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Plan Your Exit Now!

You need a business exit strategy.  If you don’t have one, develop one.  The closer you get to exiting your business, the more you need a plan to do it.  But even if you’re just starting out in business, you still need an exit strategy.  If you don’t see the need for an exit strategy or if you believe it’s too early to worry about an exit strategy, please read below.  I’ll try to convince you otherwise.

Whatever the task, conventional wisdom says you should start with the end in mind, and so it is with business. What do you want to achieve with your business? World domination? Or maybe a more modest goal of creating a business that will provide for your retirement? Maybe you have an idea for a new product that you want to develop and then sell to a big company for a boatload of cash. Whatever your end game is, it’s unlikely you’ll get there without an exit plan. Even if your business is relatively new and you don’t see yourself leaving it for another 20 years, you still need a business exit strategy. Twenty years gives you a nice long runway to complete your business plan with time to course correct along the way as needed.

For most small business owners, the business is their single largest asset and the one they depend upon for the financial security of their family. So doesn’t it make sense to understand how that asset is valued and how that value can grow? And when you’re making critical, strategic decisions, doesn’t it make sense to know that the decision you’re about to make will increase the value of your business and not detract from it? Obviously, it does, and that requires a business plan.

Creating a Sensible Business Exit Strategy

A business exit strategy doesn’t have to be enormously detailed . . . particularly if time is on your side. However, you should have a general idea about how you intend to ultimately leave the business and what sort of payday you need to support the lifestyle you want once the business is behind you. An exit plan to hold onto the business as a “cash cow” that will continue to pay you in retirement will look very different than an exit strategy to sell the business outright to a competitor. Or maybe you intend to get all the cash you need out of the business before you retire then when the day arrives, you turn off the lights, put out the cat, lock the doors, and walk away. That exit plan will look entirely different than any plan to sell the business. The point is, if you leave it to fate to determine when, how, and for what price you exit your business, you probably won’t like the choices fate gives you.

By the way, I’ve had people tell me that their plan is to exit their business feet first and horizontally. That may work for you if you have no dependents (family or employees) to leave behind, but for the rest of us? Not really an option.

It’s tragic to spend years building a business only to find out that you can’t leave it the way you intended and that the market won’t pay the price for it you had expected. So do the smart thing and decide now how you expect to exit the business and put together a sensible business exit strategy to do that. If you don’t know how to do that or where to start, call me. I can help with business consulting and more.

 
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Dare to be Wrong

Sir Kenneth Robinson, an author, educator, speaker, and recognized authority on creativity, has said, “If you’re not prepared to be wrong, you will never come up with anything original.” Think about that. He’s right, isn’t he? Trace any great achievement to its roots . . . whether in business, medicine, the arts, literature, music, education, or any other endeavor you can imagine . . . and you’ll find someone who was willing to risk ridicule (and often much more) to try something different. But let’s stay focused on business. Why doesn’t a business owner or CEO dare to be wrong?

It has to do with leadership. Or rather, a flawed view of leadership.

A poor leader may try to project an image of omniscience or infallibility. To protect that image, he or she will be risk averse, loathe to try anything new. And when things do go wrong (as they inevitably do) this leader will try to blame the problem on outside conditions (the economy, the Chinese, the high cost of energy, etc.) which were beyond his or her control. This leader will do whatever is necessary to avoid saying, “I screwed up. I was wrong.” After all, that would be a sign of weakness, a chink in the armor of infallibility. But by not doing that, this leader is sending a message to the rest of the organization that “we don’t tolerate being wrong around here.” As a result, everyone begins emulating the boss, avoiding both risk and responsibility. That’s not a very good recipe for developing a strong, growing, vibrant company.

A good leader, on the other hand, is authentic . . . meaning he or she shows up as a regular human being and doesn’t try to hide behind a pretense of always being right. This leader owns up to missteps and accepts responsibility. This leader sees mistakes as Thomas Edison did, as a learning experience. And guess what? This too trickles down to the rest of the organization. When people see that the boss is tolerant of failed experiments, they are willing to be creative, to try new things, to take a few risks now and then.

None of this is to say we should be reckless about the risks we take or that we should be tolerant of problems caused by carelessness or ineptitude. We should, in fact, always strive to be right by bringing all the knowledge, wisdom, intelligence, and experience we can to our decision-making process. But when you’re trying to be innovative, you have to acknowledge that since this hasn’t been done before, it’s possible it won’t turn out the way you expect. In those cases, you have to dare to be wrong and allow others to do the same, or as Sir Kenneth Robinson admonishes, “you will never come up with anything original.”

 
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Building Happiness at Work

 

In our last posting, we talked about some of the conditions at your workplace that influence how contented your employees are in their jobs.  Several of those are particularly powerful and should be singled out for a little more scrutiny.  To learn what they are, please read below.

A friend of mine used to call it the “hum level.”  It’s the palpable feel of energy when you walk into a workplace.  If people are talking and laughing and generally engaged with one another, the “hum level” is high.  If the place is quiet as a church, nobody’s talking, and everybody has their face buried in whatever task they are doing, the “hum level” is low.

Southwest Airlines’ policy is to put employees (not customers) first, and one of their stated corporate goals is to make work “fun.”  Why?  Because when people are happy at work, they are more productive, they interact with customers more positively, and there is less turnover.  So what causes happiness at work?  A lot of things.  In our previous posting, we talked about 12 factors that contribute to job satisfaction.  But there are a couple of key components.

The first key component is very simple. Do I like the people I work with, and do they like me? That doesn’t mean that I’m best buddies with everyone in the place. It just means that on a whole, I enjoy being with my co-workers and am comfortable that I fit in. That’s why it’s so critical to hire well. One vocal malcontent can poison the atmosphere for everyone.  So do as Southwest Airlines does.  Do what you can to put a little fun into your workplace.  Keep your “hum level” high.

The second key component is my boss . . . not necessarily the CEO, but my direct supervisor. Does he or she take an active interest in me as a person . . . my family, my interests away from work . . . or am I just another head count?  Is my supervisor accessible and is he or she committed to helping me be successful in my work?  If you’ve nurtured a corporate culture that says, “we’re all business and only business,” you might want to re-think the wisdom of that.  People respond positively to supervisors who treat them as complete human beings, not just job holders.

Not very long ago, happiness in the workplace wasn’t discussed much in American business. After all, we’re not running a playground here, right? We’re here to do a job, and if that makes you unhappy, that’s your problem. But as it turns out, happiness at work isn’t some crazy, pie-in-the-sky notion. If it increases productivity, increases customer satisfaction, and decreases turnover, it’s just good business.

 
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12 Critical Questions

 

Awhile ago, we talked about Marcus Buckingham, a senior researcher at the Gallup Organization, and discussed his findings in his excellent book, “Now Discover Your Strengths.”

He has more to offer us.

Buckingham says a workforce can be divided into three categories: people who are loyal and productive, or “engaged,” those who are just treading water or “not engaged,” and those who are malcontents or “actively disengaged.”  There are 12 simple questions the answers to which, he says, determine whether employees are engaged, not engaged, or actively disengaged at work.

1)      Do I know what is expected of me at work?

2)      Do I have the materials and equipment that I need in order to do my work right?

3)      At work, do I have the opportunity to do what I do best every day?

4)      In the past seven days, have I received recognition or praise for doing good work?

5)      Does my supervisor, or someone at work, seem to care about me as a person?

6)      Is there someone at work who encourages my development?

7)      At work, do my opinions seem to count?

8)      Does the mission or purpose of my company make me feel that my job is important?

9)      Are my coworkers committed to doing quality work?

10)   Do I have a best friend at work?

11)   In the past six months, has someone at work talked to me about my progress?

12)   This past year, have I had opportunities at work to learn and grow?

Obviously, the more of these questions an employee can answer in the affirmative, the more he or she will gravitate toward “engaged.”  The fewer an employee can answer in the affirmative, the more he or she will gravitate toward either “not engaged” or “actively disengaged.”

Do you know where your employees fall on this continuum from “engaged” to “actively disengaged?”  If not, you should find out.  The very act of asking the 12 questions may move some employees a few notches closer to “engaged.”

 
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Best Hiring Practices 101d

This is the final installment of a series on Best Hiring Practices.  The series is not intended to be all-inclusive, but rather an examination of the most impactful things you can do to improve your hiring process.  In the previous postings, we’ve talked about the need to hire well . . . and the high cost of a bad hire.  We’ve talked about the need to write a detailed job description including desired behaviors.  And we’ve talked about the need to script interview questions that will reveal the behaviors we’re looking for.  Now we need to talk about the actual conduct of the interview.  If you don’t conduct job interviews very often and are unsure of your skill as an interviewer, please read below.

Prior to inviting an applicant in for an actual face-to-face, in person interview, you should do a brief screening interview on the phone.  In a tough job market as we have now, desperate job-seekers will apply for positions even though they don’t meet the job requirements.  So the purpose of the telephone screener is to make sure an applicant has the essentials of the job requirements before we devote interview time to him or her.  What we’re looking for here are the “deal breakers,” the quantitative things that an applicant absolutely, positively must have . . . if you don’t have these essential job requirements, don’t call, don’t write, don’t stop by because we have nothing to talk about.  These would include specific skill requirements, college degrees earned, years of experience, and so forth.  The qualitative stuff is what we’ll try to ferret out during the in person interview.

So now we’re armed with well-scripted interview questions and we have some qualified candidates that we want to interview.  So what’s next?  How do we get the most out of the interview?

•    First and foremost, listen intently to the answers an applicant is giving you.  Seems obvious, right?  But an inexperienced interviewer may see the questions as a checklist that needs to be completed.  Such an interviewer is so focused on checking off the current question and formulating the next that he or she misses a lot of what the applicant is saying.  So stay in the moment and stay focused.  If an applicant’s answer to your question is unclear or needs refinement, be prepared to ask clarifying follow-up questions until you’re satisfied you have the information you want.

•    Use your eyes.  Look for body language.  Is the candidate making good eye contact?  Does the applicant appear confident or apprehensive?  Is he or she energized or more subdued?  A candidate will give you a lot of visual cues if you’re alert for them.

•    Take notes, particularly when you’re doing a number of interviews.  Otherwise, afterwards, you may have difficulty remembering which candidate said what.  If you want to jot your notes immediately after the interview rather than during the interview, that’s OK as long as you capture your important thoughts and reactions about the applicant.

•    Keep control of the interview and don’t let it wonder off topic.  However, don’t be so tied to your script that you ignore your natural curiosity.  If a candidate says something interesting or surprising (but relevant), go with it.  Make it a conversation, but keep the conversation focused.

•    Consider involving someone else in the interview process . . . either jointly with you in your interview, or separately in a second interview.  It’s often useful to have a second opinion when you’re weighing one candidate against another.

Remember, one wrong question, or one critical question you should have asked but didn’t, could result in a bad hire, disrupting your company and costing it thousands of dollars.  If you or your hiring managers have  not had any coaching or training on the topic of legal interview questions, how to secure proof of a person’s accomplishments, or how to evaluate skills effectively, please call me right now to learn how.

 
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Best Hiring Practices 101c

In our last posting on “Best Hiring Practices,” we talked about the need to write a comprehensive job description detailing not only the skills an applicant must have, but also the behaviors.  Now the next step is to prepare written interview questions.  Why written?  For that answer, and for a lot more on preparing for interviews, please read below.

Hey, wait a minute!  Before we can interview anyone, we have to find them first.  Aren’t we going to talk about how we generate a stream of qualified applicants?  Well, no we’re not.  The best ways to attract viable candidate varies tremendously depending on the job you’re trying to fill, the industry you’re in, and where in the country you’re located.  So for purposes of our Best Hiring Practices discussions, we’ll assume you know how to find or attract the right candidates for your job.

A NOTE ON RECRUITERS.  Some companies use professional recruiters to help find qualified applicants.  Are recruiters expensive?  Yes they are . . . but not nearly as expensive as a bad hire.  So using a recruiter might be a very cost-effective move, particularly for a higher level position.  And if you do use a recruiter, just remember that you do not abdicate responsibility for who you choose to hire.  If the recruiter properly screens candidates for the skills and behaviors you have specified, he’s done his job.  If a candidate doesn’t work out because you misread how he or she would fit into your culture, or because you omitted something from the job description, that’s on you, not the recruiter.

So let’s talk about interview questions.  Why write them?  Because interviews are simply another source of data about a candidate.  You’ll get some data from resumes, some from references, and some from interviews.  So you want to make sure the questions are structured to deliver the data you want.  The answer to a poorly worded or vague question may give you improper or misleading information.  Furthermore, putting your questions in writing insures that you don’t forget anything during the interview.  Besides, preparing for an interview by writing out the questions you intend to ask is just good discipline . . . a productive interview is too important to just go in and “wing it.”

HR professionals tell us that the best predictor of future behavior is past behavior.  So do not ask hypothetical questions (“What would you do if . . . “) because the candidate can give whatever answer he or she believes you want to hear, and there’s no way to verify it.  Instead, ask about things in the candidates own history.  If the job description specifies five years of sales experience, you might ask the candidate for the most difficult customer he had to work with, and what she did to overcome those difficulties.  Or if the job requires working in a team, you might say to the candidate, “Give me an example from your previous work when you’ve had to achieve goals working with others.”

So commit your interview questions to paper.  Think carefully about the data you want to extract with your questions.  Base the questions on the applicant’s past work experience.  Do those three things, and you’re ready for the actual interview.  No?  Still not comfortable with structuring the interview questions effectively?  Then call me.  We should talk.

 
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Best Hiring Practices 101b

This is the first installment of a series on “best hiring practices,” and as such, it probably makes sense to start at the beginning.  The real beginning is making the decision that you need to hire someone, but for this purpose, we’ll assume you’ve already done that and that you now need to take the first step in a “hiring process.”  That first step is writing a position description which is critical to a good hire . . . and a step that many hiring managers get wrong.  For more on this, please read below.

Writing a position description is tedious, isn’t it?  So some hiring managers will give this critical step short shrift or skip it altogether.  But why is this step critical?  Because, when done correctly, it forces the hiring manager to think carefully about all aspects of the job and all the things a candidate will need to be successful.  Besides, there may be more than one person involved in the hiring process, so a written position description insures that everyone has the same understanding of the job requirements.

The problem is, we tend to get too focused on the skills a candidate must have.
•    The candidate must be able to type 60 words per minute and must know this programming language or that.
•    The candidate must have at least three years of experience selling in our industry.
•    The candidate must have prior C-level experience.
•    Etc., etc., etc.
And that makes sense, doesn’t it?  I mean, without certain, specific skill sets, the candidate can’t possibly succeed in this job, so we need to make sure we get those right.  So where’s the problem?

The problem is behaviors.  We get so focused on getting the skills right that we pay insufficient attention (or no attention at all) to the behaviors a candidate will need to be successful.  It’s axiomatic in HR circles to say, “We hire for skills and fire for behaviors.”  And that’s true.  So we need to think carefully about the behaviors a candidate will need to be successful in this specific job.  For instance, for a high-volume, fast-paced sales force, we’d probably be looking for a high-energy person who runs around all day with his hair on fire.  On the other hand, if we have a product with a long sales cycle, we’d probably be looking for a salesperson who is patient and persistent.

But there’s also your organization’s culture to consider.  What behaviors do we value around here?
•    Do we want people who will challenge us?
•    Do we want people who will march in lock step with us?
•    Do we value the tortoise or the hare?
•    Do we want a team player or a lone wolf?

So we need to consider both.  What behaviors will the candidate need to be successful for this job, and what behaviors will he or she need to be successful within our organizational norms?  And both need to be included in our written position description.

 
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Best Hiring Practices 101a

Although unemployment is still high and small business owners are reluctant to undo some of the painful staffing cuts they’ve had to make, some owners are creeping back into the job market to fill some needed vacancies.  So it seems an appropriate time to talk about a hiring “process.”  While there’s no hiring process that can guarantee a successful hire (one where the employee thrives in the company’s culture and meets or exceeds the company’s performance expectations), there are things you can do to greatly increase the odds in your favor.  For more on this, please read below.

A bad hire, particularly for a key position, can be very, very costly.  Obviously, there are “hard” dollars at stake . . . payroll and benefits for sure, maybe recruiting fees, and maybe training costs.  In fact, executive recruiter Russ Riendeau says he has seen the “hard” costs of a bad hire go as high as $55,000 in a 6-month period.  But there are soft costs as well, not the least of which is “lost opportunity.”  Let’s say we have a narrow window of opportunity to open a new sales territory.  We hire a salesperson, but after six months of poor performance, we have to terminate him.  So whatever we paid him during that time is down the drain, but worse, our window of opportunity is now closed.  Whatever we paid him could be a drop in the bucket compared to the unrealized revenue we had hoped to get from the new sales territory.

So you would think when a small business owner is poised to hire someone, s/he would do everything possible to make it a successful hire.

Unfortunately, unlike public corporations that have HR departments to oversee an effective hiring process, small businesses generally don’t bring on new people very often, so they never develop the skills they need to make smart hiring choices.  Or, impatient with a step-by-step, methodical hiring process, an owner may think, “I’ll just trust my gut instinct” . . . always a bad idea and certain to result in a bad hire.

The good news is, there are things a small company can do to improve its odds of hiring well.  They take time and they take work, but if they result in an effective hiring process (one that increases your odds of hiring well), the effort will easily pay for itself.  So this kicks off a series on “best practices” for a sound hiring process.  Over the next several postings, we’ll be talking about some of those things that will improve your hiring track record.

Meanwhile, if you feel your hiring track record has been so abysmally poor that you need some more intense help, call me.  We should talk.

 
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Tip – A great management tool!

No quote this week.  I want to offer a tip you will find useful, but I didn’t have a quote that would complement it.

One of my favorite management tools is a trailing 12-month average.  If you’re familiar with this tool, stop here.  You already know what I want to tell you.  But if not, please read on.

Have you ever seen a chart that looks like the scribble of a 2-year old?  You can’t tell if the trend is up, down, or flat, right?  A trailing 12-month average overcomes that problem with a smooth trend line that doesn’t lie.  And it works for any data you want to track . . . sales, gross profit, expenses, net profit, or any other statistical information.  Here’s how.

Let’s say you want to track sales.  Imagine a chart where the vertical axis is dollars or units, and the horizontal axis is months of the year.  We can start in any month we like, but for this example, we’ll start in January 2007.  The first point of our graph will be the sales results for January 2007 plus the preceding eleven months, totaled and divided by 12.  So the sum of sales, February 2006 – January 2007 divided by 12.  The next point on our graph will be February 2007 plus the preceding eleven months . . . March 2006 – February 2007, divided by 12, and so on.  Each point on the graph represents the current month plus the preceding eleven months, divided by 12.  You don’t really have to divide by 12 . . . the trend line will be the same whether you chart the monthly average or the entire 12-month total.  But dividing by 12 gives you a monthly average that you can then compare to your actual month’s result.

To really see a solid long-term trend, it’s best to plot your data over three years . . . 36 data points on your chart.  Plotting a shorter term will make the trend, whatever it is, less visible and less convincing.

Since each point on the chart represents an entire year’s worth of activity, seasonal ups and downs get leveled out as do one-time sales spikes (as for instance, a large sale that you don’t expect to repeat).  As a result, you get a nice, smooth trend line that tells you clearly and honestly whether the data you’re tracking is going up, down, or flat.  It’s a terrific tool to quickly and accurately identify trends that need corrective action.  It’s also a tool that can be used as a budgeting or forecasting aid.

For more on this and many other management tools, I recommend Kraig Kramer’s “CEO Tools” . . . it’s crammed full of useful ideas to help you improve productivity, results, and profits.

 
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Time to audit your products/services?

Last time, we talked about the importance of knowing profitability by customer, but what about the products and/or services you sell?  Do you know which lines of business are the most profitable and which are the least?  You may think you know where your profits are coming from, but do you really?  Are you sure?  For more on this, please read below.

At least once a year, it’s a good idea to put your lines of business under the microscope to confirm that they are all making the profit contributions you think they are.  Even if you’ve done this at some point in the past, it’s still a good idea to do it again.  After all, things change.  You may have changed your pricing strategy or your cost structure may have changed or the buying patterns of your customers may have changed . . . any one of those changes could seriously impact the profitability of one, or several, or all your lines of business.

To do this analysis you’ll have to know (as you should) the variable costs (those costs, like labor and materials, that go up and down as sales rise and fall) that go into each product or service you offer.  Be careful to include all your variable costs, not just labor and materials.  For instance, if you pay sales commissions, those should be included.  And you’ll have to know (as you should) what gross profit margin (sales revenue less variable costs) you need to cover your overhead and still produce an acceptable net profit.

Ideally, your Profit & Loss Statements are formatted so that you’re looking at gross profit by line of business each month.  Unfortunately, a lot of small business P&Ls (and I’ve seen a lot of them) dump sales revenue from all lines of business into one bucket making it impossible to discern what’s making money and what’s not.  In those cases, the owner/operator is depending on instinct or anecdotal evidence to decide where the money is coming from . . . not very dependable sources of business intelligence.

Knowing which lines of business turn an acceptable profit and which do not is critical to pricing and sales strategies.  That’s not to say that you should automatically drop a line that’s unprofitable.  If you’re using a so-called “loss leader” strategy . . . offering one product or service at little or no profit in order to stimulate your customers to buy your profitable lines . . . then it’s OK.  But if you’re losing money on a line without knowing it or intending to, that’s a problem.

Understanding your company’s profitability by line of business is key to most of your important decision-making.  If you struggle with knowing how to do it or where to start, call me.  We should talk.

 
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