Sharing equity with your team can be a powerful motivator, and there are two basic ways most firms do it.
Kids and employees have an amazing ability to pick up on when our behaviors don’t match up with our words.
For those of you who are parents, you will be all too familiar with the fact that we tend to say one thing, but do another – which is something our kids are great at pointing out. Kids have an amazing ability to pick up on inconsistency, especially when our behaviors don’t match up with our words.
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. Continue reading Are Your Employees Firefighters or Snow Cones?
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. Continue reading Moats and Machines: How Warren Buffett Analyzes a Business
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.
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.
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.
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.
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.
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?
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.
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.
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.
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:
- 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.
- 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.
- 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.
- 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.