Are Your Employees Firefighters or Snow Cones?

Every business has the occasional fire. When it hits, you should have plenty of people who we call “Firefighters” while avoiding folks we label “Snow Cones.

“Every business, from successful startups to well-established corporate giants, hits a rough patch or two. It’s just a part of doing business.

But if you’re going to weather those storms as an organization, you’ll need people who can handle the heat and won’t melt under pressure. In other words, you should be hiring plenty of who we might call “Firefighters” while avoiding bringing on folks we might label “Snow Cones.” Let me explain.join_now Continue reading Are Your Employees Firefighters or Snow Cones?

Moats and Machines: How Warren Buffett Analyzes a Business

Warren Buffett knows great financials are critical to the success of any business, they are really just outcomes from having a strong “machine” and an impenetrable “moat” for your business.

When you ask most CEOs about their vision for their business, they usually give you an answer built around metrics like number of customers, market share, or profitability.

But what I would argue is that while all of those numbers are critical to the success of any business, they are really just outcomes that result from having a strong “machine” and a “moat” for your business.contact us now Continue reading Moats and Machines: How Warren Buffett Analyzes a Business

Are You an Owner or an Operator: Why You Might Need To Fire Yourself?

A word of caution for any entrepreneur who has founded a business and remains active in it: you might need to fire your CEO – yourself.

Of course, every owner of a growing business knows what it’s like to play multiple roles. But let’s focus on the distinction between two of them: owner and CEO.

Continue reading Are You an Owner or an Operator: Why You Might Need To Fire Yourself?

Three Ways to Grow: Build, Partner, Or Buy

Every year, I speak with nearly a thousand CEOs in detail about their companies. One of the key topics that I talk to all those CEOs about is their strategy for achieving future growth. Whether that’s expanding a business geographically, or even by entering new emerging markets, every CEO has a choice about how to achieve that goal of growth.

It turns out, regardless of what your growth goal is, you have three options to get there: Build, Partner, or Buy.

Let me explain what I mean by each of these options.

  1. Build.

Your first option when it comes to implementing your growth strategy is to launch the new project yourself by investing your own resources and talent to build it. Building also involves learning, as there are certainly things you don’t understand about the new space and you will be learning on the job. Building has several key advantages, including the ability to have total control. There is also the fact that whatever gains you accrue through your growth are all yours to collect. That’s not to say that deciding to build doesn’t come with some risk as well. It generally takes more time than the other options, it is possible to make big mistakes due to the lack of knowledge I referenced and you have to invest all the capital, so it isn’t cheap.join_now

A great example of a company that pulled off a successful Build growth strategy is Loctite, the adhesives company. Several years ago, the company decided that its growth goal was to double its sales. And to do that, the company made the decision to double its sales-force. In other words, they chose to invest in building their growth by hiring, training, and investing in new sales people that doubled their sales force – which is what created a lot of risk until that new sales team started to become productive. But in the end, it proved to be a wise investment as the company more than doubled its sales in just a few years.

  1. Partner.

A second option when it comes to putting your growth strategy in motion is to find another company to partner with who can help you reach your goal. In his popular book, Blueprint To A Billion, author David Thomson analyzed the seven factors that enabled companies to reach a billion dollars in annual revenue. And almost all the companies Thomson studied had what he calls a “big brother” partner, meaning a larger more-established company that helped them get into places and markets they couldn’t reach on their own. The best partnerships also leverage the different strengths each partner brings to the table, such as resources, talent, or market access.

A classic example of a Partner strategy like this paying off in a big way is when a then-scrappy startup called Microsoft partnered with computer giant IBM to sell the MS-DOS operating system on its PCs. IBM put MS-DOS on every single PC they sold. Microsoft, which had the best technology to offer, found a partner who helped it spread that technology through its vast distribution system all over the world – something little Microsoft could never have done at the time. Obviously, we know what happened after they created that beachhead on millions of PCs.

One downside of partnering, however, is that no matter how successful you are you still need to split the gains with your partner. There is also the issue of sharing decision-making and control with your partner – which is a dynamic that some organizations handle better than others.

  1. Acquire.

Your third option in putting your growth strategy into place is to acquire a business in the area you want to expand into. The upside of this approach is that it’s typically a fast way to enter new markets and to acquire new expertise. But there is also potential downside, especially if you don’t know which questions to ask about whether your acquisition target is a good fit with your organization or not. As we know, many acquisitions fail to live up to their financial or performance expectations because the acquiring company hasn’t done its proper homework.

I was working with a fast-growing company in the credit and collections market. They worked with large multi-unit housing complexes to help collect overdue rent from tenants. But the company wanted to grow even faster, so it looked at acquisitions to reach their goals more quickly. The first deal they did was to buy a medical collections firm – which was something far outside their own area of expertise. While their intention to diversify into a new market made sense on paper, the company soon recognized that the acquisition was a mistake because they didn’t know enough about the medical collections industry. Fortunately for them, the company course corrected and recognized that if they were going to acquire, it should be in the housing collections market, where they could strive to be the best in the industry. They ultimately did this and found great success.join_now

The mistake they made was to believe that acquisition was a strategy rather than a tactic to achieve the longer-term goal of growth. In their case, growth in their core market with bolt-on acquisitions.

So, when it comes time for your organization to think about how it needs to grow to meet its long-term goals, choose carefully when it comes to which tactic: build, partner, or buy. Any of these three options might be the answer to helping you reach your goal, just be sure you’re asking the right questions before you pull the trigger – just don’t confuse a tactic for a strategy.

Mercenary or Patriot–Which Should You Hire?

When you’re hiring, think beyond the skills and experience a candidate might have and assess whether you want a patriot or a mercenary.

When you’re thinking about hiring people, especially those in mission-critical-type positions, you need to use caution because the stakes are so high anytime you make a bad hire. But beyond whether they are an A, B or C Player and the skills and experience a candidate might have, you also need to assess whether they are a patriot or a mercenary. Let me explain.talk to us

The Patriot
Patriots are employees who seek to join your company because they believe in your organization’s purpose and mission. They want to contribute to the cause. Maybe they are drawn by what your company does or how you do it because it resonates deeply with their own personal beliefs. This can be a very powerful draw for some job candidates, many of whom might even be willing to make personal sacrifices like taking less pay, relocating their family or even working long hours for the opportunity to be part of your organization. Patriots are also deeply loyal to the organization and tend to stick around even when times are tough and the bullets start flying. We often see startups filled with people like this who choose a job based on its higher purpose rather than higher pay because the organization doesn’t yet have the resources to offer much in terms of compensation.

The Mercenary
Mercenaries, on the other hand, choose their next job based on how it will benefit them as an individual. You can identify a mercenary right away just by looking at their resume, where you’ll find lots of short tenures and plenty of job-hopping – something that’s common in job areas like sales and software developers. That’s not to take anything away from a mercenary’s skills: they are usually very talented and in demand. The tradeoff is that, unlike the patriot, if a mercenary’s personal needs aren’t being met, they are likely to jump ship at the first sign of trouble. Usually, they are just there for the money.

Why The Distinction Matters
One reason its critical to understand whether you are hiring a patriot or a mercenary is that your choice will impact your culture. Patriots are the people who live your culture on a daily basis and do things the way you want them done. Mercenaries, on the other hand, don’t always think the rules apply to them – especially if they are producing results.
While mercenaries can be very valuable to the growth of your company, you need to understand that they also carry a risk to your culture – at least depending on your business model. If you run a bond trading firm, for example, you might rely on a staff of 100% mercenaries – and that’s a good thing. But for most of us, especially those of us who want to build a company and a culture for the long haul, we need to be careful about how many mercenaries we have on staff relative to our patriots.

Consider the example of a company a friend of mine owns that operates in the government contracting space. It’s a tough business that relies a lot on relationships and social networks to be successful. That means that having a top-notch business development person is critical to any company’s ability to land new business. These folks have a very specialized, and valuable, skill-set – which means they can be hard to find and retain.

In the case of my friend’s company, he was fortunate to hire one of the best business developers around. And this guy delivered: he landed several large orders for the company (that he was well compensated for, by the way.)
But it also became apparent that digesting the work involved with those contracts was going to take my friend’s company at least a year to work through before they would be able to go out and bid on any new business.

Guess what happened? My friend’s business developer jumped ship rather than risk earning less by waiting for the company to chase new work.
This is a classic case of what happens when you hire a mercenary versus a patriot, someone who would have been willing to shift roles or jobs in the interim as a way to stay with the company and be part of its success over the long haul.
Both patriots and mercenaries can play important roles in your organization’s success. Just know what you’re hiring up front so you can plan best for the long run of your company.

Why You Need to Honestly Assess Your Talent

Many companies rate their talent well above average. Besides being untrue, this is a dangerous strategy as your top performers will leave you if you do.In the mythical town of Lake Wobegon, made famous by Garrison Keillor on National Public Radio, it is said that all the children are above average.While you might laugh at that joke, it’s worth asking: are all the people in your organization rated above average and how do honestly assess the talent in your organization? talk to us

In my work with the Inc. CEO Project, we’ve actually found that most of the CEOs we work with tend to hand out inflated grades – especially to the members of their executive team, all of whom tend to receive above average appraisals.

In the HR world, this is called a “central tendency problem.” In other words, it’s statistically unlikely that every member of an executive team is delivering above-average performance. No doubt some of them are. But all of them?

Consider a recent report released by the Government Accountability Office, or GAO, which said that some 73% of 1.2 million high-level federal workers received performance scores of outstanding or fully successful. Just as surprisingly, just 0.5% of these employees delivered minimally successful or unacceptable work – which, if you do any work with the government, you know is not the case.

This helps illustrate the point about how crucial it is to take an honest and objective look at how the talent in your organization is performing. But how do you do that?

One approach is what GE famously took under Jack Welch when it placed people into performance bands: 20% of the company was exceeding expectations (A players); 60-70% was meeting expectations (B players); while the bottom 10-20% performed below expectations.

What this model told us was that most of the people in an organization perform at an average level, which makes sense. But what turned people off about this approach was that GE also fired the lowest performers each year with the idea that they could then hire A and B players to replace them.

The key lesson we can learn from this system of defining who is an A, B, or C player, is that there is value in seeing how the talent in your organization stacks up. So next time you conduct performance reviews, have your HR team make a list of how many people performed at each level. Clearly, if you find that you have a bunch of low achievers, you have a big problem on your hands! But if most everyone falls into the over-achieving bracket, you also need to reassess how you’re evaluating your talent.

One key reason why this is so important is that if you allow a central tendency problem to persist, you will quickly alienate your true A players. If your truly exceptional performers feel like they are being lumped in with lesser players and being rewarded the same way, they will leave and look for an organization that will recognize and reward their capability.

That means you will be effectively downgrading your talent across the board; something no organization can afford to do.

What you can do instead is that if you have a problem with honestly assessing your talent, it’s time to reboot the system and reset expectations. Make it more demanding by shifting the entire curve downward. What used to be outstanding should now be considered average. What used to be considered good is now below average. Doing this allows you to be more discriminant about how you allocate everything from raises and promotions to stock options to your true top performers.

While it might be nice to live in a place like Lake Wobegon, be wary if you find that everyone in your organization thinks they are above average. It probably means your performance appraisal system is broken – and your company’s long-term performance might be at risk because of it.

Run Your Business Like You Are Never Selling

To get the best value when sell your business, keep your focus on building a great business, serving your clients, growing your revenue and profits and exit will take care of itself.

Many of the CEOs and leadership teams I have worked with over the years have fallen into the same trap: they get overly focused on selling their company to a strategic or financial acquirer or worse, going public. At one level this is understandable since it is a dream for many, if not most, entrepreneurs and leaders to create a lot of personal wealth through a wildly successful exit from their business. That’s why it’s so common to meet business leaders who seem to think of nothing else.

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But if you make the notion of selling the primary driver of your business, at the expense of continuing to grow a great enterprise, you’re making a critical mistake.

All too often I hear business leaders tell me that they can’t make that new IT investment or ask an under performing executive to leave the business because they are just treading water until the sale of the business closes. No one wants to spend any money, or rock the boat when it comes to key personnel, because they don’t want to jeopardize their big payday.

Strategic buyers and investors are looking to buy companies who have great executive teams in place that not only deliver results in revenue and profits now, but who also have built in the upside to deliver growth into the future. And a pile of recurring revenue is sure to help!

So when a potential acquirer looks at a business that is clearly doing its best just to keep the status quo and not making the right moves and investments, they will see right through that and wonder if the company is now too risky to invest in. Smart buyers and investors look for companies that are continuing to thrive, grow, and make smart decisions – not those who are just passing the buck.

What do you think would happen if an investor approaches your company and asks which members of the executive team they should hang onto – and which ones they shouldn’t? If you immediately give them the name of a vice president who isn’t performing, you can bet the investor’s first question will be: “Why haven’t you gotten rid of them already then?”

Or, let’s say you have been holding off on making that big investment in a new IT system your team has been begging for. What you will find is that when an investor learns about that, they will discount their offer price for your business by the amount it would take them to make that same investment at the very least.

That’s why the best strategy to get the best price for your business is to continue to focus on building a great company – not on trying to sell it. If you were to make the investment in the IT system now, you might even be able to extract a premium from a potential buyer because you have laid the foundation for future growth because of that investment.

Believe me I speak from experience. A few years ago, I, too, was in the process of selling my company. We had received such a rich offer from a public-traded company we couldn’t say no to. At the time, my CFO and I were the only ones who knew the transaction was in the works. As it happened, my VP of engineering wasn’t performing at the time. I had him on an improvement plan for the prior few months and he just wasn’t getting any better. I knew it was time to make the move and help him leave the company. But rather than worry that I would scare off our potential buyer, I let them know what I was doing and why. I told them I was making a decision that was in the best interests of the business – and that was going to be my focus regardless of what happened with our transaction. The buyer was impressed: they told me they appreciated it. The deal eventually went through, before we even replaced that VP.

If you want to get the best price or value when it comes time to sell your business, keep your focus on building a great business, serving your clients, growing your revenue and profits and the great valuation on the exit will take care of itself.

 

Treat Your Business Partnership Like a Marriage

Business partnerships fail frequently. But we can learn from how people in good marriages manage their relationships to improve the odds.

Starting a business is no small endeavor, especially if you’re doing it alone. That’s which why many entrepreneurs choose to partner up. Having a partner helps make starting a business seem less risky because it gives you two or more brains instead of one as you go along your journey. The same goes for joint ventures and other forms of business partnerships. And there have been some fantastic business partner success stories over the years like Pitney & Bowes, Hewlett & Packard and even Ben & Jerry. blue-contact-us

 

But along with the successes come plenty of partnership horror stories. In fact, there are many parallels between going into business with someone and getting married. Even the statistics aren’t even as good as the success rate of marriage, where just about half of all of the relationships fail over time.

What that means is that when it comes to forging a business partnership, there are some lessons you can apply from the world of marriage to help improve your chances for success. Here are some tips to consider:

  1. Be Thoughtful About Who You Partner With.

Have you ever met anyone who got married after just meeting someone? That kind of thing only happens in the movies. Why? Because we all want to spend time dating someone and getting to know them before we get engaged to them. You should have the same attitude when it comes to choosing a business partner. Don’t jump into anything too quickly. Take your time to vet the other person and make sure you have the kind of chemistry that will last through the good times – and especially the bad ones – before you make the commitment in time and treasure to start a business together.

  1. Plan For The Break-up.

Nobody likes to think their relationship will fail, but the statistics are sobering: more than half of all partnerships, end in divorce. That means that right from the start, when you and your business partner are crafting a partnership agreement, you need to be planning on how you will end your relationship on good terms. Think of it like a pre-nuptial agreement for your business. That means detailing out how you will value the business when one partner wants out and how the buy-out will be structured.

If you don’t have this agreement in place and you hit an impasse in your relationship, you will find that things will get ugly – and fast. That’s because the incentives are all wrong. The partner who wants to leave the business wants to keep as much as he can while the partner who is staying wants to pay out only enough that it won’t impact the business. If you don’t have a way to structure that deal until emotions are high, you not only risk further damaging your relationship, you might also put the entire health of the business at risk as well.

I know of one example where two partners in a management-consulting firm went through a buy-out where they didn’t have an agreement in place when they started the business. The end result was that the partner who stayed with the business was forced to pay a premium to buy out his partner – which left his business with a massive debt burden for the next six years. That could have been avoided with better planning at the start.

While it might seem strange to plan for your partnership breakup from day one, you’ll be happy you did it later on.

  1. Work At It.

People’s objectives and goals in life change over time. That’s as true in marriage as it is in business. That means it’s inevitable that at some point, your partner’s goals will begin to differ from yours. The key to overcoming those changes if you don’t want to end your partnership is to constantly work on your communication and on setting clear expectations for each other.

I met the principals at a financial services firm where the two partners faced this very dynamic. One partner was solely focused on growing the firm while the other partner was comfortable with the level of wealth they had already achieved. While one partner was playing to win, the other was playing not to lose. It took extended discussions and concessions to find a way to move forward that keep them both happy.

They key is that they discuss those differences and learn to compromise on solutions that work equally well for both of them moving forward – or they could face the prospect of a partnership divorce.

  1. If All Else Fails, Get A Counselor.

If you and a partner reach a point where your interests and objectives are diverging fast, it can become very challenging to work out those differences by yourselves. That’s when it can really make sense to bring in someone to help facilitate your conversations similar to how a marriage counselor might work. In the case of a business partnership, you could turn to a mentor, a board member, or even a third party facilitator who could sit down and listen to the issues objectively. While those discussions might result in a decision to break up the partnership, a counselor could help you reach that point much more amicably and with less emotion than you could on your own.

The key point is that if you’re thinking about starting a business with a partner, head into that relationship with your eyes open because while you might be mitigating risk on one end, you’re also increasing it on another.

Apple’s Boring Mission Statement and What We Can Learn From It

Thousands of hours have been wasted talking about mission statements that are, quite frankly, boring. The best mission statements, are both inspirational and to the point.

Mission statements are critically important to your organization because they drive alignment in your organization toward the vision of what you want to get done. That’s why it should be the inspiration that your organization rallies around. Unfortunately, many thousands of hours have been wasted talking about mission statements that are, quite frankly, BORING! talk to us

The best mission statements, on the other hand, are both inspirational and to the point.

Consider the example of Apple. When Steve Jobs started the now iconic company, his mission statement was: “To make a contribution to the world by making tools for the mind that advance humankind.” Wow; that’s something I would get out of bed in the morning for.

But as much as Apple has contributed to the advance of technology, the company has come under increasing criticism that it has lost its way since Jobs passed away in 2011.

One of the changes the company has made in the years since is to change that original mission statement, which now reads like this: “Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App store, and is defining the future of mobile media and computing devices with iPad.”

 

Which mission statement do you prefer? While the newer version is very specific about what the company does, it certainly fails to meet the criteria I suggested earlier: it’s not inspiring and it’s certainly not brief and to the point.

Now compare Apple’s latest mission statement with some other major companies. For many years, Pepsi’s mission statement was: “Beat Coke.” That’s certainly simple and while it doesn’t get into the tactics of how they will fulfill that mission, it gives everyone in the organization a clear vision of what they need to accomplish.

Another great example comes from Medtronic, the medical device manufacturer, whose mission statement is: “To extend human life.” That’s an exciting mission and certainly something that is inspirational for anyone who works inside the business producing products like pacemakers and defibrillators.

But you don’t have to be a major corporation to have a great mission statement. I worked with a business that competed in the exciting field of humidity measurement. It’s not a big market, maybe $500 million in total, but this company established its mission as: “Global domination of the humidity measurement industry.” Not only is that clear and inspirational, it gives everyone plenty of scope for the business to aim at over the next several years.

What happens in situations like what we see with Apple is that you are trying to please everyone. You worry about offending someone, or leaving someone out. But by trying to be inclusive and non-offensive, you lose that focus and inspirational tone you need for your mission statement to be meaningful. That then leads you down the path of a favorite quote of mine from the movie RoboCop where executive Dick Jones says, “Good business is where you find it.” It basically means, “We will do anything for anybody, if we can make money”. That’s not too inspirational.

In other words, you chase every opportunity you can–which can be the worst thing for your organization to do. As I have written about before, your organization is actually defined by what you say no to.

Worse than trying to please everyone are mission statements designed by committees. Mission statements are also like strategy in that they are best done in smaller groups–preferably one using the seven plus or minus two rule. When you give the job of crafting your mission statement to a committee, you end up with boring, multi-syllabic paragraphs that say a lot about nothing, much like the one from Apple.

So take another look your company’s mission statement. If you start yawning when you read it, it’s time to make a change by making it shorter, tighter and more inspirational. Grab a small team – be bold, say no to lots of things and inspire your team!

The 1 Best Question to Use in an Interview

There is a single question that you can use to assess whether candidates understand the job and if they are A or C players.

The secret to hiring your next great employee might come down to how someone answers a single question. And you won’t be asking what kind of tree the person would be or about her Myers-Briggs profile. It all comes down to measuring performance. Let me explain.talk to us

The authors of the book Who suggest you can immediately begin to distinguish A players from B and C players, beginning with your initial phone screen. You do so by telling a candidate exactly how you will be measuring his or her performance in the job you’re hiring for.

How candidates react will tell you plenty about them. C players, for example, probably won’t be able to hang up the phone fast enough, since they don’t want any part of being measured. A players, on the other hand, will take your bait and get excited for the chance to excel. They might even up the ante by asking you what’s in it for them if they really crush it and exceed your expectations.

It turns out there’s an even better question you can ask candidates to help assess if they are true A players once you have them in for an interview. I learned about this magic question from Joel Trammell, the CEO of software company Khorus, who I wrote about in my book Great CEOs Are Lazy.

Joel believes that CEOs can’t delegate hiring decisions to someone else like HR. He perfected his hiring method by interviewing every single one of the hundreds of employees in his company.

Doing those interviews, Joel found that there was a single question that helped him assess whether a candidate understood the job being applied for and what he or she needed to do to excel in it.

“If I was to hire you, how would I know if you were doing a good job?”

This is a great question because it forces the candidate to put herself into the job and be thoughtful about how she might be measured by you, her boss. The answer you get will tell you a lot about the candidate’s maturity and comfort level with having her performance measured.

If you ask a C player this question, for instance, you might get some stammering followed by some noncritical metrics such as he will show up for work on time and not take extended lunch hours.

A players, on the other hand, will give you exactly what you’re looking for. Let’s say you are hiring a software engineer. When you ask an A player the magic question, he might respond by saying you will know whether he is doing a good job by using three metrics: the total volume of software code he produces on a weekly or monthly basis; the quality of the code based on a limited number of bugs; and his on-time delivery rate in which he hits the targets he said he would.

This would be a great answer because each of the metrics is measurable and quantifiable. You know if you had a group of engineers who were all willing to be measured on those metrics, you’d have a high-performing team.

Similarly, if you were hiring a salesperson, you might want to hear her answer the magic question by saying that you could tell she was doing a good job if she was exceeding her quota and selling profitable business, and her customer satisfaction rating was off the charts.

A key point here is that while you might know what you want to hear from a candidate, leave some wiggle room to be surprised and to learn something new about the position from an A player–someone who might think of a metric you’ve never considered.

The beauty of asking the magic question is also that, after the candidate gives you his answer, you pause for a second and say: “Let me write these down because, if I hire you, this is exactly how I will measure you after you start your new job.”

In other words, you can use the answer to the magic question as a great onboarding tool in which you have eliminated any chance that your new hire will be surprised about what is expected of him after he starts his new job.

How magical is that?