Friday Five December 16 2016

In today’s Friday Five, I cite some interesting sources as to what a CEO does and does not do.

First, what does a CEO really do? It can be boiled down to three things:

  1. Sets overall vision and strategy for the organization
  2. Recruits and hires the very best talent for the organization
  3. Makes sure there is enough cash in the bank at all times

I would argue that CEOs do more than this, but I do like the simplicity and focus of having three things to do.

Secondly, Forbes has published the difference between the activities of a business owner vs. a CEO. Note how CEOs work “on” the business rather than “in” it. Note also that most small businesses will not scale as far as they can without first having an ownership group that knows how to be in the CEO camp instead of the Owner camp.

Thirdly, In HBR’s article, Seven Surprises for New CEOs, we learn, among other things, that:

  1. Your really not running the company
  2. Giving orders is very costly
  3. It’s hard to know what’s really going on in your company

CEOs have a unique role in an organization whose success can’t be defined by spending time in the office. Being behind a desk should be the least of concerns for most CEOs.

Fourthly, this goes to show that you can’t buy an election. $1.2B is what the Clinton campaign spent on her losing effort. No matter how much she spent, I doubt she could have beat Mr. Trump because her message didn’t resonate with those angry white male voters. <sigh>

Lastly, The number “20” seems to be a hot number these days. Our national debt is closing in on $20T and the Dow Industrials are close to hitting 20,000. Which will occur first is irrelevant. The latter is good news – the former is not and the former outweighs the latter, IMHO, in terms of importance and long-term economic health for this country.

The Emotional Price Owners Pay When Their Business is Failing

No one said building a company is easy. But small business owners find it difficult to be honest about how brutal it really can be and the emotional price so many of them secretly pay.

At one time or another most small business owners will find themselves on the brink of financial ruin. During these times, what they won’t tell you is that they’re also on the brink of mental and emotional collapse.

Their calm demeanor will mask their secret emotions. They may look fine on the outside, but on the inside they are an emotional wreck. You’ll often hear small business owners describe waking up at night staring at the ceiling, with their mind racing, thinking about this or that and not being able to shut it off. They wonder “when is this thing going to turn around?” They will live with constant anxiety and sometimes may have panic attacks when they are by themselves. Some call this entrepreneurial terror, which is an all-encompassing dread that comes from nowhere. You feel like you’re looking into the abyss and there’s nothing to prevent you from falling headfirst into it. You scream soundlessly and no one can hear.

Over time, the experience of these private emotions can lead to despair. Small business owners, by their very position, need to be positive and upbeat in order to grow their business. This requires of the business owner an impressive ability to repress and compartmentalize their emotions. It’s both a necessary skill and a hazard of the job. The compartmentalization of their emotions also gives them relief, even if temporary, from the anxieties, fears, and pressures of their business, but the compartmentalization does nothing positive for them in the long run. In a “pick yourself up by your bootstraps” business culture, admitting that you struggle with strong, negative emotions is like admitting that you can’t reach your bootstraps. It’s just assumed that successful people will just “shake it off” and move on toward success.

No one ever tells the business owner that the marketplace can be a very unfriendly environment in which to start a business. They don’t always tell you that doing specialized work and operating a business that does specialized work are as different as night and day. Entrepreneurs who are highly skilled in a particular area and end up starting their own business are often not told that they must understand numbers in order to run their business successfully. They also don’t realize that they have to sell, even if they never see themselves as being salesmen. They’re never told that nobody really cares about their business. And to top it off, they’re never told that their ability to convince others is critical to their success. Relationships really matter in business, and yet it is relationships that are most damaged when a small business owners’ emotions are tightly controlled and compartmentalized. No matter how much a small business owner tries to repress and compartmentalize their emotions, the emotions will come out for everyone to see. As one small business owner told me as I was thinking of starting my own business, “your heart will be laid bare for everyone to see.” He was right.

Distressed business owners will have an impressive capacity to absorb their internal struggles without telling anyone about them. In extreme cases, death will feel like a better option than living. For others, the embarrassment of failure coupled with the knowledge that your best simply wasn’t good enough will drive them to a lower self-esteem and a depression that may last for some time. When we are successful in our work we feel invigorated, purposeful, dignified, and needed. When we fail in our work we feel drained, embarrassed, insignificant, unimportant, empty, discouraged, disheartened and unneeded.

When a small business is failing

Small business owners don’t always know the point at which they moved from creating profit to creating loss. They certainly won’t depend on their emotions to tell them. Most non-owners assume that small business owners persist in their business because the business is performing well enough to create a profit for them. Most also assumed that the business owner would exit the market and shut down the business if current losses exceed the present value of the expected profits. What folks fail to realize is that the accounting practices of most small business owners are such that they may not be immediately aware of the point in time when the company becomes failing. This point is supported by numerous bankruptcy prediction models which provide performance thresholds that once breached, indicate that failure is highly probable if not inevitable. Many also assume that once small business owners realize their businesses will fail that they immediately take action to terminate their business. These assumptions are not always correct.

Christian small business owners hang onto longer than they should often because they have a strong sense of a moral obligation to pay their vendors 100 cents on the dollar. They understand that if they close their business, that they will end up not honoring all of their financial commitments and this is an anathema to them personally. So they figure the best way to get their debts paid off is to keep whatever revenue generating engine they have in their business, cut expenses and try to turbocharge the revenue generation side to create enough cash flow to pay off their business debts.

But the cost of closing down a business is much more than simply paying off current payables. Longer-term contracts, such as lease agreements or phone systems, can be difficult to escape. So even though staying in the business is emotionally unattractive to the small business owner, the moral obligation they feel to not “shaft” anyone may drive much of their decision-making about how long they persist in their failing business rather than the emotions that they are feeling. Remember they’re good at compartmentalizing and repressing their emotions, so their decisions, in an odd way, make sense.

Small business owners may also stay in the business too long because they just can’t bring themselves to admit that their source of livelihood is going away. “What will I do?” is a thought that will run through their minds repeatedly. If they are true entrepreneurs, they’ll have a very hard time conceptualizing the thought of working for someone else. And yet starting another business may not be all that attractive to them either. So they stay in a failing business because the alternatives are not much better from their viewpoint.

Managing your emotions during the downturn

There are things that small business owners can do to manage their emotions when their business is failing. First, the most important thing is to take time for the ones you love and to take time to connect with God every day. As a Christian business owner, if you are harboring sin, you can be sure that God will not bless your business. This is why confessing and repenting of your sin on a regular basis is so important to ensuring that the enemy does not have a foothold in your life and your business to cause destruction.

Secondly, you should not be afraid to ask for help. Don’t be afraid to see a mental health professional or a medical doctor for some antidepressant medication or attendance at CEO and business leader groups or even just grabbing a cup of coffee with a close friend.

Thirdly, your natural tendency will be to work harder and harder and harder to turn your business around. This is the wrong thing to do. Maintaining balance in your life and surrounding yourself with good advisors will enable you to live your life even when your business is failing. Maintaining balance includes taking digital sabbaticals every week where you do not check email or voicemail’s or Facebook or foursquare or any other social media.

Fourthly, limit your financial exposure in the business. This will be a blind spot for you so you will need an advisor to help you assess. Set a limit for how much of your own money you’re prepared to lose, and don’t let friends and family kick in more money than they can afford to lose.

Finally, stay focused on what you can do right now to improve your situation. Focus on doing the small things well and find pride and satisfaction in them. Don’t brood over the big picture of how poorly your business is doing. For sure, you need to embrace your situation and the unvarnished truth. But most of your focus should not be on worrying about the big picture and all the “what if’s” that could happen. Instead, your focus should be on doing what you can to embrace change and positive actions that will increase revenue or decrease expenses.

Reframing failure and loss and learning from it

The ability to refrain failure and loss can also help small business owners maintain good mental health. You’ll be tempted to tell yourself, “I failed, I’m a loser.” But if you look at it from a different perspective, you’ll realize that “nothing ventured, nothing gained” is a motto that nearly everyone understands.

Sometimes a business owners’ grief in their business interferes with the ability to learn from their experiences. Researchers found that using a dual process of grief recovery emotions can be managed in a way that minimizes interference and maximizes learning. Specifically, business owner should oscillate between a loss orientation process and a restoration orientation set to best use negative emotions to focus their attention on the event will simultaneously and allowing the cotton in the kitchen. Given a small business owners’ propensity for repression and compartmentalization, having them feel their grief may be a challenge.

Businesses fail for any number of reasons. Some of fail due to a change in laws, regulations or industry technologies that the business is simply not able to adapt to. Other businesses change due to a discontinuity of ownership. Sometimes the performance of the owner himself is so poor that the business fails. The reason that a small business owner experiences failure has a direct impact on the magnitude of his emotions. For example, if the failure is due to a sudden change in industry technology that the small business owner simply does not have the financial capacity to adapt to, then there is a sense in which the owner can shift the blame away from himself and onto the technology change. The owner “saves face”. But if, all things being equal, the business should have survived and thrived and yet it still failed, then the owner has no one to blame but himself. This increases the magnitude of the negative emotions that the business owner feels.

At a minimum failure is likely to impose a financial cost on the business owner in the form of a loss of or reduction in personal income. While a degree of financial cost is to be expected following failure, an interesting issue relates to how business owners manage or absorb these costs. For many business owners, financial cost may take the form of personal debt that takes years to clear out. If the business owner has a portfolio of other businesses, the cost may be transferred and absorbed by the other businesses which are profitable and ongoing.

Often, failure will lead to social costs in relation to its impact on personal and professional relationships for the business owner. Not only is the owners’ marriage affected (see below), but professional and social relationships may be damaged as well.

Business owners can learn from the failures if they have the opportunity to use the information about why the business failed to revise their existing knowledge of how to effectively manage their own businesses. This knowledge often relates to one’s self as an entrepreneur, manager, and leader; issue surrounding the management of cash investment; managing internal and external stakeholder relationships; building and managing partnerships; managing the challenges of growth and understanding the marketplace and competition.

You might be surprised to learn the research shows that many business owners who have experienced business failure not only develop strong intentions to start subsequent businesses but they actually do so. If a key benefit of failure is that it provides a learning opportunity, then we might expect subsequent businesses owned by business owners who have experienced failure to perform better. Unfortunately, there is an absence of research testing this hypothesis. But some research shows that there is no qualitative difference between businesses that are run by owners who have never failed business and those who have failed business. This pessimistic view of a business owner’s ability to learn from his mistakes is not encouraging. This means it is likely that the owner will make similar mistakes and his subsequent business and may continue to repress and compartmentalize his emotions instead of managing his emotions in a healthier manner.

Marriage and a failing business

As a business is failing, the small business owners’ belief in himself alters and sometimes even shatters. But so can many of his relationships. He’ll feel responsible for everyone: his employees, the lenders to whom he owes money, the investors who bet on his idea, and for sure himself and his family. The small business owner might even realize that he has reset his family’s fortunes back to square one, they might be at square -1 million.

In all of this, the spouses expected to remain strong and encouraging. If their marriage is healthy, she’ll try to channel her emotions into pragmatism. If the marriage is shaky, then all those recriminations built up over the years of scrimping and postponing and single parenting will come gushing out in a rather ugly and difficult-to-repair way. A failed business may consume a couple’s assets until there’s nothing left. It may do the same for their love for each other.

We need to understand that the spouse experiences the failure of the business differently than the small business owner. The small business owner may regret his mistakes but his spouse is left wondering “was all that sacrifice really for nothing?” While it’s great to hear his spouse’s reassurance: “you did the best you could.”, sometimes the spouse can only blather, “How could you?”

The anger and hurt that a spouse feels will contribute to the compartmentalization, repression, and loneliness that the small business owner feels when the business fail. Left to mourn largely on his own, a spouse may keep herself at arms-length from the small business owner both emotionally and physically. This does not contribute to a healthy grieving process for both of them. And it does not contribute to using the failure as an opportunity to strengthen their marriage.

The time it takes for a couple to rebound is largely a function of the owners’ resiliency. Some small business owners are drawing up a new business plan within days after the failure is finalized. Others are paralyzed to the point where they can’t even go out and look for work, which only contributes to the negative emotions of their business failure.

When a small business is successful in providing steady income to the small business owner, there is a sense of security and stability for the foreseeable future. But when the small business fails, the solid ground upon which the owner and his wife were standing can swiftly vanish. The downsizing of lifestyle and the loss of perks can tear at the fabric of a marriage as well as a spouse’s identity. Her position in her community as well as her security crumbles along with the business. Both will find their friends and relatives avoiding the subject of their failed business, treating it like a serious medical condition that everyone is aware of but too diplomatic to acknowledge. This will take its’ toll on their marriage if they ignore these factors. It’s best for their marriage if they can discuss what’s really going one without being critical or angry with each other.

In conclusion

A crisis is a terrible thing to waste. And the experience of a failed business is also a terrible thing to waste. God can use that experience in our lives to make us better people and better business owners for the future. He can take that which Satan intended for evil and turn it into good for his kingdom, his purposes and his church.

Recall Ephesians 2.10: “for we are his workmanship created in Christ Jesus to do good works, which God has prepared in advance for us to do.” There is no experience that is wasted by God in our lives. Every trial and every experience is to be stewarded for his glory. If you are to be given $1 million you would ask yourself the question, “how should I stewarded this million dollars for the Lord?” By the same token, when God gives us significant sufferings, we are to steward those for his glory as well.

If you have a failed business in your rear view mirror, be sure to take time to reflect on what you learned about yourself, your capacity to lead, and your abilities to successfully manage process and people. In addition learn about God and his graciousness and how he has brought you through that failed business experience. You might find that you have greater trust in the Lord, greater empathy for those going through difficult times, or an even greater sense of giving to those who are in need. You may be able to identify with Paul when he said, “I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation: I can do all things through Christ who gives me strength.” (Philippians 4.11-13)

Use that which God has given you and has built into you to minister to those who are starting businesses and who need your wisdom and guidance to avoid the mistakes that you made. Become integrated emotionally and learned that your real strength as a business owner comes not from compartmentalization and repression, but from appropriate experience and expression of your emotions – both toward God and your fellow man. You’ll find that the emotional roll-a-coaster you were once on as a business owner will flatten out as you take the natural emotions that are inherent in running a business, submit them to God, experience them appropriately and learn to express them to those around you who are supporting you.

Bill English

If you’re a business owner and your business is not thriving, give Bill a call today. 763-458-3722.

A primer on How to Grow a Lifestyle Business to a Professional Business

Sometimes, a business that has been run as a lifestyle business for the owner him/herself needs to be transformed into a professional business which can be managed by an “outsider”. It is not uncommon for a family owned business to be “family owned and operated” for the first one or two generations, but after that, it is usually “family owned” with a professional management team running the business on behalf of the family.

A lifestyle business has the following general characteristics:

  • The business is run by the owner and most decisions route through him/her
  • The core value of the business is highly dependent on the owner’s personal expertise or competency
  • The core value of the business isn’t easily transferred to other owners
  • The core value of the business can be readily replicated by others such that it’s cheaper to start a new business than purchase an existing one

In contrast, a professional business has the following general characteristics:

  • The business is run by a management team that is distinct from the ownership group
  • The core value of the business is a process or service which can be transferred to another ownership group
  • The core value of the business isn’t dependent on who the owner is.
  • There is a reasonable barrier of entry to those wishing to enter the market, making it easier to enter through acquisition than it is to start a new business

Obviously, there are gradations of intensity for each of these characteristics, so take these descriptors as a working model. And in some businesses, gradations of both sets of characteristics can be seen in the business. But the core aspect is moving the day-to-day decision-making from a single owner to a professional management team.

So, the question becomes this: If you need to grow a business from a lifestyle business to a professional business, how do you do this? I’ll offer a quick primer here for your consideration.

First, Start with Building a New Culture

I define culture as the combination of Core Values and Core Processes. In other words, how we treat each other and how we get our work done are the two parts of culture. If people treat each other well and get their work done on time, then we’ll have a good culture.

Nearly all lifestyle companies lack process documentation or training. The fuzziness of role definitions and the need for employees to unexpectedly take on disparate duties creates conflict in the workplace. Without good conflict resolution skills, relationships sour and people don’t treat each other well. So documenting good processes is directly applicable to building in good values in the workplace that people can buy into. I tend to hire for culture first, skills second. I can teach a task. I can’t necessarily craft a character in the workplace.

So, define your Core Values and Core Processes. Then – and this is important – enforce the values and processes consistently and without regard to who is violating them.
Core values and processes are only honored as long as everyone is held to the same standard.

Secondly, Define Your Management Model and Stick to It

You can select any number of management models – the point is to select one and stick to it. If you like Traction, then implement it fully. If you like a different model, then implement that model fully. I’m a simple man, so I like simple models. I use a five step management model that is easy for people to understand and grow into.

The model I use is easily replication and widely known. This helps if you’re in an interim situation where you need to implement a new management model but you know your successor will be coming within a year or two. There’s no rocket science to this model – it’s very simple to deduce.

Once you’ve set your strategy in place, you need to look at your company to make sure that it is organized in the right way to support the strategy. Then you make sure you have the right people in the right seats. You’ll need to reward your people, so have clear metrics and measurement by which reward thresholds can be known. All of this happens paying attention to your culture (core values and core processes). In any given day, during the transformation of the business, you might work in two or three different areas. That’s OK. In an existing business that is growing from lifestyle to professional, you can’t do this in a linear fashion. The daily decisions will force you to work in multiple domains, filling in holes as you go along, getting the entire model built over time.

Thirdly, Connect Daily Activities to the Metrics and Measurements

In this step, you’re asking employees to re-orient their daily tasks to support the core goals of the company and align their measurements with the company’s core goals. This won’t work if the company’s core goals are not clearly measurable.

I do this by using a simple matrix that each employee must fill out with their manager:

Goal #1 Goal #2 Goal #3
Learn
Do
Deliver
Budget
Authority

I call this the “LDD” or “Learn/Do/Deliver” tool. Each employee must support at least one company goal with 1-3 measurements (Deliverables) on a quarterly and annual basis. In order to achieve their deliverables, what do they need to learn and what do they need to do? What budget/spending do they need to be successful? What decision-making authority do they need?

Filling out this simple, one-page form will help them define their role, understand where their focus should be and give them opportunities for professional growth. In addition, it will help you see where you might have “holes” in task completion or how you might need to re-orient some employee’s jobs. Finally, it might surface jobs that need to be eliminated or outsourced. If an employee can’t directly “connect the dots” between their job and at least one company goal, then you have a problem on your hands that will need your input for resolution. Note that not all employee’s jobs will support every company goal.

Lastly, Build the Value Creation Process for Your Company

Believe it or not, most owners – let alone employees – can’t clearly articulate what the core customer benefit or core value is that their company offers to the market. I once owned a training company, so naturally, most people thought our core value in the marketplace was training. I never bought into that line of thinking. I always felt our core value (core customer benefit) was that we provide hope and confidence to the student that they could do more in their job and solve more problems by taking our training. In short, hope and confidence were the two core benefits we offered. I’m still uncertain – even today – how many of my staff really understood this.

The Value Creation Process is a reverse-engineered process in which you start with the end goal (profit) and work your way back to the beginning. Hence, you’ll ask the same question over and over: “In order to achieve X, what did we need to have done or what needed to happen?” For example:

  • In order to create profit, what do we need to do? Answer: Deposit a check in the bank.
  • Why did we deposit a check? Answer: Because we received a check from the customer.
  • Why did the customer send us a check? Answer: Because we invoiced them.
  • Why did we invoice the customer? Answer: Because the project was completed or the product was received without damage and so forth.
  • How did we know the project was completed? Answer: Because the customer signed-off on the project completion document.
  • Why did the customer sign-off on the project completion document? Answer: because we completed the project plan to the customer’s satisfaction.
  • Why did we have a project with the customer? Answer: Because the customer signed a project contract to have us complete the project.
  • Why did the customer sign a project contact? Answer: Because we presented it to the customer.
  • And so forth

It can be an iterative, pain-staking process to build out your Value Creation Process, but after it is completed, you’ll have done several important things for your company:

  1. People will see just how interconnected their jobs are. They will begin to understand that the output of their work directly effects the quality of work for others in your company
  2. People will see that it really does take a team to create value for the customer
  3. Believe it or not, most employees will be quick to spot areas where the company is wasting money and they will see why cuts are needed in a given area. By the same token, they’ll see where the company is weak in staffing or is not paying enough attention to a given part of the process and they’ll understand why additional resourcing is needed to shore up that part of the process
  4. In the end – they will be able to “connect the dots” between what they do and why the customer buys your product or service. That connection is invaluable to motivating your employees.

Summary

It will take you at least 12 months to fully implement what I’ve outlined here. And that’s if you’re working in a company with a relatively healthy staff and product/service line. It could take 24 months to fully implement these ideas if you’re coming into a difficult turn-around situation. In either case, it’s important for you to realize that you keep your staff well informed by using the metrics to build appropriate dashboards for all to see. As change occurs, they will naturally feel unease, have questions and will want to know “what’s next”. Be sure to have regular meetings in which you’re *only* goal is to surface all of the elephants in the room so that no quandary is left undiscussed.

If you want to discuss these ideas with me, just email me at bill.english @ theplatinumgrp.com.

Thanks.

Bill English
CEO, Service Ideas
Executive Consultant, The Platinum Group

Friday Five December 2

Here are my Friday Five for December 2, 2016.

Two Texas lawyers remind us to not eat our weed if we get caught by the police possessing 2 or less ounces. Seriously – these guys have way too much time on their hands.

Speaking of someone who has too much time on their hands, this journalist compiled Trumps campaign promises – all 282 of them. One wonders what possesses a person to compile such a list.

I usually don’t delve into romance on this site – preferring to “keep it clean” and all – but this is one wedding that I’ll soon not forget. Neither will you.

The white race isn’t fairing so well in the US. The Wall Street Journal reports that more white people are dying than are being born in 17 out of our 50 states. In 2004, that number was just four. This is bound to change the political dynamic in the US.

Finally, the economy grew at a good 3.2% pace in Q3 of this year (2016). We need about 2% growth just to keep up with population growth. So anything over 3.0% is a good sign that our economy is strengthening. Yet the monthly jobs report that was just released continues to show that our workforce is constricting. While there were 178,000 new jobs created, 200,000 left the work force, leading to a net loss of 22,000 workers. The U3 unemployed number is 4.6%, dropping from 4.9%. No doubt the Administration will tout this as a huge “win”. But the U6 number is the better number to use for measuring unemployment since that number includes those who are employed part-time but want to work full time and those have quit looking for work because they can’t find a job but would work if they could find one. The U6 number is at 9.3%.

The unemployment number is a percentage of those who are available in the population to work. When people leave the workforce, they shrink the available pool of labor from which industry hires, so we always need to consider the size of the workforce when talking about the unemployment number. This is called the Labor Force Participation Rate. This rate dropped an entire 1/10th to 62.7%. This means that of those who could work, only 62.7% are working either full or part time. I have written that this drop in the labor force participation rate is partly due to Boomers retiring. Yet, when you run the raw numbers (2nd paragraph), you’ll find that we could be employing an additional 94M people in this country, which would significantly change our economy and country.

The bottom line is that our economy continues to be struggling to move ahead. We see signs of growth and progress, but at nearly every turn, we also see signs of dysfunction and mere survival rather than thriving. It remains to be seen how Trump’s business experience and equating “greatness” with “economic success” will effect our overall economy. But I’m happy to give a pro-business guy a shot at running this country. For too long, we’ve had lawyers and experienced politicians at the helm. It’s time for new blood and change.

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