards International helps CEOs and business owners earn more money, and find more time to enjoy it"

Is there a difference? And, the next question is probably, "How do you do that?"

We put CEOs and business owners together with experienced peers in a "bring-your-own-agenda" advisory board format. Our members get some of the best advice available -- from others who have "been there, done that." They get ideas during these advisory board meetings that they would never have found on their own. And they'll gladly tell you that they're earning more money and working less than when they joined Chief Executive Boards.

Is your elevator speech in your language or the language of your customers? If you've reworked your elevator speech lately, please click "Comments" below and share the "before" and "after" with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Monday, July 28, 2008

"I Feel Guilty When I'm Not at The Office" -- 4 Things to do When You're Not There

At a recent meeting of Chief Executive Boards International, a member was reporting to his Board on his objective (stated at a previous meeting) to "work from home one day a week." Despite his resolve to do so, a day a week away from the office just wasn't happening.

Then he said something really interesting. "I feel guilty when I'm not at the office." This is a recurring (and disturbing) theme among business owners. It's a peculiar "work ethic" that emotionally rewards activity, rather than effectiveness. And it gets in the way.

When a business owner is immersed working in the business, it's easy to forget that the best and highest use of his time is probably working on the business. Working on where the business is going, what that's going to take, and how can we get there faster? In most cases, the answers to those questions aren't "you'll need to work harder". Working harder (or working more) is not a sustainable growth or success strategy.

It's hard to work on the business at the office. There are a million reasons for people to interrupt you, phone calls to take, etc. It's almost essential to get physically away from the office on occasion.

One business owner actually gave this reason for declining to allocate time to working on his business: "Our small company has grown rapidly, and I find that to meet my profit margins I must undertake tasks that I normally would delegate to someone else. I have seen too many of my peers in our business fail because they over-delegated, resulting in a downward spiral of sales and profits."

This is a strategy that might be good for a week -- probably not for a month or a year. It's not sustainable, and it's not in the best interest of the owner, the business, or the customers. Yet it sounds good and feels good to him. He doesn't see that if the business will fail because he's not working harder, it will also fail when he runs out of gas, and can't work any harder. In the aviation business, they say "Never run out of airspeed, altitude and ideas all at the same time." Good advice -- especially the ideas part.

So, what would be worth doing, other than working in your business, to make it more successful, sustainable and scalable? Here are some ideas:

Read -- The right book or magazine article at the right time will change your life. I can think of a dozen or so books from which I extracted a life-changing (or attitude-changing) idea or strategy. Don't discount this important source of ideas.
Explore -- Look for sources of ideas beyond yourself, your company and your industry. Attend a conference or a seminar. And don't set your sights too high. If you attend a 1-day event, and just get ONE good idea that may be valuable to your company, that's a decent investment. It may have cost you a day, but it's an idea you probably wouldn't have hatched on your own. And could be worth millions.
Surround yourself with "thought leaders" -- people whose businesses you admire and would like to emulate. Better not in your industry than within your industry. People beset by exactly the same problems tend to know too much about "what can't be done". Look for places such people congregate, and go there regularly.
Surround yourself with "curious" people -- There are those who value ideas and knowledge for their own sake. This is more of a personality attribute than a skill. These are people who can help you connect dots that aren't apparently that close together -- at first. Check out The Medici Effect: Breakthrough Insights at the Intersection of Ideas, Concepts, and Cultures, by . Curious people tend to be the "Connectors" and "Mavens" described in The Tipping Point, by Malcom Gladwell. They see connections where you won't.

Most of these things you have to do outside the office. And they're worthwhile and important to the business. Give yourself permission to do something you know will matter, and ignore that little voice that says "You ought to be at the office." It will quiet down over time.

The Chief Executive Boards International experience is designed to leverage ALL these ideas. We can't read for you, but we do regularly use book reviews as a platform for discussions and presentations. CEBI events give you an opportunity to get away from the office and explore, as well as surround yourself with both thought leaders and (other) curious people.

We have no corner on the market for ideas, however. There are lots of good places to get them. And when you do, apply the CEBI mantra "We Share Ideas". Pass it along to someone else.

Would you click "Comments" below and share with us a place where you get ideas? And maybe some examples?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

Thursday, July 10, 2008

Is it Me, or is it the World?

At the 2008 Spring Summit of Chief Executive Boards International, Bob Lawson, Ph.D. gave us a useful lesson in economics and the economic stimulus strategies of the Federal Reserve. Bob, a Professor of Economics at Capital University in Columbus, OH, put a complex topic in terms we as business owners could easily understand.

He was talking about the effects of Federal Reserve policy in managing the money supply, attempting to stimulate or slow the US economy, depending on the situation and their perception of the situation.

Bob likened loose monetary policy (providing additional liquidity to the economy, in an effort to stimulate economic activity) to "flying over in helicopters and dropping dollars out on the economy." Actually, what the Fed does in its economic stimulus efforts isn't far from that. That was the case as the Fed attempted to restore the economy after the 2000-2001 recession.

Bob went on to say that if you do what the Fed supposes you'll do when additional dollars fall out of helicopters into the economy, you'll expand your business -- more money available means more for customers to spend, and more business for you, right?

And then he said that if you behave that way, it could be just the wrong thing for you and your business to do. "Look around", he advised, "and see if everyone else in your business is doing great, just like you are." "If so, you can conclude that it's NOT some brilliant or innovative thing you're doing -- it's just that you're caught up in the same wave, perhaps externally driven by monetary policy or another outside force -- probably cyclical."

That being the case, Bob suggested, what you should do instead of expanding your business is just raise your prices by 20% (or some similarly aggressive percentage). You'll probably keep all the business you have, since demand is high and capacity is short. But you'll be coining money while you do so. No more debt, no more investment, no more employees, just lots more money. Pull it out of the business, and bank it.

One of our CEBI members went home and thought about that. He had wildly expanded his business during the 2003-2006 real estate "bubble" (or what we now recognize as a bubble) just like everyone else in his business. More employees, more investment, more debt, and then the painful downsizing of the business to survive the post-bubble aftermath.

He said "I went back and did the math, and Bob was exactly right -- if I had raised prices instead of expanding my business, I would be millions of dollars richer today."

Think about it. What works on the upside works on the downside, as well. If you're presently suffering the same business downturn as everyone else in your business, it's probably not you. So, what do you have to do to survive (not prosper) in the current situation? Trim debt, trim staff, sell assets if they're not productive. It's not likely that you'll do well in a downturn. Or that you'll "sell you way out of it." Sounds good, but really hard to do in a weak economy. You just want to be "still standing" when the economy turns. What's important is to keep your powder dry, keep your core staff and assets intact, and be ready when the inevitable upswing occurs to capitalize on that wave. If you need to trim staff or investment, do just what's necessary to keep the business whole.

Then, when the tide turns (and it always does), you'll be ready to capitalize on the upswing.
If, on the other hand, your business is booming right now, look around. If you're doing well, and most of your competition is not, go full bore on expanding, grabbing market share and attempting to dominate your market. Whatever you're doing is really working, and it's you, not a cyclical market trend that's making the difference.

If you've had some experience (good or bad) with economic and market cycles, or "bubbles", please click "Comments" below and share it with others.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

864 527-5917

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

Sunday, July 6, 2008

Cost is Cost, Right?

At a recent National Summit of Chief Executive Boards International, our member Chuck Gilmore gave an excellent presentation on Theory of Constraints as a manufacturing strategy. You may remember a book from years ago -- "The Goal" by Eliyahu Goldratt. If you haven't read it lately, it's worth picking up again.

This fable teaches us that every process (in this case, manufacturing) has a point of constraint that gates its throughput. And that focusing on only that constraint is the way to improve the performance of the entire process.

What has evolved from that idea is a costing concept called "Throughput Accounting." Throughput Accounting is based on the theory of constraints, stating that "If a resource is not constrained, it can be eliminated from consideration as far as management decision-making is concerned." It focuses on maximizing the throughput dollars from the constrained resource -- everything else takes care of itself.

Then there's Marginal Cost Accounting. Marginal Cost Accounting asks: "What is the cost of producing just ONE more of an item?", in contrast to conventional standard cost accounting. The question is: "What are the actual variable costs of producing just one more? What is the contribution margin of producing 1 more? The machines were there, the people were there, the lights were on. Is there much more than the cost of material to produce one more part?

Using only standard cost accounting to analyze management decisions can distort the unit cost figures in ways that can lead managers to make decisions that do not reduce costs or maximize profits. In fact, they can do just the reverse.

I recently heard of a company that had installed a new production tracking system, that included a cost analysis module. To their surprise, they were not only over-burdening their standard costs, but they were also double-counting some components of burden. As a result, their costs were overstated and they were turning away business that would, in fact, have been profitable. They were convinced that their competitors were pricing below their costs. It turned out they were the ones confused about their costs. After only 6 months of making decisions based on the new costing data, the business turned from a net loss to a net profit, and has steadily increased net cash flow since.

There are some important lessons in here. First, any system (the costing system included) deserves to be reviewed regularly, to make sure the assumptions are still valid. Secondly, the assumptions themselves deserve to be challenged. If you're using standard cost accounting, you're likely being misled in certain situations. Throughput cost accounting might give you a more credible view of your constrained resources, and marginal cost might be the better consideration where incremental business is concerned.

In general:

Standard Cost Accounting works best for budgeting and long-term resource planning
Throughput Accounting works best when there are specific constrained resources (until those constraints are eliminated, or move)
Marginal Cost Accounting works best for day-to-day operational decision-making

What costing methods do you rely on? Are they perhaps getting in your way, or maybe even misleading you? Would it be worthwhile to brush up on costing methodologies?
If you take a look at your costing and find some interesting things, would you click "Comments" below and let us know what you found?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

864 527-5917

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

Sunday, June 29, 2008

Can You Spot Improvement Opportunities Just by Looking?

I recently posted an article, "You Can Observe a Lot Just by Watching", asserting that you could just look around your company (or a supplier's or customer's company) and observe signs of operational excellence (or lack thereof).

This can be taken one more level -- into some simple analytical tools that will put you on the trail of other operational issues.

Bob Gariepy, a GE-trained guy who taught me a lot about manufacturing, used to get a floor plan of the factory, then trace and scale the physical routing of all the parts that went into a finished product from origin to completion. And then Bob set about reducing the distance traveled by a part. Bob showed me examples of parts that traveled over a mile by the time they got to the finished goods shelf.

By definition, a lot of travel distance is a lot of wait time. And a good opportunity for things to get lost, misdirected or damaged. And a lot of extra labor, moving things great distances through the factory. Not to mention the equipment required to handle all that.

So, Bob taught me that physical distance traveled by a product in manufacturing actually has an inverse correlation to efficiency, quality and productivity. What we did about that was quite remarkable. In several cases, we changed the floor layout to manufacturing cells, where every step in the assembly process was within eyesight. That resulted in work-in-process of maybe 6 or 8 units, max. And it meant that if one unit failed final inspection we could stop right then and figure out the problem, before we made 100 or 1,000 defective units.

A couple of these cells were designed for "make-to-order", where the manufacturing lot size was one (1). Generally the same type of item, but perhaps in different sizes, capacities or configurations. That meant we could charge a "rush order" fee when a customer needed something tomorrow, and pocket the entire margin -- all we had to do to put out a rush order was put it into the front of the day's production schedule. No muss, no fuss. But more margin.

Something else we learned was to compress manufacturing processes into the least possible floor space (This also reduces distance traveled). You need aisles wide enough for safety and maintenance access. Beyond that, wider aisles tend to attract WIP -- wire baskets, pallets and other places non-productive assets can sit. You're far better off with a large, unused open space than spreading out the equipment to cover the floor. Same idea applies to office layouts -- compress the furniture into the least possible area, and leave the rest wide open. You won't have people complaining later when you need to space for expansion.

I later observed a company where the normal product flow crisscrossed the floor (actually, 2 buildings) at least 4 times before it went out the door. The equipment was scattered throughout a building that was 50% bigger than it needed to be. They're now in bankruptcy. Wasn't hard to predict.

There are lots of places outside a factory where Bob's idea applies. White collar workflow, for example. Do things have to physically move long distances between people, or perhaps buildings or cities? What would you have to do to relocate some of that activity to be in closer proximity? Or perhaps put systems in place where a physical document didn't have to move at all -- maybe an online solution.

Give this a try -- observe the way things move through your own production or administrative process -- distance traveled, times touched, etc. Just watching will work. And if you find some, click on "comments" below and tell us about what you saw and how you improved it.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Friday, June 20, 2008

"You Can Observe a Lot Just by Watching"

Yogi Berra, one of the great philosophers of modern times, once said: "You can observe a lot just by watching." Are you regularly applying that lesson to your business?

I believe there are some readily observable indicators of excellence (or lack thereof) in almost every business. Ask any woman about how important the condition of the restroom is -- at a restaurant, theatre, department store, or anywhere, for that matter. If they can't keep the restroom in good order, what about the rest of the operation -- like the kitchen? Good observable indicator.

Here are some others I've observed (just by watching):

Restaurant -- Un-bussed tables are a crystal-clear indicator that the manager on duty isn't paying attention. It costs the restaurant customers several ways. First, you can't sell un-bussed tables. And a lot of customers (myself included) simply don't like an un-bussed table interfering with the visual experience of dining out. And we have other choices the next time.
Manufacturing -- Wire baskets full of parts sitting around the floor are a sure bet that a factory's operating margins are at least 2% to 5% lower than their competitors. If a wire basket (or skid or tote) sits still in a factory for more than a couple of hours, there's an operational problem. And probably others where that one came from. Perhaps too much raw material inventory. Perhaps a supply chain problem. In a factory with a lot of them sitting around, you can bet money that at least one is "lost" -- completely MIA from the ERP system -- it sits there because the person who needs the parts doesn't know where they are (and ordered some more to replace them).
Dusty Inventory -- Prowl through the stock room and look for dust on the items on the shelves. Your ERP system may not be furnishing a slow/no moving inventory report, or your operations manager may not be paying attention to it. Dust doesn't lie. Visible dust is worth at least 1 quarter. Heavy dust suggests it hasn't moved in at least a year. Check it out. I had a boss one time that said "There's no such thing as slow-moving inventory -- only slow-moving salesmen." He characterized any kind of inventory as "evil" -- there's nothing good that can happen to something in inventory. I've come to agree. Scrap it, sell it, or make it into something you can sell right away.
A stack of any kind of paper -- orders to be booked, invoices to be sent, payments to be processed. If you see this, you know that there are mistakes and delays waiting to happen within that stack. Unfilled orders aren't like wine -- they don't get better with age. They always get worse.
A line of anything -- Today's customer expectation is "immediate". If there's a line, there's usually a problem -- perhaps a process problem, a throughput problem, a staffing problem, an operational problem or a planning problem. Or some other problem -- the line is the indicator of the problem -- go for the root cause and fix that. Anything queued up waiting on the next activity qualifies as a line. See: "Competing Against Time" for more examples.

Keep in mind that these are just indicators. Perhaps there's no underlying problem. Usually there is. And it may take some digging to get to it. Have a look at: "The #1 Planning and Organizational Troubleshooting Question" for a great way to approach these kinds of symptoms with your people.

Tom Peters coined the term MBWA -- Management by wandering around. It's a leadership, communication and problem-finding strategy. And while you're wandering around, be mindful that "You can observe a lot just by watching."

If you've observed some useful things just by watching, please click Comment below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Saturday, June 7, 2008

Attention to Detail -- Can You Measure It, and is It Important?

Murrel Karsh, a member of Chief Executive Boards International, offered a great idea to his fellow board members at a recent meeting. Murrel is President of Windy City Fieldhouse, Chicago's Premier Team Building & Entertainment Company.

It's hard to find good help. We do what we can to screen resumes, interview people, perhaps even use various profiling instruments to determine whether a person is a "fit" to our organization. Murrell swears by a single instrument -- one that measures attention to detail from http://www.brainbench.com/.

Murrel has profiled his current organization, a good practice that gives you a benchmark against which to compare new candidates. In the course of that, he's determined a minimum score that he's willing to hire, and I got him to share that with me. Murrel won't hire anyone with a score of less than 3.25 on this assessment, and he prefers 3.5 and above.

He says "This was working well for us, and then I saw a candidate I absolutely loved, in spite of her score below the cutoff point. I convinced myself we'd try her, and the outcome would be the final litmus test of this instrument as a screening tool. Sure enough, she came to work and within two days I knew I'd made a mistake. She found ways to make mistakes that we hadn't even imagined."

So, Murrel swears by this profile and won't hire anyone for any job who scores below his threshold. Should you give this instrument a try?

If you have a favorite pre-hire assessment instrument, please click Comment below, and let us know about it.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Is Your Company's Reason for Being Increasing or Decreasing?

My wife heard a radio commercial from Best Buy this week, saying "If you buy your GPS at Best Buy, we'll teach you how to use it before you leave the store."

Brilliant!! At last, a reason to buy something at a retail store! Frankly, I've become seriously concerned about the future of retailing. The "big box" stores like Best Buy have only 2 things going for them -- they stock the products, so you can get them today, and you can see & touch the products (if they happen to be in stock).

That aside, why would you buy a commodity product like a GPS at a retail store? Online merchants stock infinitely more selection -- several dozen models times multiple vendors -- a universe of perhaps 100 different GPS models to choose from. And, depending on your perception of convenience, they bring them to your door! Personally, I like being able to research features, user comments, user ratings and price, then just order for front-porch delivery. All this for the lowest available price on the planet, usually free shipping on high-end items like GPS -- plus no sales tax!

So, Best Buy has figured out how to market an "augmented product" -- a commodity product (available anywhere, probably cheaper) augmented by the addition of a critical service -- that of helping you learn how to use it. And they've applied this idea to GPS, a product still in its early adoption curve and that's completely useless unless the buyer knows how to find his destination address. What a great plan -- a way to increase the reason for being of an electronics retail store, a business model whose reason for being has been steadily eroded by a decade of migration toward online channels.

Have you taken a look lately at augmented product opportunities in your business? What service could you offer to your customers to set yourself apart from other competitors? Look at things the customer has to do before, during or after he uses your product. Is it design? Is it inventory? Is it training? Is it field service? Or something else?

If you're in a service business, are there products your customer needs before, during or after you provide your service? Could you deliver those as an augmentation to the service you're now providing, and take a margin on them? You're there anyway and you have a relationship already.

The Internet has become the great disintermediator. It has evaporated the reason for being of many businesses, particularly those formerly occupied by agents, reps, distributors or retailers. If you're in one of those "middleman" channels, you're in the gunsights of the Internet, and your business is likely to be next. Mount your defense in advance by augmenting the product you provide with services your customer needs, thereby providing an indispensable combination and increasing his "switching costs" -- he has to find and coordinate more than one vendor to replace you.

So, just when I thought big box retailing was an endangered species, Best Buy came up with a way, in at least one product line, to increase its reason for being. Way to go, guys!

If you have examples of how you've augmented your products with services essential to your customers, please click on Comment below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Wednesday, June 4, 2008

Do I Harvest It or Step It Up? A Key Question to Consider

A discussion at a recent meeting of Chief Executive Boards International focused on an essential strategic question that business owners can't ignore. A member was talking about taking a big project which would have stepped his business up from $4 million to almost $7 million. He had already concluded this would put extraordinary stress on his management team (mostly himself).

As the Board asked him more questions, it turned out he was in "leadership gridlock" -- he had no one other than himself who he could count on for leadership within the company. And he was apparently already at the level of time and effort he was able to give it himself. So, he's in a corner -- step up the business and bring in the management help to support it or harvest the business -- optimize it at its current size while continuing to manage it by himself.

It became apparent to this member that he has a critical decision to make -- whether to limit his company's size to where he is right now (he's working as hard as he wants to work, running it by himself) or whether to expand his management team to position the company to be perhaps twice its current size.

Why are those the two choices? Isn't there a middle ground? Couldn't he just continue to incrementally grow by, say, $500,000 per year, and then hire another manager when he absolutely needs to? That's what most business owners do, isn't it? They don't realize before the fact that they're probably going to need at least two or perhaps three additional senior managers to help take the company to the next level, and they similarly don't realize that remaining profitable in the transition is going to take a "burst" of growth (by maybe 50%) to support that additional overhead.

So, they fail to commit. They play to decide, rather than playing to win.

As a result, they never get past the tipping point where the additional business actually overcomes the incremental overhead necessary to support it -- they never "break out" into another level of operation, but rather struggle against the bow wave caused by an inadequate management team. They chase success rather than planning for it.

The key question

So, when your company starts to max out your own ability to manage it by yourself, ask this question: "What would the management team need to look like to run this business at twice its current size?" Then set about looking for or fast-track developing those people. After all, you'll be there in 3 years of 25% growth or 5 years of 15% growth, won't you? Wouldn't it be great to have anticipated that management team need, rather than running your own wheels off trying to keep up with it yourself?

Or take the other road. During this same discussion, another slightly older member said "I've just realized that I'm completely satisfied with my company at its current size." An important realization. Rather than focusing on growth, he can take more of a harvesting approach to the business. Continue to optimize margin and cash flow by dropping low margin products in favor of higher margin products and firing lower-yield customers in favor of others. There's nothing wrong with this strategy. It's your business and you get to make these choices.

Either way will make the business more valuable in the future and the owner more satisfied with the results, especially if his destination is planned rather than accidental. Don't get caught in the middle -- working harder yourself for a less satisfying and less rewarding result, because you didn't surround yourself with the team you needed to be successful.

If you have come to a major strategic decision or realization about your company, such as growth vs. harvesting, please click "comment" below and share it with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Monday, May 26, 2008

What Have You Done for Me Lately?

I had a curious experience last week while on my way to facilitate a meeting of Chief Executive Boards International. When we landed in Tampa, the Captain came on the intercom and said "Thank you for flying American Airlines today. We're pleased to have provided another on-time arrival. We're at the gate about 6 minutes ahead of schedule." To someone who has come to regard the spread between actual and scheduled airline arrival and departure times as a somewhat random number generator, it was almost humorous.

To my surprise, however, a number of passengers actually reacted to this announcement. In the jetway, I heard a lady in a wheelchair mention "It was nice to be here early." A number of people apparently processed the terms "American Airlines", "on-time arrival" and "early" together in their heads, and that perception is likely to stick there for awhile.

This experience underscores something I've learned over and over in service businesses. Never assume the customer understands what you're doing for him or the value of the service you're providing. In providing service to building control systems, I learned that our service was far more highly valued when we regularly reported to customers the things we found and fixed on routine maintenance checks, before they became problems that affected the workers in the building.

In the electronics components business, I learned that our customer service representatives (CSRs) needed a place to record the daily "acts of heroism" they accomplished for customers, like finding a some critical parts in a distributor's inventory to keep a production line from going down after a competitor failed to ship on time. We actually built an online database called "What have you done for me lately?" and had the CSRs log the date, a description of the incident, the customer rep's name and a rough guess on the value of that heroic service to the customer's business (production line shutdowns are sometimes calculated in thousands of dollars per minute). This became extraordinarily valuable information in the next year's negotiation of prices on millions of electronic parts averaging about one-tenth cent each (yes, we priced in hundredths of cents). We had something to talk about other than the price of the parts -- unlike our competitors, we were able to put a value on service.

What are you doing to answer "What have you done for me lately?" in the minds of your customers on a regular basis? You see, the point of the American Airlines story is that of 135 people, perhaps 5 might have noticed that the plane arrived ahead of schedule. And those would have probably dismissed it as a part of the randomness of nature.

Instead, one particularly in-tune Captain let all 135 people know that they had arrived on time, and in a way that connected "On-Time", "Early" and "American Airlines". Quite a feat in today's competition for share of mind and brand differentiation.

So, look for ways you can systematically remind customers of "What have you done for me lately?" Maybe it's a post-service email. Maybe it's a short post-service survey (like I get from http://www.carrentals.com/ and http://www.hotwire.com/) Maybe it's a quarterly report of service rendered and results accomplished. It can be done, and it makes a difference in customer retention. What have you done for your customers lately? Do they realize what that is? Is anyone else going to reinforce that with them?

If you have some ways that you remind customers what you've done for them lately, click "Comment" below and share them with us.

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Friday, May 16, 2008

We can't solve problems by using the same kind of thinking we used when we created them

I came across an interesting quote that essentially sums up the value of membership in Chief Executive Boards International (CEBI):

"We can't solve problems by using the same kind of thinking we used when we created them."

- Albert Einstein

Einstein's point was that anyone's knowledge and understanding is limited to his own experience, training, education, and information sources. He was also making a case for the advancement of science and knowledge, which expands the inventory of possible solutions to any problem. And does so in surprising and sometimes unpredictable ways. Advancements in silicon technology enabled microelectronics which enabled implantable medical devices like pacemakers which enable people to live longer which extends their productive earning years which enables their children to go to college which enables those children to advance a yet unknown area of knowledge.

At every meeting of Chief Executive Boards International a member puts a problem on the table, asking for the experience, advice and counsel of the other CEOs and business owners at the meeting. And in almost every case, that member goes away with either a solution or a new set of ideas by which to pursue a solution.

And they're different ideas than the member came in the door with. What's the difference? Perspective. The other board members are rarely looking at the problem the same way the member is (and has been) looking at it. And they have knowledge, experience and viewpoints previously unknown to the member with the problem. Thus we're solving problems using a different kind of thinking than was used when they were created.

If you don't have an alternate source of significant perspective on your business and your life, Chief Executive Boards International might be a source of that. You might discover solutions to problems you've given up on. Or you might discover a valuable perspective on an opportunity that would never have occurred to you on your own.

Would that be valuable to you?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Thursday, May 8, 2008

The Upwardly Mobile Monkey

I was reminded of the "other" monkey parable at a recent national Summit of Chief Executive Boards International. Here's a link to the first one: http://www.chiefexecutiveblog.com/2008/02/parable-of-monkeys-persistence-of.html

This article has to do with upward organizational mobility of monkeys. Ever have someone come into your office or stop you in the hallway or on the plant floor and tell you about a problem? And ever leave that conversation with yourself owning that problem? Happens all the time, doesn't it?

Or maybe it doesn't happen to you, but to one of your managers -- accepting upwardly-delegated problems from his subordinates. Perhaps you can use this story with him.

Next time that happens, turn on your imagination for a minute. Visualize that problem as a monkey on the back of the employee. He's been carrying that monkey around for awhile -- ranging from a few minutes to several days or weeks. He's tired of it, and may not know how to get it off his back & returned to the floor where monkeys belong. Or he's tried a few things to get rid of it, and it's just kept its furry little monkey arms firmly clasped around his neck. Got that picture in your mind?
Having not been able to unload that monkey, the employee is now looking for someone else to carry it around for awhile (he doesn't really care whether the monkey ultimately gets dropped to the floor -- just that it won't be on his back any more).

And then a magical thing happens. In your "go-to-guy", problem-solving way, you say something like "I'll take care of that." And that monkey leaps off the employee's back and onto yours! And then his furry little monkey arms are clasped around your neck. And the monkey is thrilled. Now he gets to ride around bigger offices, fancier cars, better clubs, etc. than he ever would have seen riding on the employee's back! He's moved up the organization!

And if this is a general habit of yours, he's even got company. There are other monkeys also on your back, and he's got a play group.

Most of us are looking for less stress and more free time to enjoy the rewards of business ownership. These monkeys get in the way of that. Monkeys are actually supposed to be downwardly mobile, handed down from yourself through your senior managers, and ultimately to be returned to the floor by people farther down the organization. If monkey handling is taking up more time in your life than it should, practice putting them on other people's backs.

Here's an article on a way to do that: http://www.chiefexecutiveblog.com/2008/02/want-your-employees-to-be-independent.html

If you have some ways you eradicate monkeys from your back, would you click "Comment" below and share them with us?

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com
864 527-5917

Monday, May 5, 2008

Is Employee Ownership the Key to Retaining Key Employees?

Will a "piece of the action" be effective in retaining key employees? Will "skin in the game" step up their commitment and dedication? This is an ongoing topic in Chief Executive Boards International member meetings.

Business owners wrestle regularly with the question of whether minority ownership interest on the part of employees or key managers is a good thing. The answer isn't obvious. What's really not obvious to most owners is that many employees neither want or care about ownership. Someone once told me of the 92%/6%/2% relationship -- 92% of the US workforce just wants a regular job with a regular paycheck. 6% want some kind of performance-based or incentive compensation -- most of these are probably sal