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THE GROWTH PLAYBOOK
Using an Acquisition Rating Matrix to Save Time and Arguments
I am going to pass on a valuable secret acquisition weapon to you! While you don’t see me issuing press releases and publicly announcing who is buying who, I’ve been involved in scores of confidential buy/sell transactions over the past two decades. I love matching family companies with other family companies and making great culture fits where everyone makes money and is happy!
What I came to realize was that too many owners were wasting needless hours contemplating, studying and even structuring and massaging acquisitions that simply were not good fits. Their desk was being cluttered by every Tom, Dick or Harry broker sending out multiple solicitations, so all of sudden growing owners were faced with scores of opportunities. The families would spend hours talking about deals, going around in circles. I knew I needed to do something to get them clear and unstuck.
I’ve been a believer in rating matrixes, using them in credit and project prioritization for years. So my solution to get them unstuck was to help each family create a rating matrix to filter acquisitions. Since each company’s sweet spot and strategy is different, and strategy is fine-tuned and even redirected over time, each matrix is customized to exactly match what the company truly needs to catapult to the next level. And best of all, you don’t need me to do it! Here’s how…
First, in general, the components of the matrix should include preference in geography, sectors/specialties, size, business core values/culture fit, physical assets (with specifics), technology, and people assets (with specifics). You can add or subtract, making the matrix fit your exact needs.
The act of purposefully creating the matrix as a family team allows for meaningful dialogue and unveiling of differing views and preferences. The team approach gets those differences out on the table where they can be dealt with effectively and consensus and agreement built. It’s far better for these discussions to happen in a board room building the matrix prior to any emotional pressure of an eminent acquisition while everyone still has cool heads!
For example, I was working with a family where suddenly a mixed wholesale and retail opportunity had presented itself through a broker. This family had sold off some retail years before so was totally out of that sector. While half the family loved the idea of a retail presence, the other half was not thrilled with going back into a situation with so many employees again. This raised healthy discussion over the family’s objectives and different ways their volume and profit potentials could be achieved.
As the family gains clarity, I’m a stickler for including some sort of Return on Assets (ROA) component. Any acquisition should incrementally add to ROA and not dilute. I’m not opposed to buying distressed situations, but the forecast must show the end result increases the overall ROA on the combined operation. If the acquisition lowers the ROA, the acquisition will effectively lower the overall value of the family’s holdings, making their pre-acquisition assets LESS valuable than before the purchase. Obviously, this defeats the objective of creating family wealth!
It’s a good idea once the family has created the matrix to have trusted outside eyes review it before putting it into active use. This can be your outside CPA, a trusted banker, myself, or other professional you trust.
In the case I mentioned with the retail discussion, the broker had taken super aggressive license with add-backs. In fact, as we reviewed the package, an expert on my team said he would be embarrassed to present a package with add-backs listed by the broker. So, as we reviewed the retail assets for the family, the true cash flow was far less than what had been represented. (By the way, we never do that in a Meridian package. We believe in being forthright since most of the people we sell to remain our clients over the years.)
I mention this situation with the crazy aggressive add-backs because you must be really careful with how you rate opportunities if using a “doctored up” solicitation package as your basis. But at least using your matrix, you’ll have a preliminary score. Your matrix score may later be lowered (or sometimes increased) during your due diligence process. The important point is your matrix allows each opportunity to be scored and compared objectively, so your decision making will come from an empirical data system, not just emotion and gut feel.
With the matrix in place, and your 1-5 rating system, each opportunity should be scored by at least two people (CEO and CFO are typical). If only one person scores, you miss the valuable dialogue. Some families have a 2-3 member team do initial scoring, and then based on a minimum threshold, involve more family owners only if a potential acquisition meets the minimum threshold score. This two-tier system has proved useful and helpful to families.
I often get questions about weighting the criteria. I like using a weighting system for your criteria based on your family preferences. Again, use the team to create your weighting factors so that everyone is “bought in” to the methodology because they created it. That stops most arguments before they begin (not that any family has squabbles – LOL!)
If you have questions about creating your own Acquisition Matrix, please feel free to call me at 817-594-0546. In the meantime, hoping you make this your best year ever
#1 Customers
#2 YOUNG LEADERS
#3 CRITICAL FUNCTIONS
#4 SOLE TASKS
#5 HOLES
Blueprint for Mega Growth Success
There is an insatiable thirst in family businesses for size. For decades, small family companies dominated markets, providing outstanding service to local customers with a high degree of intimacy and relationship. But now, industry media is filled with merger announcements. My own company is helping many of these companies buy, sell and merge. Some previously small family companies are morphing into regional and national powerhouses. Will they succeed? What can be learned about mega growth success and failure from other businesses?
In groundbreaking research just released, David Thomson, a former technology executive and management consultant provided the blueprint for mega growth success by studying what it takes to go from small company start-up to billion-dollar company. He created the blueprint through intense number crunching analysis of 7,454 American companies that went public after 1980. The findings have profound implications for any family company bent on mega growth success.
Out of 7,454 companies studies by Thomson, 25% went out of business, and only a mere 387 (5%) of them reached the billion-dollar revenue mark. Remarkably, those same 5% accounted for 50% of the job count for the entire group. These are the blueprint companies. And for the few that rise to the top, success has its rewards. Stock in these high growth companies outpaced the S&P 500 six-fold in just a five-year period. So what does it take? Through careful study, Thomson identified seven drivers of mega growth success.
1. Create and Sustain a Breakthrough Value Proposition. In an industry where fuel is fuel, how do you create breakthrough success? That’s what Starbucks executives grappled with where we all know that coffee is not just coffee. High growth companies sell emotional benefits, not just products. Take for example blueprint company The Cheesecake Factory. In 1978, CEO and Founder David Overton was simply looking for an outlet for his parent’s struggling cheesecake bakery when he opened his first restaurant. The company went public in 1992 with $52 million in sales and racked up $1.1 billion in sales at 111 restaurants in 30 states thirteen years later. How? With larger-than-life portions and gaudy theatrical flair, all of this achieved with little or no advertising. Action Item: Knowing that high growth takes a breakthrough value proposition, I personally challenge you to think through your company’s uniqueness in an industry where sameness and standardization rule. Know exactly how you will stand out from the rest of the industry.
2. Exploit a High Growth Market. Huge growth companies exist in virtually every industry. And frankly, the gasoline industry is already such a huge marketplace that few in our business should have any concern over ability to reach a billion in sales. Ameritrade is an interesting example of a company seeing and grabbing a huge market. Although they officially entered the discount brokerage market in 1975, it was visioning the potential online market that became key to expansion in 1995, allowing the company to go public in 1997 on revenues of $73.8 million. After recovering from the dot.com implosion, the company earned $340 million on $1 billion in sales eight years later, something they would not have achieved without expanding what they “saw” as their marketplace. Action item: Determine how far your geographic reach needs to go. Define the growth trends in your target market. Start by concretely knowing the total market for your product mix, something easily available through good demographic firms like IMST (www.imstcorp.com). Challenge yourself to examine and reset your definition of your marketplace.
3. Focus Relentlessly on Cash Flow. Successful high growth companies know the difference between growing sales revenue, growing profit, and growing cash flow. Of the three, cash flow takes center stage. Blueprint companies are characterized by funding growth through operations, not through huge capital investment at start-up (other than biotech and telecommunications that require large upfront capital). Most of the blueprint companies were founded on a shoestring, just the opposite of so many money-infused start-ups that flare and burn into extinguishment. Will our industry have some that flare and burn? My guess is we will not be immune.
Already the wall street types who believe in a sequence of get a pile of press, get a pile of money, then get a pile of customers, are knocking on family doors. Blueprint companies actually succeed in reverse order – they start with customers, sales that create internal cash flow and then finally go to the press with their success. Real live customers finance operations until the company gets to the IPO (Initial Public Offering) size. Even after the IPO, they relentlessly pursue positive operational cash flow. Action item: Invest in top-quality, industry-specific cash flow education.
4. Leverage Big Brother Alliances. Blueprint companies attract great customers with high profiles and reputations that open doors to new markets. Think the little fish landing the whale. For instance, blueprint software company Cerner was just a small hospital management software company until Mayo Clinic took a huge risk with this relatively small little known, but technologically advanced company. Mayo realized it needed an integrated technology solution in their booming industry with shrinking insurance reimbursements and skyrocketing costs. Their choice was to spend $16 million with a relatively obscure vendor. The risk paid off. After five years of start-up, Mayo is realizing between $3 and $7 million annually in savings and having instantaneous access to all their medical data. The relationship with Mayo then made it easy for Cerner to land other customers. Action Item: Determine the “whale” in your marketplace that has the potential to push you to be a better supplier and open doors to new customers.
5. Pack Your Board With Industry Experts. In family business, few companies have boards that go beyond family members and a few trusted professionals or friends. Blueprint companies, however, do not pack their boards with insiders who simply want to keep on eye on the cash. Instead, they choose successful CEOs from outside industries plus industry experts who offer deep experience, help bring in business and give shrewd business advice. Action Item: If you do not have an outside advisory board, and you are serious about growth, act now. Develop a list of potential high power board members, then stock your board with the best. They will drive you to achieve more than you knew even possible. That’s value.
6. Use Blue-Chip Customers to Gain Credibility. Closer to our industry is the blueprint company Headwaters, an alternative energy provider that was struggling to sell its patented synthetic coal technology to electric companies until latching itself to Dow Chemical. In 1999, Headwaters had lost $28.4 million on revenues of only $6.7 million, but with the Dow relationship, increased its net cash on operations to $151 million on revenues of $1.1 billion six years later. Action Item: Within your marketplace, identify potential blue-chip customers, create an action plan for landing them as a customer, then launch a campaign to leverage that relationship.
7. Build an Inside-Outside Leadership Team. At blueprint companies, Thomson consistently saw two-person leadership teams. One leader was great with “outsiders” including customers, bankers, vendors and even media — think high-charisma and charm. The other half of the leadership team was the “inside” person — an expert in operational efficiency and cash flow. They watched the books like a hawk. Action Item: As CEO, honestly assess whether you are the inside or outside person. Acknowledge that you can’t be all things to all people, much less be in two places at the same time. If you don’t have a counterpart, promote or hire one now.
In summary, growth doesn’t guarantee success. If your plan is for mega growth, use these seven mega success attributes as foundational truth. Through honest assessment and action, allow them to keep you from being part of the 95% that either miss the mark or can’t sustain their success; allow them to catapult you into the top 5%. Perhaps years from now, it will be your company that future MBAs will study in their business schools for greater insight on the exact formula for business success!
THE HIRING PLAYBOOK
Attracting Younger Workers
Hiring Younger Workers
Retaining Younger Workers
How to Identify Your Talent Needs
Find the Best Talent
Meridian Method of Hiring
Successful Onboarding Strategies
How to Develop and Retain Employees
THE EFFICIENCY PLAYBOOK
Turn Your Meetings Into Actions
Use this Agenda for Productive Meetings
How to Lead Your Meetings Effectively
How to Create Action Items for Accountability
Self-Assessment
Session 1 Tools
Great Customers
Session 2 Tools
Strategy
Service and Systems
Getting Lean While Growing
Time Management Part I
Time Management Part II
Time Management Part III
Remove Physical Barriers to Efficiency
Are there any physical barriers right now in your daily work processes that are creating inefficiency? Is your office physically designed to streamline workflows and minimize walking around time? Is your warehouse storage designed to minimize footsteps and errors? If you are like most owners, you’ve got lots of physical barriers to efficiency. If you’ve been spending time streamlining your business processes, but have yet to tackle your physical spaces, don’t delay. Here’s how.
Start with your main office. Yes, ideally automation means we’ll all have less need for walking. But if your company is not quite as sophisticated in its MIS system, as you’d like it to be, keep reading. Start by analyzing who has to walk where to get their daily work done. This includes getting supplies and data as well as filing. Who needs to communicate regularly with whom?
Rather than you (management) trying to figure out all the workflows and redesign the office, gather up your office employees. Ask them how often they have to leave their desk during the day and where they go. With just a little record keeping followed by discussion, most of the physical barriers in your office will be revealed as well as making it abundantly clear who needs to be in close proximity to whom.
Concurrently, determine who may need more privacy in your office. Some folks may be more accessible to interruptions than they like. Typically, credit and receivables folks like to be away from customer earshot and top management needs quiet space for thinking and planning.
Now the challenge is to design your office workspace to optimize efficiency. If your office is in an old-style building with lots of separate offices, this may entail tearing down some walls or at least creating more doorways and/or open windows between offices. Interestingly, in our consulting work at Meridian, we find the companies experiencing the greatest difficulty with communication are those that exclusively use the multiple private office concept.
Conversely, some company offices are one big open room, with no privacy for executive management or credit. Portable wall to ceiling dividers can be a relatively inexpensive solution to create needed private nooks.
If you have a wholesale office with walk-in customers, check the proximity of your customer service reps to customers. At least one rep should be positioned to serve customers without leaving their chair. Have multiple reps? These folks usually need constant communication for effectiveness so cluster them together.
Depending upon your workflow and degree of automation, customer service may need close proximity to dispatch, with dispatch needing proximity to drivers. Drivers shouldn’t have to traipse through a main office to chat with dispatch, which means dispatch needs to be located very close to an outside or warehouse door.
Many wholesalers cluster their sales folks together but isolate them from customer service. Sales should have easy access to customer service and may also need proximity to dispatch.
For a retail operation, logically organize your office according to paper flow. The same exact principles apply. If the accounts payable person needs to frequently work with a marketing manager or purchasing person, put them in close proximity. Gather up your staff and let them tell you where they go during the day and what they need.
Once you have physically set up your office to optimize efficiency, the warehouse is next. Begin by positioning products according to turn. The highest turning products get located closest to the door or loading point. Frequently ordered product pairs should be placed side by side. For instance, if customers who order packaged 10-40 quarts usually also order filters, locate those filters near the 10-40 quart cases.
As with the office redesign, make sure that those folks with the most knowledge are driving the changes. The warehouse personnel will be positive and excited about the process if they get to design it themselves and know the work it will save them every day.
With that said, however, remember we humans perceive change as painful, especially a major change like physical space. By involving staff and actually having them direct the process, you will help minimize resistance. However, there will always be some folks who like things just the way they are right now. Believe it or not, those same folks are likely to be your top performers.
You see, typically, the more organized the person, the more resistant they are to change. Try to keep in mind that these top performers are very comfortable with things right now just the way they are. To them the thought of moving desks, opening up walls, and in general, disrupting their life will be very disturbing and get in the way of their top performance. So, do lots of reassurance as you get your projects done and keep reinforcing the expected savings to the company. You need efficiency, but you also need your top people!
Cut Costs through Process Re-engineering
Most companies today want to cut costs. As competition heats up and gross margins get squeezed, it’s natural to turn to cost-cutting to maintain a healthy bottom line.
The typical approach used to cut costs is the P&L line item approach. Basically, management reviews a recent financial statement and scrutinizes all the operating costs, line item by line item, for possible reductions. Unfortunately, this method may not produce the total results desired.
When it comes to cutting costs, it is critical to realize that the bulk of any company’s operating costs are a by-product of their business processes. To dramatically reduce costs, therefore, a company must re-engineer those processes.
The best way to think about re-engineering is to totally remove yourself from your day-to-day operations, giving up all ideas and preconceived notions about how your business is presently working. In essence, think of re-engineering as getting a brand-new start. If you had it to do all over again, how would structure your business processes? Use these conceptual questions to get your thinking started:
- Who should be my target customer?
- What goods and services would I need to provide to best serve that target customer?
- What would be the most efficient and profitable way to fulfill that customer’s needs?
- If you could design the perfect business system, how would it work?
Edwards Deming, the father of Total Quality Management, gave us a very profound statement when he said that business is a system, and that we are getting exactly what our system is set up to deliver. To achieve significant cost reduction, you must change your business system.
For instance, let’s look at the example of dispatch routing systems. Very few companies want to tackle the job of re-engineering dispatch! Too often, however, dispatching the way we’ve always done it costs us way too much money.
Let’s look at an example of dispatching a keep-full route. Here is how you would spot-check for system efficiency:
- Randomly select five to ten regular keep-full customers that will be used in your spot-check.
- From your computer system, get the following information for each account over a full one-year period: Tank size, Date of delivery, and Gallons delivered.
- Compute the customer’s gallons-per-day usage (number of days since last delivery divided by gallons delivered).
- Based upon the customer’s tank size, compute the number of deliveries that should have been made in one year’s time.
- Subtract the number of deliveries that should have been made from the actual number of deliveries.
- Multiply the excess number of deliveries by your average delivery cost. (Use $50 per delivery if you don’t know your actual cost.) The result is the amount of money wasted on too-frequent deliveries.
Dispatchers often schedule weekly deliveries (because that’s easiest for the dispatcher) when 10 to 12-day schedules would adequately meet the customer’s product requirements. This translates to 20 extra, unnecessary loads per year. At $50 per load, this is $1,000 per customer. For a company with 50 keep-full customers, this waste costs $50,000 per year. With 100 customers, the waste is $100,000 per year, and so forth.
Please note that these excess costs due to the inefficiency of the dispatch system would not be found using the traditional line-item P&L approach to cost reduction. This is just one example of a six-figure unnecessary cost due to a typical, taken-for-granted business process. To eliminate significant costs in your company, you must re-engineer your processes!
Also note that re-engineering of any business process requires change, something very uncomfortable to our basic human instinct. The dispatcher in our example would likely balk at leaving his known and trusted once-per-week schedule. He would give the company lots of reasons why not to change the schedule — like the customer may run out if we don’t go once per week. (By the way, this is simply not true. You would know the customer’s usage cycle better now than ever before.)
Stay mindful that any time you re-engineer a business system, there will be outward signs of human discomfort as change is initiated. Very few people enjoy and embrace change. If, however, everyone knows why the change must occur, you will experience less grumbling through the change, better team spirit, and perhaps even a little humor when it’s needed most.
Make a list of every system within your business. Do a thorough check-up on each. Don’t leave out any systems — there should be no sacred cows! Next, for each and every process, determine at least one efficiency measure and then use random sampling to test your existing efficiency. For example, time how long it takes to do a critical task, or measure how many errors are occurring. Don’t be afraid of the truth, even though it may be painful!
Finally, develop and reward a questioning attitude in your employees. Blind obedience may be attractive at times, but it won’t help you sharpen up your business and substantially increase your profits.
Every time you re-engineer a process, make a mental note that even the best processes should be upgraded every three years. Whenever you think you are through improving your process, think again! Highly successful companies know that process re-engineering should never stops. You just simply never get perfect, but you should never stop trying to get there.
THE SUCCESSION PLAYBOOK
Passing the Baton Lesson 1
Passing the Baton Lesson 2
Passing the Baton Lesson 3
Passing the Baton Lesson 4
Are You Caught Between a Rock and a Hard Place?
Running a family company in the midst of the economy’s sweeping change is becoming less fun. Supply challenges, competitive pressures, employee issues, regulatory hassles — all can eventually take their toll on you, your business, and your family. While all this is going on, you may be hanging in there because your business is your life. You love the business, you enjoy the camaraderie, and it may even be all you’ve ever done, so you can’t imagine yourself being anything but part of this family business. But somewhere in the back of your mind, you’ve got this nagging. You know for your company to survive the next few decades and stay in your industry will require ratcheting up your efficiency and performance to stay profitable. And you may have doubts about whether it’s even possible.
If that wasn’t enough, there’s the added pressure of all the family coming up in the business. You may worry whether the business can generate enough income and cash flow to keep the next generation secure. If you stay in, will they be able to enjoy the same lifestyle you have? Some business owners have confided in me they worry about whether they are leaving their children a treasured legacy or a ball and chain.
I don’t think a day goes by that I don’t talk to an owner feeling like they are caught between a rock and a hard place. It’s truly painful. And like any pain, it’s far better to do something about it rather than just tolerate it day after day. The key to ending this agony is action. What action? Either make a commitment to stay in for the long haul and grow, or set a course, a strategic game plan to exit at the point of your choosing. There are two basic pathways out of that rock and hard spot place you’re in, go or grow.
Grow – With more and more family needing higher and more salaries, one clear choice is to expand your business either organically, through acquisition in your current geographic area, or by busting out of your current borders. One of my joys is revealing new business potential to families and daring them to dream to new heights. Whether through target acquisitions, or setting strategic direction via my two-day onsite strategy team session, to me, high growth companies within clear family value guiding boundaries are exhilarating. I love seeing family companies achieving new heights of profit.
Grow now with “exit later” plan – Over the past few years, I’ve been blessed to help several owners strategically poise their companies for future sale. One year, I sold a company that originally sought my cash flow advice back in 1991, my first year in business. Over the years, I played sideline coach and watched as the company grew volume, sites, and profits. Then, I was given the honor of finding the perfect buyer just at the right time when the owner decided it was time to retire and go play. With other clients, the exit window has been much shorter. Frankly, lots of owners aren’t sure exactly when they want to exit, but know that generating a few years of solidly upward performance right before a sale brings maximum price. We recently listed a company with owners only in their forties. They had put in five straight years of increasing volume and profits and felt the time to cash in is now. Smart move.
Exit now plus enjoy the benefits of staying in the business – Because some owners have already decided to bust their borders and seriously expand into regional or national powerhouses, they specifically want to buy companies where existing competent management will stay on and run the operations after the sale. While some owners fret over whether they can go from being the boss to being an employee, a few have successfully taken the plunge. I recently spoke with one of our sellers who absolutely loves having executive level peers to brainstorm with, the reduced stress from no longer being 100% financially responsible (he’s getting to grow the business with someone else’s money now!) and gets a tremendous rush every time he sees his fat personal bank balance since his sale. His retirement is secure plus he’s still in the industry he loves, having fun. He also shared that because his new owners can buy supply at prices he only used to dream about, he’s also having a blast adding on new customers, stealing them from his arch competitors. Now that’s a kick! Life is good for him and all because he took action despite his fears.
In other instances, we’ve helped Dads retire and competent kids continue in the business under the careful guidance and watchful eye of new owners. We have one buyer who cracks me up when he affectionately talks about his “world domination plan.” While using this phrase tongue and cheek, he actually created profitable worldwide companies several times and seems to have the grit and smarts to do it again! These kids are actually becoming more and more competent through non-family, competent new owners that they actually listen to!
Exit now and go do something else – If you dread going to work, do yourself and your employees a favor by selling now. You owe it to yourself and your family to find a new career direction you can get excited about every morning. In my experience, the longer you delay, the less cash you’ll end up with at the end. Just today I completed a valuation update for a good jobber who is already on the downhill slide despite his best efforts. His company declined in value 5% from last year’s value even though gross profits were up. Expenses had gone rampant, volume was starting to slip, and I very much wished I’d been more aggressive with him about selling the business last year. Even now, it worries me that he may delay selling because he has no idea what he would do with himself if he did sell. In the meantime, his company is in serious danger of just withering away, and if that happens, he’ll have ruined his retirement. While desperately wanting to preserve his lifestyle, he’s committing slow financial suicide.
It doesn’t have to be that way. I keep in touch with many of our former owners who have gone on to experience satisfying lives after selling. Some have transitioned to new careers. One started a new business with his sons and his proceeds. One really young guy who sold last summer has more interesting job offers than he knows what to do with but hasn’t made his next career decision yet and thanks to his cash position, can take his time.
And finally, to borrow a phrase from author Rick Warren’s book The Purpose Driven Life, you may need to remember “it’s not just about you! ” To help you set your path, ask these questions:
- What decision will most bless my immediate family?
- What decision will most bless my customers?
- What decision will most bless my employees?
If you seek honest answers to those questions, you will know which path to seek. Whether the answer is grow or go, please know I’m committed to help you and when I do my job right, you may even enjoy the journey. Getting unstuck from between the rock and the hard place feels good. Would you like to explore your options and speed up the getting unstuck process? Call me at 800-728-9005. We’ll discuss what’s happening in your business, your goals and sort through your options until you can settle on your best game plan.
Love Hate or Habit
There is nothing more fascinating to me than family company dynamics. I’ve spent the past two decades smack in the middle of family issues within this industry saturated with 2nd, 3rd, 4th and even 5th generation owners. I’ve experienced first-hand the various degrees of love, hate and habit that occur at one time or another. I’ve witnessed that the “family” in family business can present even more challenges than widely swinging prices and seemingly stupid competitors. In fact, the more family in the business, the more conflicting ideas about growth and company direction.
Whether you are the family, or just work for the family, knowing where each family member is in the love, hate, habit cycles and your ability to manage each will have major impact on your company’s success. Let me elaborate.
Love – Easy to recognize, this cycle is charged with energy, enthusiasm, forward focus and clear vision for the company. It’s often found in younger generations as they enter into management and decision-making. So, what’s wrong with this cycle and why would you need to manage it? While it’s contagious and exciting, those in the cycle may lack the ability to see any negatives. Remember your first crush? When you didn’t see the warts or pimples on the first date? Love is truly blind but, to run a company effectively, you need all blinders off.
Proactively managing this cycle without dampening enthusiasm is tricky. The key is to create healthy risk boundaries. The solution is written rules for risk tolerance. Most CEOs have these rules in their head but have never written them down. The CEO wants the next generation of leaders to make wise decisions, but without knowing the experiences that created the mental rules you’ve gained over the years, how can they? By helping your upcoming leaders gain a clear understanding of risk boundaries, their excitement and ideas can still flourish within your tolerable risk parameters.
Hate – This cycle may be cleverly disguised because no owner or executive wants to admit to anyone, much less themselves, that they hate their job and its responsibilities. So, the way to identify a hate cycle is through behaviors. Avoiding work, or conversely working long hours with lots of verbal blaming. “It’s my suppliers, it’s my stupid competitors causing all the trouble, my customers just won’t pay, if only the economy were better we’d be fine, blah, blah, blah…” are all signs of a hate cycle which typically occurs in conjunction with times of financial stress.
If you observe someone (and maybe even yourself) in a hate cycle, realize that at this point in time, the person doesn’t have the energy, the creativity or even the “want to” for leadership, much less the visionary force needed to drive a company to its next success. Therefore, it’s critical this cycle be broken. If left unchecked, it is a cancer that will spread to the entire organization and can literally destroy the company.
To help any person in a hate cycle you:
- Tactfully tackle the problem with the individual. Remember ignoring it adds to the problem. In the case of a CEO, consider enlisting outside help from an already trusted advisor who can address the hard truths without fear of repercussion.
- Discuss the observable behaviors and the impact of those behaviors on the company.
- Determine if the cycle is caused by a mismatch in talents and responsibilities (think round peg in square hole) or simply overwhelm from inability to deal with the velocity of change in our industry.
- If overwhelmed, engage the person in a positive future vision, including actions needed to get out of the rut. In most cases, the person has lost hope and can’t see the future vision without outside help. (Let’s face it, if they could have done something different they already would have.) So, pair them with a person with propensity for vision, whether from inside or outside the company.
- If mismatched, arrange for their exit. It will bless them and all the employees!
Habit – This may be the most difficult cycle of all. Why? Because it’s so lukewarm that no one gets it, even the person in it! There are no glaring hate behaviors, and of course, no passion either. Imagine a robot showing up to work. The person in the habit cycle walks in, does the same thing each day, and is not miserable or elated. Think flat line and you’ll have the picture. At first blush, they can even appear quite content. Their daily rut feels comfortable to them. So, what’s the problem if they are happy and the company is profitable? The problem is lost opportunity and fun!
The “Habit” person doesn’t really care that the company could be more profitable. They don’t have their head stuck in the sand, but are just ambling down their rut rather than jumping out of it and achieving greatness. The consequence is lost opportunity — the company and all its employees miss the thrill of high performance and bigger profits. From an employee perspective, that means missing higher paychecks that ultimately bless entire families.
So now let me share with you a practical application in a real family. This family is in third generation ownership trying to make it to the 4th. As the number of active family members in the business increased, their solution to ego wars was to divide responsibilities by division. One person ran the lubes, one ran retail, one ran trucking, one worked in the office (and was pretty much useless but tolerated according to the others). Oh, and of course, Mom and Dad still own 100% (which is why the useless one hasn’t been fired – where else would they be able to work and make a living?) Each month they have a family board meeting. Now this can be good thing if there is functional communication (you guessed it – completely dysfunctional in this family). And, to complicate matters even more, one sibling runs an outside real estate company which everyone notices is making more money than the entire petroleum company!
On a conference call, talk began to center on which divisions were profitable and which should be divested. Of course, no one agreed on the overhead allocation to their division and no one wanted their division and certainly not their own salary to go away. The lubes guy was in Love cycle, trucking guy in Habit, retail in Hate but not willing to part with the income, the incompetent office worker in Habit. I can’t evaluate the real estate guy as I haven’t met him and the family doesn’t say much about him, but my guess is he’s in “Visionary Leadership.” While I love to see all my clients in Visionary Servant Leadership, with this degree of infighting, the “servant” part may not be tops on his list!
So, what was my solution? First, get them all on the same page via my webinar coaching program, a structured, methodical monthly series where the real strengths and weaknesses of a business surface. I knew this would force them to start working together toward common goals. Each session has homework – sampling techniques that usually take no more than 15-30 minutes to test and determine the degree of cash and profits currently missing in their various business sectors. At minimum, the family members would get a reality check that I know translates to increased profit. At best, they gain clarity, focus and lots more profit! (For more info on this specialized coaching program check out M-Power.)
What I really want you to understand as you read this is that whether you are family, or work for the family, being able to recognize the love, hate and habit phases and take appropriate action is critical to achieving peak profitability. Take a hard look first at yourself and then the people in your organization to detect and break any destructive cycles.