I Never Fired Anyone Too Soon

One of my TEC members terminated the employment of one of his direct reports recently. The now gone employee had lost the confidence of his team. Performance was off plan. Morale was down. My member moved quickly to remove this key member of his senior management team. When I asked about the abrupt termination, my member responded, “I never fired anyone too soon.”

Truer words, in a business context, may have never been spoken. Anyone who has ever managed an employee who was not performing knows the drill. Marginal employees are given every opportunity to succeed. They are coached and prodded. They are rewarded for temporary improvement and threatened when the inevitable backsliding occurs. Managers agonize. Co-workers fret. Performance is sub-optimized.

The question is why. Why do managers allow marginal employees to drag down the performance of the team and perhaps the entire organization? And then, after why, what are we to do about it? Here are a few suggestions.

Popularity over accountability. Patrick Lencioni, in his leadership fable, The Five Temptations of a CEO identified an issue for many leaders. We want to be liked. Being liked by close friends is one thing. The need to be liked by direct reports threatens accountability within the organization. It often leads to feelings of favoritism and unfairness.



What to do about it? The CEO in Lencioni’s fable quit rather than deal with the issue. Pretty dramatic. And not exactly a career enhancing decision. It is, however, not bad advice. If you are interested in being popular, join a country club. If you want to manage, give your people direct, honest and timely feedback.



The devil that you know. “Well, boss, I know Randy isn’t performing up to the expectations of the job, but at least we know what we’ve got. If I had to hire someone new I’d be starting over with an unknown commodity. It could be worse.”



Mark Belling is fond of saying “rationalization is the second strongest human drive.” Anything is better than dealing effectively with the fear of firing an underperformer. At best “the devil” is a poor excuse for a bad hiring process.



TEC Resource Specialist, Tom Foster, has a better alternative in a hiring process based on matching time span capability with the level of work and decision making required on the job. Foster replaces the gobbledygook of the typical job description with a specific role description organized around Key Result Areas. The process is described more thoroughly in Foster’s book, Hiring Talent.



The Performance Improvement Program. “We can change this guy. He has all the talent in the world. We’ll suck up the lost productivity and improve his performance over the long run.” Really?

And/or, “I made the hiring decision. We’ve got to give him a chance or I will look like I made a mistake.”



When rationalizing the effectiveness of the Performance Improvement Program, ask these two “acid test” questions instead. 1) If the employee quit, would you be really upset with the loss? 2) If you had it to do over again, would you hire this person for this job? If the answer to either acid test questions is “no,” the marginal performer should be offered up to industry straightaway.



We don’t have sufficient documentation. “We’re going to get sued if we terminate this individual. She is in a protected class.” Yep. You’re probably going to get sued. And the settlement amounts have grown to the absurd. It is better to settle and chalk it up to “bad management” than let some EEOC bogeyman drag down the rest of the organization. Better yet, buy some Employment Practices Insurance, stop worrying and get on with it.



Overall, the lack of documentation suggests a lack of a management system that insures an accurate understanding of what is expected in terms of job performance and provides timely and specific feedback on performance compared to expectations. Another TEC Resource Specialist, Jim Cederna, developed a process he calls the Personal Development Plan that provides structure to the expectation and feedback loop. Cederna’s process includes a set time line for improvement or exit. He leaves it up to the employee to make the changes necessary to be successful, but with a timeline that insures management action.



Other Processes. There are numerous variations on the “weed or feed” approach to hiring, firing and retaining good people. Top Grading provides a no-nonsense framework for hiring and retaining only A-players, for example.



Jack Welch at GE was legendary for his 20-70-10 forced grid rankings of all employees and the determination to weed out the bottom 10 percent each year. It was also thought to be cruel and unusual punishment for GE people. As he points out in his book Jack: Straight from the Gut, however, the process to remove the bottom 10 percent of his people was just the opposite. Welch thought it was brutal to keep people around who were not going to grow and prosper. According to Welch, “there is no cruelty like waiting and telling people late in their careers that they don’t belong.”



Red Scott, a colleague of mine from Florida put it another way. “The best thing you can do for a good employee is fire a bad one.” A structured weed or feed process will help get it done.

I Know It When I See It

In the 1964 U. S. Supreme Court case of Jacobellis vs. Ohio, Justice Potter Stewart described his threshold for obscenity and pornography declaring, “I know it when I see it.” 

Business strategy is a little like that.  Well, not like pornography, exactly.  But it is important to know it when you see it. 

One of my TEC members had been struggling for several years with sales growth.  He created any number of sales plans.  He hired and fired numerous sales people.  He brought in a consultant.  He read books on sales management.  He increased advertising.  Devised a social media campaign.  Went to every “networking” event imaginable.  He bounced his ideas off his TEC group.  He worked hard.  Sales, however, did not grow. 

Then one day my member met the CEO of a firm that could have been considered a competitor, but was significantly larger is size.  The CEO of the larger competitor lamented the fact that his firm had “outgrown” several smaller customers.  The smaller customers demanded an inordinate amount of time.  They were more of a distraction to his organization.  He wanted to fire some of them, but feared the mess the process could leave behind. 

These messy little customers were right in my member’s wheel house.  He worked with his larger competitor to assume responsibility for these unwanted “C” customers and transitioned a few with little or no selling effort at all. 

It was then he recognized the potential shift in sales strategy.  He developed a simple ABC customer analysis and an elegant transition process that resonated with larger firms in his industry that had similarly “outgrown” some customers.  He promoted the process locally.  Then, rolled it out nationally.  Sales grew.  Dramatically. 

As a TEC chair, I would like to say my member developed this strategy through a formal and effective strategic planning process…like the one we talk about a lot in TEC.  On the other hand, this member recognized strategy when he saw it.  It didn’t fall out of a SWOT analysis, but it did beat working harder.  To paraphrase TEC Resource Specialist Chuck Reaves, “Strategy trumps hard work.”  Be prepared to know it when you see it.   

Ready, Aim....Follow Through

My fiancée and I recently completed a hand gun training and safety course. Our instructor, Craig Turner, is a police officer. Mr. Turner also teaches other police officers how to shoot hand guns.

Mr. Turner taught us the basics of hand gun safety. Important concepts, such as, the gun is always loaded. Know what is in back of your target. Your finger doesn’t go on the trigger until you are going to shoot. And know, when you pull the trigger, you are going to do some serious damage.

From a technical standpoint, Mr. Turner taught us the concept of “ready, aim, fire and follow through.” In business, we have heard of “ready, aim, fire” or, if you prefer or you’re Ross Perot, “ready, fire, aim.” Even though the trigger had already been pulled and the bullet was in the process of exiting the barrel of the gun, it was follow through that made all the difference in the accuracy of the shot.

The similarities in business are striking. Business leaders spend countless hours on planning. They might bring in a facilitator, hold off-site planning sessions, and come back with something akin to a leather bound business plan….that never gets implemented. Like with hand guns, it is the “follow through” that differentiates companies that get things done from those that simply dither along through another useless planning cycle.

So why is getting things done so difficult in a typical organization. B. Chuck Ames, president of Reliance Electric Company described one of the problems of failed execution this way in the article Basic Management Concepts.

“No one should ever be pressured (or allow themselves to be pressured) into making unrealistic commitments. But once commitments are made, they should always be fulfilled. The good manager knows that most commitments are broken because of a sloppy attitude that always manages to find a rationale for failure. For this reason, good managers insist that all commitments be met. It makes no difference whether the commitment seems trivial, e.g. to return a phone call or pass on certain information by a certain time – or crucial, e.g. to meet a project completion date or achieve planned sales or earnings results. It must be met once it has been made.”

To shoot better or get things done in business, follow through is omnipotent. If you would like a copy of the complete B. Chuck Ames article or Mr. Turner’s phone number, please contact me. I will be sure to follow though on your request.

Are CEOs Idiots?

Kodak’s CEO tells 17,000 employees the only option for the 131 year-old company is to file for Chapter 11 bankruptcy protection. The company had 64,000 employees in 2003. Research In Motion fires its co-CEOs after the maker of BlackBerry loses $30 billion in market cap. Sony, Panasonic and Sharp, the trifecta of the Japanese consumer electronic industry, lost a combined $17 billion in 2011. Are the CEOs of these once great companies total idiots?

Before going too far, let’s add some local flavor to the stew. What the heck happened to the likes of some of these local boys?

- Joseph Schlitz Brewing Company

- Allis-Chalmers Manufacturing Company

- Schuster’s Department Stores

- Strong Funds

- Midwest Express Airlines

- M&I Marshall & Ilsley Bank

- Please insert your favorite corporate debacle here.

Were the CEOs idiots? How did these fabulous business blunders occur? We may never know exactly. But here are a few suggestions.

- Bad Strategy. In the end, what was Midwest Express anyway? A high-end, “best care in the air” corporate travel airline or a no frills, discount alternative to a bus? Customers were confused. Employees were confused. Vendors confused. Shareholders? Confused and left holding the lost luggage.

- Rotten Execution. In an effort to cost cut its way to prosperity, “the beer that made Milwaukee famous” changed the brewing process and started using cheaper ingredients. Not only did the reformulation change the flavor and consistency of the beer, the new Schlitz had a shelf life of about a day and half. Customers noticed. Can you say Budweiser?

- Blame Game. “We were making so much money, we just couldn’t quit.” Those pesky housing bubbles in Arizona and Florida were the problem. What a nice, conservative mid-western company from Milwaukee was doing in high risk, high reward ventures way outside its market area is another question. But for crying out loud, the M&I was a bank!

- Trends…Unforeseen, Denied, Misunderstood and Delusional. Kodak is an easy target here. An electrical engineer at Kodak literally invented digital image capture technology in the mid-1970s. How did the six Kodak CEOs since the ‘70s screw it up so badly?

The four bullet points listed above are certainly not all encompassing. And there is almost always more than one reason for the failure of the CEO to respond appropriately to the challenges of running a business successfully over a long period of time. How to improve the odds? Some suggestions.

- The Reality Check. My guess is the CEOs of some of these failed companies would have been better served with a strong board of directors that knew when and how to challenge the strategic thinking of the CEO. Absent a board, some CEO peer groups, like TEC, are designed to “question the answers” of the CEO. One of my TEC members employs a designated “BS Detector,” from outside the company during the strategic planning process to help the group avoid delusional thinking.

- People. People get things done. Weak management teams don’t. Failure to put the right people in the right jobs is bad. Failure to deal with people problems – fast - is worse. Jim Collins’ bus analogy of the right people in the right seats is well known. It should be pointed out, however, that CEOs need to get the wrong people out of the seats and off the bus before the new folks can get on. CEOs usually have an inner sense about weak people on their teams. They sometimes refuse to see it and deal with it in a timely fashion.

- An Intentional Culture. There is a real nice company down in Racine, Wisconsin that does not allow its people to say stuff like “I didn’t make plan because of (fill in the blank).” Or “I failed to fulfill my commitment due to (some circumstance beyond my control).” Realistic commitments that are made, are kept. No excuses. One TEC member CEO eliminated the words “hope” and “luck” from his company’s corporate lexicon, as well.

- Apply The Trends to Your Business. TEC Resource Specialist Adam Hartung suggests analyzing the mega trends eight years out. He recommends the intentional creation of “white space” disconnected from the business for innovative thinking. Get people outside the box. Then, have them think.

Truth be told, even the CEOs who really mess up aren’t idiots. CEOs are people. They make mistakes. They fail sometimes. Some learn and get better. Some don’t. But as long as we have human beings running corporations, there will be room for improvement.

Williston

Several TEC members have been making money in Williston. Some are participating as subcontract suppliers to tier one vendors who are already there. Other TEC member firms are (literally) on the ground, building roads and providing staffing services. Still others are working on waste water treatment alternatives for the process known as "fracking."

An impressive example of a TEC member firm who anticipated the boom in Williston, is an old line, made in America, metal fabricating and manufacturing company located in a suburb of Milwaukee. Through a rigorous strategic planning process, the company identified specific energy related markets as opportunities that took advantage of their strengths. They calculated they could shore up their identified weaknesses, apply some resources in terms of people and money and enter a new market. This piece of the strategic planning process was initiated in 2007. It was tweaked every year along the way.

In hindsight, it looks easy. Identify your strengths and weaknesses. See the opportunities and threats. Apply some resource. Voila. Williston.

Not exactly. It took the commitment of the CEO to spend real money on the planning process, when everyone else in the company was "too busy to plan." A recession was looming. Time to hunker down. Well, yes and no.

By definition, the strategic planning process is taking the organization "out there" somewhere. When management is doing strategic work, there are no immediate results to give the leadership team feedback relative to the intended course of direction. It is, a leap of faith. A belief that the process will save the day. It requires courage. It requires leadership.

The alternatives? Most organizations end up slogging it out with a plethora of competitors...known and unknown. They fight for market share. They offer lower and lower prices to compete. They commoditize their products and services. They don't make much money.

Call it a Blue Ocean or Williston. "Out there," there are new markets. "Out there," there is more than enough to go around.

Inspiration on 27th Street

TEC 33 member, Gary Wenzel, hosted a meeting of TEC 31 recently. TEC 31 is a new group going through the forming, storming and norming process. I asked Gary to host the meeting at his company to give the members of this new TEC group a glimpse of "the possible."

Gary Wenzel is president of Capitol Stampings Company. The plant is located at 27th Street and North Avenue in Milwaukee. Gary was part of an ownership group that purchased Capitol Stampings out of receivership in 2005. The plant was originally constructed by Steeltech in 1990. Steeltech went bust in 1999.

Capitol Stampings currently employs 85 full time workers. Most of the workers are from the neighborhood. The workers earn a family supporting wage. They have decent benefits. Their jobs, based on performance, are reasonably secure.

When Gary arrived in 2005, customers were rejecting 7000 Parts Per Million. Not good if you are trying to earn more work from existing or new customers. The people at Capitol Stampings worked to reduce bad parts to the current 500 PPM. 500 PPM is world class and low enough to garner an audience with some highly desirable OEM customers. More business followed.

How did this happen? Gary explained several cultural shifts that occurred over the years at Capitol Stampings. They needed African Americans to work with Hispanics to work with Caucasians. The new management team set clear performance expectations. They started treating all employees fairly and impartially. They terminated some people who were unable to align with the new culture. The leadership team was consistent. And, they persisted when the inevitable challenges might have pushed them off course.

The "new management team" was comprised of several people from the outside, like Mike Krajna, Ron Zeronis and Scott Wise. It also included several people from the inside, like Dan Hewitt and John Willmering. Gary worked to find the right seats on the bus for this blend of the right people.

The members of TEC 31 were inspired by the blend of new technology; new and old equipment; and people....people who energized this factory on 27th and North. The place was rocking. They were making money. And, they were accomplishing a mission that had more to do with reviving a neighborhood than anyone who wasn't part of it could hope to understand.

The Capitol Stampings story can be an inspiration to all of us who believe that business is one of the keys to creating "the possible." Well done to Gary Wenzel, his leadership team and the people of Capitol Stampings who are accomplishing this in-process transformation.

Armed & Dangerous

I settled in to prepare for a meeting of TEC 44 last month. I intended to review the issues the group's members wanted to bring to the table and other agenda items that needed to be covered during our meeting.

As I got ready, I noted a flurry of e-mails suggesting the group had taken control of the agenda. Two members sent written copies of their "issues" to the group. One member advised he was ill and unable to attend. Two others sent their "accountabilities" from the prior meeting. Everyone sent their Z-Factor Score. I was left with very little to do.

At the TEC meeting the next day the members of TEC 44 continued to take control of the process. The group introduced a new accountability protocol. The members worked a remarkably difficult issue without much intervention from the chair. They remained after the meeting ended to discuss what they had experienced during the day.

TEC 44 had become "Armed & Dangerous." Armed & Dangerous is a concept developed by TEC Resource Specialist, Don Schmincke. Schmincke segmented TEC groups into three categories of health. The least effective segment, the "Seminar Club," almost totally relied on the leader to create value. An improvement was the "Shared Destiny" group which took a modicum of responsibility for its own performance, but continued to rely on the chair to provide value. According to Schmincke, the Armed & Dangerous group was the highest performing group, taking full responsibility for group health and effectiveness.

In addition to TEC groups, Don Schmincke's concept of group behavior applies to management teams and groups of all forms. If you are interested in an outline from Don Schmincke on how to create teams that are "Armed & Dangerous," please let me know. From a group leader's perspective, it is way less work and way more productive.

This Feeling Ain't Right

Something happened in June. Then, it happened again in July. As the months are closed and the financial statements printed, almost all of my TEC members are reporting that something weird is going on. And, it isn't good.

Some members say orders softened unexpectedly. Some noted a decrease in their backlogs. Some saw raw material costs increase to unforeseen levels, eroding relatively healthy profit margins. Others told me they felt uncomfortable with what was going on "out there." They were suddenly queasy. Even the TEC members who were able to maintain margins said things just didn't feel right. It was hard to explain.

Most of these CEOs began contemplating corrective action. Put a hold on that equipment purchase for a while. Want to hire two people? Get by with one for now. This is also about the time most TEC chairs start asking TEC members about Plan B. That is, a business plan that allows the company to make money with 20% less revenue. After the last recession, numerous TEC members reported that having a Plan B saved them from decision making in crisis. They knew what to cut, who to lay off and what to stop doing...in advance.

The current uncertainty feels somehow different than the financial meltdown of 2008. This uncertainty has led a few members to construct a Plan B1. That is, what do we need to do to take advantage of a 20% premium, above plan, in revenue. Competitors may be paralyzed into non-action. Market share may be there for the taking. The Balance Sheet gets particularly important here.

This is no esoteric exercise. It is a highly desirable time to create Plan B, at least until that ugly feeling goes away. It is also, however, an opportune time to create Plan B1. Others may miss the opportunity created by the uncertainty.

Corporate Retreat

I participated in three TEC meeting retreats with different TEC groups over the past three weeks. Each was an overnight meeting at a very nice resort. The members participating in the retreats knew each other to varying degrees. While the intended purpose of each retreat was similar, the actual outcome varied from group to group.

One group secured the services of a noted outside facilitator. The agenda for this retreat was chocked full of group exercises. Pre-meeting homework was required of the participants. There was little down time. The TEC members in attendance got what they expected. Plenty of action. But not much of a retreat.

I was the facilitator for the second meeting. The agenda was a bit more flexible. To be sure, this TEC group worked for the day and a half we were together. But there was sufficient "white space" during the meeting for unplanned and unstructured member interaction. An optional group activity - trap shooting - at the conclusion of the meeting, added a semi-competitive, fun event for participating members.

Once again, I facilitated the third meeting. This meeting had several new TEC members in attendance. Our group activity - a canoe trip down the Wisconsin River - was planned for the afternoon of the first day of the retreat. It was not optional and created a unique environment to get to know people that dinner at a fine restaurant could simply not allow. Again, members worked during parts of the retreat, but the bonding opportunity was the key to the success of the event.

Members of each group reported different degrees of satisfaction with their group retreats. The first group reported "too much stuff" on the agenda. The evening dinner for this group included a "working dinner" with a facilitated team building exercise. The fun meter was on low for this group. They got what they bargained for, but didn't totally appreciate the result.

Group number two was better. But again, I allowed the agenda to become too crowded and was unable to get to everything that needed to be discussed. A special follow up meeting needed to be scheduled to address a member issue that was omitted from the proceedings.

The third group got it about right. They worked. Had some fun. They got to know each other better on a beautiful sunny afternoon floating down the river. This group reported the highest member satisfaction with the event overall.

Webster's defines a retreat as "a period of group withdrawal for prayer, meditation, study and instruction under a director." The corporate retreat is indeed good for the soul. The lesson learned here is to build in sufficient time for people to get know each other as people.

The Get Along Gang

I am reading Bob Lutz's latest book..."Car Guys vs. Bean Counters: The Battle for the Soul of America." For car guys and business people, the book is a candid assessment of what happened to the once mighty General Motors...from the perspective of a high ranking insider.

Lutz shares his insights about what went wrong with the American automobile industry based on his nearly five decades in leadership positions with GM, Ford and Chrysler. I know some of his comments will resonate with a few of my TEC members who sell products to the auto industry.

For example, Lutz states the operations component of the automobile business has been "thoroughly optimized" and doesn't vary much from one company to the next. He believes all car companies accomplish manufacturing and supply chain management reasonably well, with no significant competitive advantage accruing to the one who can beat the snot out of suppliers more effectively.

Lutz does toss around plenty of blame for the failure of the American automobile industry. Legacy costs. The UAW. Government imposed fuel efficiency standards. Japanese transplants in lower wage, non-union southern states with young, healthy workers. He takes personal credit for significantly improving product development during his return engagement with GM. The Chevrolet Volt is at the top of his personal innovations list. It is his book, after all.

Lutz reserves most of his ire, however, for two main culprits. First, he takes on the really smart MBAs and finance people whose mission it was to maintain orderly processes at all costs and see "how much they could cut before the customer started to complain." Second, he cites a culture of "corporate infallibility and self-worship" that discouraged honest disagreement. The really smart MBAs and finance people had the data. No need to create any unnecessary friction. Go along. Get along.

Lutz blamed the final decision to seek a government bail out and then Chapter 11 bankruptcy protection on their GMAC finance unit and the unforeseen doubling of gas prices in 2008. Oddly, the same screw up that took down the M&I Bank, was largely responsible for GM's eventual demise. GMAC was making so much money through its residential mortgage unit in the sub prime housing market that they just couldn't quit. Then, the really smart MBAs and finance people didn't plan for the run up in gas prices. GM was left with big cars and bigger trucks and a five billion dollar quarterly drain on cash.

All corporations have a culture. The title of Lutz's book implies the Bean Counters caused the demise of the American automobile industry. The dysfunctional culture created over many decades and many CEOs and other insiders certainly contributed mightily to the devastation.

The Entrepreneur Is Dead. Long Live the Entrepreneur

I work with CEOs for a living. For the most part, they maintain a positive mental attitude, even in the face of adversity. Many are visionaries. Most are entrepreneurs. They see opportunities where others see problems.

When I get outside my work with TEC, I sometimes meet a different mindset. I meet people living in a recession that ended two years ago. I meet people complaining about the lack of jobs and opportunity. The entrepreneur is somehow wired to look at the situation through a different lens....a lens of possibility.

Take real estate, for example. We all know that real estate is in a depression. Residential housing prices are at levels not seen since 2002. Commercial real estate is even worse. It has yet to find the bottom, we are told.

It is interesting to note that I have several TEC members who are aggressively investing in real estate - both commercial and residential. The real estate opportunity goes something like this.

The bank gets a piece of real estate back through foreclosure or "jingle mail." The bank doesn't want the real estate and is able to make a deal at a very low purchase price, assuming the buyer can come to the table with "hard money." The hard money buyer gets the property at a price that allows him or her to spend a bit more repairing and remodeling. The low purchase price and reasonable remodeling costs allow the buyer to sell the property at a profit or cash flow a future mortgage out of rental income.

Entrepreneurs see these opportunities and take action on their individual assessment of risk and reward. They reason that real estate deals like these may never come around again. They seize the opportunity where others are afraid. Sometimes they win. Sometimes they don't. But our entrepreneurs will carry the day. The entrepreneurial spirit is alive and well. It is two people looking at the same situation and choosing different interpretation of the opportunity.

Don't be mislead. The entrepreneur is dead. Long live the entrepreneur.

Apples To Apples

When I met with TEC 44 member, Jeremy Cherny, for our regularly scheduled One On One last month, Jeremy was working diligently on an "apples to apples" comparison between his firm and a competitor's offering. Jeremy is president of Tobin Solutions. Tobin Solutions is an IT consulting firm.

Jeremy's apples to apples outline contained the usual laundry list of things that IT consulting firms do. Network support. Remote support. On-site repair. Training. Preservation. Consulting. On and on went the list attempting to prove that even though Tobin Solutions solution appeared to be more expensive than the competitor's proposal, the client would be better off because they would get more IT stuff.

As with most TEC members, Jeremy was open to some feedback. I remembered a newsletter that was produced by the Grunau Company, another TEC member company. Their position was that apples to apples comparisons actually commoditized the work they did, playing into a low bidder industry mentality.

The Grunau Company reasoned that no two apples were actually alike. And, you generally couldn't tell much of a difference until you ate both and tasted the difference. They wanted their people to understand that it is the intangibles that created value for the customer and sustainable differentiation for the company.

In the end, Jeremy reworked his proposal eliminating the apples to apples comparison. Instead, he focused on the intangibles that created value in the mind of his client. Time will tell if Jeremy is successful in securing the new business. We know now, however, that if he wins it won't be because he was the low bidder.

If you would like a copy of The Grunau Company newsletter containing their thoughts on the folly of apples to apples comparisons, please feel free to contact me.

The Intolerables

Recently, a TEC member of mine promoted a bright young man to the position of General Sales Manager. The bright young man had performed well in a series of increasingly responsible positions within the company. The promotion gave him a significant opportunity in prime time.

Within one month, under the direction of the new General Sales Manager, sales increased and margins improved. The second month was even better. During the third month the company achieved record sales and profits. Truth be told, after surviving the downturn in the business cycle, the company and the CEO needed a big time boost in top line revenue and Gross Profit.

Unfortunately, the management style of the bright young man appeared to change after he was afforded more authority. His leadership style became directive. He created inter-department animosity with his new found command and control persona. In short, he became a bully.

My TEC member had experienced bullies before. When he was about 8 years old, he recalled having to punch the neighborhood bully in the mouth to get him to go away. The bully never bothered him again.

He also knew that the management style of the new General Sales Manager flew directly in the face of the team building effort on which he had been working for the past several years. The question was more sales, more margin and more money now or declaring "an intolerable."

My member chose the intolerable. He told the bright young man the negative effect the intolerable behavior was having on the organization. He also told the story of the bully from his childhood. He made it clear....real clear....that this type of behavior would not be tolerated regardless of the short term gain. It was "an intolerable."

The bright young man took it in stride. He said he understood. He would change his behavior. He was sure he could get the job done without the intolerable. Time will tell.

TEC Resource Specialist, Pat Murray, describes the concept of intolerables in his presentation titled "Leadership...The Inside Moves." If you would like a CD copy of the presentation, please let me know.

Do your people know The Intolerables?

All Businesses Are Worth $1 Million

When my partner and I were attempting to buy our first small business, we quickly learned a very important lesson about buying small privately held companies. All small businesses are worth $1 million. More accurately, every small privately held company is worth $1 million....per owner.

This small business owner valuation principle had a tendency to price our target companies out of the ballpark. An unrealistic opinion of value based on the seller's objectives rather than an objective review of earnings and, perhaps more importantly, future earnings forced us to disqualify some interesting acquisition prospects. It also may have cost some small business owners the opportunity reap some of the rewards of a lifetime of work.

A TEC member of mine is currently negotiating to buy a competitor. There are three owners of the target company. They are all in their late 60's. The owners have not kept up with technology in this capital intensive business. The management team is weak, at best. The company has not made money in three years. The owners want to "get out." Asking price? $3 million.

My member doesn't want the outdated equipment. He doesn't want the people. He doesn't even want some nicely located real estate, owned personally by the sellers. He is willing to buy the customer list. Fair market value? To be determined.

There is a better way. Kraig Kramers, a TEC Resource Specialist, has been instructing TEC members on the use of a relatively straightforward process for valuing companies that turns out to be remarkably accurate. Many members run the formula every year to get a realistic picture of how their companies are doing and how they are doing as CEOs.

The Kramers' estimate of fair market value can also save small business owners from pricing themselves out of the market. All business are not actually worth $1 million.

If you would like a copy of the Kraig Kramers formula, please e-mail me at dennis@globenational.com.

Price Fixing 101

I was having lunch the other day at one of the trendy downtown hotel/restaurants. I was alone, sitting at the bar. A young man, probably born between 1965 and 1984, came in and asked to see the manager. The manager appeared. The two young men talked for a couple of minutes. I wasn’t intentionally eavesdropping, but I did overhear that the Xer who requested to see the manager was representing another trendy downtown hotel/restaurant.

The manager, also probably born between 1965 and 1984, brought the bartender into the conversation and finished by saying something like “give him all the information he wants.”

Next, the bartender, probably born after 1985, starts poking the touch screen on a near-by cash register. The Xer from the competing hotel was working from a list and asking the prices charged by drink by the trendy downtown hotel/restaurant. Grey Goose? $11.00. Check. Johnny Walker Red? $9.00. Check. Glenlivet? $13.00. Check. And on and on and on they went until they ran through the entire drink list of the trendy hotel/restaurant. Check.

The 111th Congress was still seated at the time, but I doubt it repealed the Sherman Act of 1890. This was horizontal price fixing, right there in front of my Caesar Salad. Simply exchanging prices with or without intent could have been a criminal offense if the exchange of pricing information affected the prices these two competitors set. Will the Xer manager who authorized the exchange, receive pricing feedback from his trendy downtown hotel/restaurant competitor? Check.

Generation X has been maligned for everything from an inability to consume enough to an arrogance that comes naturally to really smart, highly educated people. But somewhere behind these Xers was another trendy hotel/restaurant manager – a Boomer…who should have known better.

Rule of thumb. It is okay to talk to your competitors. Glean as much competitive information as you are able. But never talk about prices.

Why Buy a $2 Million House

Economist, Brian Beaulieu, spoke to a combined meeting of my three TEC groups recently. The title of his presentation was "Recovery: 2011 and Beyond." Beaulieu attracts a fair amount of attention within the TEC community, in light of his accurate prediction that a significant recession would befall us in 2008. He started telling TEC groups about the impending problem in 2003. He also advised our members what they should be doing about it in advance.

With certain caveats, Beaulieu's presentation was much more optimistic. 2011 will be a good year. 2012 and 2013, as well. 2014 could be another problem. But it was the "what to do about it" part that was the most interesting.

Brian Beaulieu is predicting inflation. Long term, steady and prolonged - 5 to 6% range inflation. Others are now becoming increasingly concerned about the prospects of inflation. Beaulieu has been talking about it for several years. Okay. What to do about it?

Beaulieu advised our TEC members that now was the time to buy assets, productive assets and real property. He told members to borrow money at the current remarkably low (by historical standards) rates. He said to lock in as much long term money as possible.

He told our TEC members "Borrow as much money as you can now. Borrow so much money that you can't sleep at night. Then, borrow more - enough so your spouse can't sleep either."

One of my members who heard Beaulieu a couple of years earlier had been keeping track of a $2 million property that was in foreclosure. The day after the Beaulieu session, my member's real estate broker called him to say the property was going up for auction at a sheriff's sale the following morning.

There were two bidders at the sheriff's auction. The other guy dropped out after the opening bid. Much to his surprise... and the amazement of his wife…my member bought the property at a totally ridiculous discount from the original asking price.

Was Beaulieu right in his inflation forecast? Only time will tell. In the meantime, my member and his wife should have many sleepless nights in their new home. Good for them.

If you are interested in a complimentary CD of Beaulieu's complete presentation with the balance of his forecast from "Recovery: 2011 and Beyond," please let me know. One Hint: How much gold would you have to own to keep you awake at night?

Dog Story

Do you know how they train hunting dogs these days? A TEC member told me the story the other day. It involves “technology.”

Well, it also involves humans….and that is where the story gets interesting.

My TEC member is an avid outdoors man and dog trainer. He uses a shock collar to assist him in the training process. A shock collar of this nature is capable, if necessary, of blasting the dog with 20,000 volts of electricity. A police issued stun gun carries 50,000 volts. You get the idea. My member has been trained extensively in training dogs and the proper use of the collar.

My TEC member tells me that some people are untrained or just plain stupid when it comes to the use of the collar. He can tell the dogs that have been mis-trained just by watching them. The dog will walk slower, with its head hung low between its shoulders. Mis-trained dogs can be very aggressive, when given the opportunity. They tend to develop all sorts of exotic diseases. They die prematurely.

My member said his dogs actually like it when he attaches the collar. The well trained dog knows it is going to go outside and hunt…run around, chase birds, have some fun.

My member told me the story because, over the past two years of a business downturn, he had the feeling of a mis-trained hunting dog with a shock collar. He did not know from where the next economic/financial/regulatory shock was coming. But he was pretty sure that the repeated blasts without warning were taking their toll on him mentally and physically. Cumulative stress is a killer.

TEC Resource Specialist James Newton has suggested the following prescription relative to relieving long term, cumulative stress.

- Eat better. Healthy food. No sugar. Simply stated…eat real food.

- Exercise very regularly. Like 6 out of 7 days a week.

- Clean up the “ankle bitters.” Finish that nagging project.

- Recreate. Newton pronounced it “re-create.” Have some fun.

- Take a vacation.

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On October 13th The Wall Street Journal promoted a similar approach to dealing with the effects of long term stress in an article titled “Slumping at Work? What Would Jack Do.” The Jack, in this case, was Nicklaus. Much of the article had to do with relaxation and positive visualization.

Business leaders in today’s environment may not be able to remove the shock collar entirely. There will always be weird things that happen in a highly competitive, increasingly regulated marketplace. Leaders can, however, mitigate the adverse effects of long term stress exposure. Indeed, they owe it to the people they lead. Take action. Relax.

The Blindside

At the request of a TEC member, I met recently with a former business owner. Dave, the former owner, had run a successful business for nearly 30 years. He was now a former owner because he was “blindsided” over the last two.

Dave’s company was forced into bankruptcy after a series of bad decisions. One or two of these decisions might not have been fatal. A string of poor decisions, however, ended with tremendous personal loss in terms of the number of lives affected. These poor choices would have been caught by an astute mentor, a trusted advisor, an advisory board or a TEC group. Someone needed to cover Dave’s blindside like Joe Theismann needed a Michael Oher.

As the story played out, the series of some of the questionable decisions looked like this…

- Dave decided to expand aggressively heading into the downturn in the business cycle. TEC members had been advised by TEC Resource Specialists such as Brian Beaulieu to plan on a recession in 2007. The macro-economic outlook was clear, according to economist Beaulieu, three years in advance of the actual recession. TEC members prepared in advance.

- Not only did Dave take on substantial debt to finance the ill-timed expansion, he added significant fixed costs that were difficult to shed when the downturn became apparent. The balance sheet was now leveraged for the first time in years and the company was hemorrhaging cash, when hording cash was the order of the day. Once again, TEC members were being advised of the exact opposite strategy heading into the recession.

- Dave decided to change banks. Typically not the end of the world. But in this case, the change in lenders appears to have been made without appropriate due diligence. Perhaps the regulators became more inquisistive. But when sales and profits began to deteriorate, the new bank grew increasingly nervous…and aggressive.

- The new bank told Dave it would be better if he would agree to a personal loan guarantee for the preciously unsecured debt arrangement. Dave eventually agreed, even though he had significant personal assets available at the time. No TEC group on the planet would have allowed this to happen. Ever.

The end of the business story is the bank called the loan, liquidated the business and took substantially all of Dave’s personal assets to cover the personal loan guarantee. The end of the personal story is that after running a nice successful business for almost three decades, Dave was left with, quite literally, nothing. Furthermore, this basically good (business) man ended up dazed, confused and embarrassed. And it didn't have to be.

If you are running a business, the question is…”Who has your blindside?”

Retreat or Attack?

At a recent TEC meeting, a Resource Specialist from California suggested members dial back on their BHAGs to reflect the poor economic environment. Our speaker reasoned that scaling back the Big Hairy Audacious Goal was a first step to a more realistic assessment of vision, mission and strategy to account for certain “new economy” realities. He figured people in the organization needed to be reassured with sometime more "doable."

The TEC group pushed back. Pushed back on our West Coast friend rather hard, actually. Our members had scaled back in advance of the downturn in the business cycle – some as far back as 2007. They cleaned up their balance sheets, reducing debt and accumulating cash. Most members were making more money with less revenue, thanks to aggressive cost reduction programs that were in place heading into 2008 and reaping benefits through 2010.

Now, the TEC group reasoned, was the time to recalibrate on the upside, taking advantage of their relative strength vis-à-vis competition and potential new market and product opportunities. Now was the time to attack.

Let’s just let the poor schlemiel who had just limped through the downturn and exhausted his cash resources play defense now – or just go away, they agreed. This TEC group knew it was time to re-emphasize the strategic planning process. They had become “operationally excellence” oriented over the past few years. It was now time to shift to a higher gear with new strategy in light of the new playing field. It was time to attack.

Moreover, the members of this TEC group agreed that the people in the organization needed to know that the leadership of the company had a plan…to grow. It was time for leaders to lead.

SWOT Wisconsin

One of my TEC members – a manufacturing company headquartered in a suburb north of Milwaukee – initiated their annual business planning process recently. The eventual expected outcomes of the planning process will be the establishment of a new annual operating plan for 2011, with a significant recalibration of their longer term strategic plan.

As a long time TEC member, the CEO typically engages his management team in a no-nonsense version of SWOT analysis during the initial phases of the process. Classic SWOT analysis generally includes an evaluation of 1) Strengths – internal, company oriented; 2) Weaknesses – internal again, unique to the organization; 3) Opportunities – external, “out there” someplace usually focusing on changes or the new normal; 4) Threats – external, “out there,” change orientation.

A new item surfaced on the opportunities list and survived the culling process. The team determined that known competitors in California and Michigan would be at a distinct, long term disadvantage due to overzealous regulations and out of proportion tax increases on businesses and owners. More money spent on compliance and more money paid to state and local governments begets less money for capital expenditures, less cash for growth and less profit for owners. Subsequent phases of the planning process will determine how to attack their relatively wounded competitors.

Unfortunately, when the team considered threats, the same people were forced to include Wisconsin’s gratuitous regulatory environment and high tax climate as significant external “new normal” problems. They reasoned that known competitors in Indiana and Texas were probably targeting them just as they were targeting market share advances against companies in California and Michigan. Phase two for this managment team will be to identify alternatives for mitigating this emerging external threat.

This type of planning is going on now in companies around the world. One can only wonder how many competitors will be targeting Wisconsin companies because it is increasingly more difficult to do business, make money and keep it here.