Tag Archives: growing organization

Do you Need a Board of Advisors?

It’s a question many CEOs start asking when their company reaches a certain size: Is it time for me to look for an advisory board?

It’s worth noting that the question relates to creating an “advisory board” which is very different than a board of directors or fiduciary board, which involves legal obligations.

In deciding whether you need an advisory board or not, you need to start by deciding what you want your board to help you with.     contact is we help you grow

 

Continue reading Do you Need a Board of Advisors?

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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

Want to Win? Keep Your Strategy Short and Sweet

When it comes to communicating about your strategy with your organization, and ensuring you don’t out think it, the phrase to remember is: keep it short and sweet.contact is we help you grow

Everyone who runs a successful business believes that they have the best people working for them. And that’s no accident since we invest so much time and effort in screening and interviewing people to ensure they are smart, capable, and a culture-fit all in one.

But the truth is that no matter how hard you work on attracting and hiring the best of the best, the collective intelligence of your organization is still just about average, especially if you have a larger operation. Maybe your organization is the exception and you are really, really good at hiring–but that only means the total team might be 5% to 10% smarter than everyone else. It all comes back to averages. It’s just a mathematical reality.

At the same time, one of the aspects that set great leaders apart from the pack is that they tend to have special skills–particularly the ability to see over the next hill and make connections and correlations that the rest of us can’t. Much of that ability comes from experience, knowledge, and the ability to do complex thinking. These are the people who can see into the future, if you will, since they are the ones who are great at mapping out the kinds of strategies that put companies on the fast track. They can anticipate how doing A plus B, contingent on C, equals Z.

Guess what happens, though, when great leaders like this try to explain their complex strategies to the average worker? They get looked at quite literally as if they were from another planet. Sure, most people might understand A and B, but how the heck did you get all the way to Z?

To put that another way, great leaders need to learn to not out think their organizations.

What this means at a practical level is that when it comes time for you as a leader to explain your company’s strategy, you need to pare it down. Yes, you can talk turkey with your senior leadership team. But when it comes to company-wide communication, make things short and sweet enough to give your team the information they need to act without overwhelming them. Boil it down to a maximum of three elements since that’s the maximum amount of information most of us can process. Not seven, not five–three is the magic number. Then take those elements and repeat, repeat, repeat as a way to drive them throughout your organization.

Consider the classic example of legendary CEO Jack Welch’s reign at GE. At the time, GE was a massively complex organization worth more than $100 billion with its fingers in all kinds of industries like light bulbs, locomotives, jet engines and finance. You can imagine the kind of complexity that went into managing the strategy for that kind of multi-pronged business.

But if you worked at GE at that time and heard Welch speak, he would have focused over and over again on just three things: globalize the business, drive service and recurring revenues, and improve quality throughout the company by embracing the discipline of six sigma.

Of course, Welch could peel the onion or dive deep whenever he needed to. But it was by repeating those three basic elements that he knew he could get everyone in his organization, no matter how average they were, aligned without fearing of talking over their heads.

I actually had a similar experience with a boss, Paul Snyder, earlier in my career. Paul was the CEO of High Voltage Engineering and, while we weren’t on the scale of GE, we were a multi-faceted and growing business with thousands of employees. But I remember even to this day the three things Paul repeated over and over again about our strategy: make the numbers, grow the business and invest in the people. Guess what we talked about every time we got together?

Boom: easy enough for anyone to remember, including me–for many years! That’s the real value in not out thinking your organization. So when it comes to communicating with your strategy with your organization, and ensuring you don’t out think it, the phrase to remember is: keep it short and sweet.

Never Waste A Good Crisis

The best leaders never waste a good crisis because it affords them the chance to make the kind of large wholesale changes their organization needs. They let the fire do some of the work for them to make the organization receptive to change.

In your journey as a CEO or entrepreneur, you will inevitably face a significant crisis at some point. Maybe it will be the loss of a key employee. Or perhaps it will involve getting in trouble with your bank or the failure of a new product launch. The point is that something will go wrong in a way that you never planned for.

In the wake of such a crisis, it’s the natural tendency of CEOs and entrepreneurs to step in and fix the problem. We want to put the fire out. Maybe that’s jumping in to find a replacement for the person who left or even worse, take charge of your R&D team. While those moves might help stop the bleeding, they aren’t likely to push your company forward over the long run.

That’s why I want to change your thinking on this topic. I believe that the best leaders never waste a good crisis because it affords you the chance to make the kind of large wholesale changes you organization needs that you’ve also been putting off for too long. To put that another way, sometimes the best move is to let the fire do its work so that you can rebuild something stronger from the ashes.

Let’s return to the example of losing a top employee; let’s say your best salesperson. While it might seem like the obvious solution is to rehire for that position, the smart CEO asks some questions instead: Is there a better way to go about this? Maybe you should hire two new junior people instead? Maybe the clients that ex-salesperson worked with warrant your VP of Sales stepping in to take over? Or, just maybe, you’re better off losing that client anyway.

Another scenario might be that, due to a massive market disruption, you need to make dramatic changes in your headcount. Now, nobody likes laying people off–which is why most organization lay off the smallest number of people they can. But what if the smarter decision is to cut deeper by getting rid of all of your C players, and then hiring back fewer, but far more productive A and B players instead? In this case, you would have used a crisis to upgrade the overall talent level in your organization.

The point is that when you encounter a crisis, it primes your organization to go through major changes it might not otherwise be capable of making.

Think about your organization like an oilrig in the middle of the ocean. If you were to order your employees to jump off into the cold salty water, miles from shore on any given day, they’d look at you like you were crazy. But if you explain that you’re in the middle of a real crisis–like if the oil rig is on fire–you’re sure to get far different results.

There’s an element of psychology at work here in that when we encounter crisis in our lives, we’re also programmed to deal with change in a way that, in more normal times when everything seems fine, we tend to reject.

That’s also why it’s critical for you, as a leader, not to minimize the extent of the crisis–which is another natural thing for us to do. If the company loses it’s biggest customer, for instance, you might be tempted to prop up the troops by saying something like, “It’s not a big deal, we’ll find another customer to take their place.” But that would be wasting an opportunity.

What you could do instead is be quite direct about the consequences of the crisis. As a result, the organization should expect several major changes to come about. That’s how you can turn a negative situation into a positive one because you can prime the organization to do things it might not otherwise have been capable of undergoing. And this type of transparent leadership will serve you well through tough times.

A crisis allows you to bring about change at a much faster rate than you would normally be able to bring about–which is why you should never waste them. So next time you get some bad news, resist the urge to go and fight fires. Take a step back instead to see if there might be a silver lining in the form of a big organizational change you probably needed to do to avoid the crisis in the first place.

Surprising Questions Great Companies Use to Hire Well

Great companies look at the skill and the will of the potential hire, but they spend just as much time on cultural fit. And many use these four simple questions to determine that fit.

When most people go about the process of hiring on a new employee, they tend to focus on “skill” and “will.” In other words, they look at what skills a person has–like their experience, areas of expertise, and other things they list on their resume–as well as whether that person is willing and interested in working for the company.

But there’s a third category of analysis that most people tend to leave out: culture fit. And frankly, if you want to spend a large amount of your life in contact with them. You don’t get to pick your family, but you can pick your employees!

While we didn’t know it at the time, the most important thing we ever got graded on back in kindergarten was how well we worked and played with others. The same thing is true when it comes to making great hires.

We all know people who are incredibly bright and competent, but who are also not very nice people. They tend to be selfish and self-absorbed and seem to suck the energy out of the room. You simply don’t want to spend time with them. I call people like this “cultural terrorists” because of the damage they can wreak on an organization. That’s why the best companies do everything they can to avoid hiring these people in the first place.

But how do you know how to assess whether someone is a cultural fit or not?

I’ve found that the companies who do the best job at screening potential hires for cultural fit ask some variation of these four simple questions:

Would I like to have a cocktail with this individual? The best interviewers begin by asking whether they’d be willing to spend an hour or so talking casually with this person after work. Are they interesting enough to have a conversation with? Or are they difficult to deal with, socially awkward, or even so self-absorbed you can’t get a word in edgewise?

Would I play a round of golf with them? Golf is not only a great way to spend a day networking and talking shop; it’s also an investment of four to five hours of your time. Is this person someone you’d be willing to ride along in a cart with or even walk beside for that long? If you don’t play golf, substitute, “go to a baseball game” and see if you are excited or thinking of ways to get out of it.

Would you sit next to this person on a flight to Tokyo? Upping the stakes even higher here, but is this the kind of person you could tolerate chatting with over an 11-hour international flight or would you be tempted to lock them (our yourself) in the bathroom instead?

Would you want this person in your foxhole? It’s one thing to ask yourself how you might get along with someone in the best of times. But how do you think this person would react to the worst of them? If you found yourself in the middle of a battlefield, say, with bullets and explosions all around you, do you think you could count on this person to watch your back? Will they remain cool and collected or will they freak out and run for the hills? Assessing how someone might react to a stressful situation is critical for every entrepreneur to ask because sooner or later, you’ll be facing that kind of situation in your business. And you’ll want to count on your team to stand their ground no matter what the odds are.

Now if you can answer yes to all four of these questions, and the candidate also passes the skill and will test, what are you waiting for: make the offer!

But, if you hesitated on answering any of these culture fit type questions, and questioned whether you would truly enjoy working with this person, then just say no. After all, life is too short to work with people you don’t like.

The 5 Best Kinds of Recurring Revenue

The 5 Best kinds of Recurring Revenue picture

Not all recurring revenue business models equally valuable. You can think of it as a scale with five levels where the higher your business model falls on the scale, the more valuable it is. And the key to value in this case is making it hard for competitors to take your customers while also making it undesirable for your customers to switch their business.

In a prior post, we talked about the power of recurring revenue. But some recurring revenue business models are more valuable than other kinds. You can think of it as a pyramid with five levels where the higher your business model falls on the scale, the more valuable it is. And the key to value in this case is making it hard for competitors to take your customers while also making it undesirable for your customers to switch their business.

Repeat Customers are Good

At what we’ll call Level One of the pyramid is a business model based on Repeat Customers, say something like a grocery store. Having folks around the neighborhood stop by every few days to pick up their staples like milk and eggs is a great thing. By providing solid customer service, you can hope to attract those same customers on a weekly basis for years. The rub is that there is really nothing stopping your customers from stopping by a new store that opens on other side of town. Other than the possible cost of fuel, there are no switching costs for that customer. So, while having repeat customers is far better than not having them, your revenue stream remains risky because you can’t count on your customers sticking with you. Many firms in this mode have build affinity programs, like frequent flyer cards to create stronger brand preference and make their offers stickier.

A Network Effect is Better

That leads us to Level Two of the pyramid, which is called Repeat Revenue with a Network Effect. What this means is that the more someone uses the company’s product or service, the more each individual customer gets out of the experience–something called the network effect–which creates a barrier to that customer leaving because no other network is as good. Consider the appeal of a company like eBay. Regardless of whether you are a buyer or a seller, the more people that participate in the company’s online auctions, the more valuable it becomes for you to the point that you wouldn’t even consider switching to a competing offering. Can you even name a viable competitor to eBay these days?

Sequenced Product Purchases are Great Revenue

The next level up is Level Three: the Sequential Revenue Model. The idea behind this approach is to create recurring income by encouraging your customers to consistently upgrade to new product and service offerings. Consider the example of a company like Constant Contact, which starts customers out on a basic plan that costs $10 month. As you begin to use the system more, you can then upgrade if you like, spending an additional $5 a month to get unlimited image storage or the ability to input a larger number of contacts. In other words, the more you use the system, and the more valuable it becomes to you, the more you’re willing to pay. This model also works where companies may offer a free service as a way to attract new customers, something known as a “freemium” model. DropBox, for example, has both a free service and a premium service where customers can access advanced features. Even if the company can convert just a fraction of its customers over to the premium service, it can create an extremely valuable recurring revenue stream.

Good Until Cancelled Revenue is Really Great

Level Four of the pyramid is called Good Until Cancelled Recurring Revenue, where you find examples like insurance agencies or your cable company. What makes this model powerful is when it’s based on an “opt-out” model where the customer has to terminate your relationship with them. Think about when you sign up for your auto insurance policy: You agree to pay a certain amount of money every month until you cancel, which makes for a fine source of recurring revenue. You actually have to make an effort to stop using the insurance. Credit card or bank account billing, where the customer pays their bill automatically, is an extremely powerful way of keeping customers over the long haul.

Contractual Recurring Revenue is the Best

Level Five, the highest level of the pyramid, is Recurring Revenue with a Contract. Think about the contract you signed when you got your new cell phone. Not only did you agree to pay a certain amount of money each month depending on the plan you selected, you also agreed to keep paying for something like two years. Sure, you can change your phone provider, but this time it will cost you, say, a $175 switching fee. That makes changing a little more painful for you as a customer, which, in turn, makes for a better business model. The phone company also runs promotions where it offers you a discounted new phone every year or so. Of course, there’s a catch: You need to sign a new two-year contract to take advantage of the offer. Again, this is an extremely valuable model because you can predict with a higher level of certainty what your recurring revenues will be both in the short-term, as well as over the longer term.

In our next post, we’ll talk about some of the strategies you can use to build recurring revenue into your existing business model.

2 Questions You Need to Assess Your Talent

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Everyone might think they have the best people working for them, but sitting down and doing some objective evaluation on the kinds of players you really have inside is tough. Do you have the talent you need to keep growing your organization? Everyone might think they have the best people working for them, but sitting down and doing some objective evaluation on the kinds of players you really have inside is difficult. And frankly, most entrepreneurs don’t like to do it and aren’t very good at it.

Let’s get started by defining our terms.

A “B” player is someone who is successful and completes their job as indicated, on time, every day. They perform to a standard and, every once in a while, might even surprise you with a breakout performance of some kind. They’re good, steady workers who get the job done–and you need a ton of them to make your company run. At the same time, you know that you can hire another B player any time you need to at a market rate because there are lots of folks like this out there in the labor pool. B players are normal.

An “A” player, on the other hand, is someone who vastly over-performs in their job, tackling, say, three or four breakthrough projects every year. They just operate at a completely different level that B players do. Take, for example, a receptionist who was working for a client of ours. Only, this receptionist had a passion for websites. This guy took it upon himself to analyze the company’s website and come up with a list of recommendations about how to revamp it–something he presented to the president of the company, who gave him the go ahead to make those changes. That’s A player behavior. And, as you might have guessed, that fellow didn’t remain a receptionist for long!

The research shows that in order to recruit or retain A players in your organization, you need to pay them about 20% more than the going market rate. But, in return, A players perform at a rate 70% higher than the typical B player–which is a significant return on your investment. This is particularly true when it comes to certain roles in the organization, such as areas like computer programming or sales, but it pays to have A players spread throughout the organization.

Question 1–What if they wanted to leave?

Another way to think about the difference between A players and B players is to reflect on what happens if one of those employees decides to leave the organization. If an A player says he is leaving, you’ll do whatever you need to keep them such as giving them more money, more responsibility, whatever. With a B player, though, you’ll tell yourself, “I hate to lose them, but I know I can replace them.”

It’s worth noting that since A players are generally confident, high-performers, you can actually have too many of them on the team. It can become disruptive. That’s why, when you analyze most firms, you’ll find that you’ll have about 10% to 20% of the team composed of A players with another 60% to 80% made up of B players. That’s a healthy mix. Where you need to invest some time is correcting for the remaining 10% to 20% of the team: your C players.

A C player is someone who underperforms on the job. They’re stretched out in their role and they continuously miss deadlines and make mistakes. If they’re new to the role, maybe you give them a break because you see the potential for them to grow into a B player over time.

It comes down to answering the question of if that person were to leave the organization, could you easily replace them with someone else? If you can answer, “Absolutely!,” then you know you have a C player on your hands and you need to make a move to exit them out of the organization–which is something we’ll dig into more deeply in our next post.

Question 2- What if the company doubled?

So one tool to determine if you have an A, B or C player is the “What would you do if they left?” The other question is, “Would they be competent if the company doubled?” The answer for an A player would be clear and a B player would be “most likely”. When you ask the question of a C player–a responding “No way” would come back.

Ask yourself these tough questions–and see how your team stacks up for growth.