NOTHING PERSONAL, JUST BUSINESS

For small independent business owners the personal life and the business life are tightly interwoven. More often than not the business is the primary – if not the only – source of income and wealth. In many instances the business owner has put everything on the line in order to start a business or stay in business. In order to get and keep enough working capital he/she often has no choice but to subordinate everything owned to the bank or suppliers for credit.

As if the pressure of having to meet payroll every week is not enough, the small independent business owner puts enormous pressure on him/herself and the family by putting everything at risk: income, retirement funding, college funds for the kids, even the roof over his/her head.

Should we be amazed then that, even when these pressures have abated, equity has been built in the business, kids have successfully completed their college education and meeting payroll is no longer a concern, the interwovenness of personal and business life does not really change for many owners? These owners remain firmly in control of their business by being at the center of operations every waking minute. They are the Owner, Chief Executive, check writer, first line repairman, janitor and bottle washer and everything in between. Little, if anything, happens in their business that they are not involved in. It is as if they still have to protect the roof over their head.

These are the small independent business owners who, unwittingly, become the largest impediment to the growth and full development of the enterprise they sacrificed so much for. These are the prototypical micro-managers who know everything and know how to do everything better than anyone else in the business. These are the owners who are putting their dream at risk of atrophy, because they are incapable of attracting and keeping the talent the business needs to grow and flourish. These are the owners of businesses that are almost completely run by family members, because they have a hard time recruiting competent outsiders.

These are also the small independent business owners who have the hardest time initiating a plan for how and when to exit the business even though they may loudly complain that they can never be away from the business or things are falling apart. When asked, they will tell you that they would not want to die in the saddle, but they don’t take the first step to design a transition plan that will allow them to step away from the business in an orderly fashion and within a planned timeline.

Dave Sullivan, in his last appearance as the co-presenter of Aileron’s (www.aileron.org) Course for Presidents in October of 2013, addressed this reality and offered counsel for a better way of organizing the life and business of the small business owner. 

His first advice is to never start an enterprise without, at the same time, designing an exit strategy for the possibility that the enterprise may not pan out or may not deliver against the Owner’s expectations. It is one thing to risk everything for a dream of a well-designed entrepreneurial endeavor, it is unacceptable to increase the risk of lasting damage by not having contemplated how to extricate from a business when it fails.

Dave Sullivan’s further advice to business owners is to keep two parallel plans: a business plan and a personal plan or rather, in order of priority, a personal plan and a business plan. The thought here is that for the small independent business owner the business is part but not all of his/her life and that it is important for the person and for the business to have sorted out how, where and for how long the two intersect.

We all have only one life to live and –as we all know and if we play it right– there is more to life than just work. If the owner is a real entrepreneur, chances are that he/she will want to pursue more than one idea and start more than one business. In that case getting too deeply involved with one endeavor represents failure. A life plan deals with what one wants to make out of one’s presence on earth and what one wants to represent to others, family, friends or outsiders who are people in need of something one can deliver. Some, but never all, of that can be delivered by running a business. And therefore it is incumbent upon business owners to decide early on, but better late than never, where their business figures in the larger context of their life’s plan and where it should take a backseat to other pursuits.

If I heard Dave Sullivan right, he encourages every small business owner to have a life’s plan first and then figure out what contributions the business should make to achieving that plan. And what limitations should be placed upon the business owner’s interaction with the business in order to make sure that the business does not stand in the way of accomplishing the personal goals expressed in his/her life’s plan.

Just like a happy spouse is crucial to a good marriage, a business owner in pursuit of happiness is good for the business; and social research has established beyond doubt that happiness does not come from work or wealth but from accomplishing what one has set out to make out of one’s life.

For people who think that personal life considerations should stay out of business, I would remind them of the interwovenness of the two they have undoubtedly experienced at one point in their career. The two should be reconciled and that requires planning of both life and business.

Dave Sullivan would say as he dispenses this advice: It’s nothing personal, just (good) business!

THANKSGIVING 2013

I am grateful for what I am and have. 

My thanksgiving is perpetual…

Henry David Thoreau

But I am a little concerned about my children and grandchildren. Will we leave them a nation in debt and politically so divided and paralyzed that it is incapable of rising to the occasion as it has done so many times in our time?

I am grateful for what I am and have but have we been too selfish in claiming for ourselves more than we were willing to pay for, presenting the next generations with a huge credit card bill?

I am grateful, but not too pleased that consumerism is claiming every single Holiday on our calendar, first Christmas and now Thanksgiving too. Do we really need to break up our Thanksgiving celebration to start our Christmas shopping at Best Buy?

If we don’t have our priorities straight are we even deserving of Thanksgiving? From those to whom much is given, much is expected; and from the one who has been entrusted with much, much more will be asked (Luke 12:48).

John F. Kennedy reminded the nation on January 9, 1961 of this biblical admonishment. Have we been heeding the message?

HAPPY THANKSGIVING!

BUY PELLA AT YOUR PERIL

I have written before about customer service. How every business today will claim that “the customer comes first” and how few put their money where their mouth is.

Case in point Pella Corporation. On its web-site Pella claims to be putting customers first. It proclaims: “Pella is a family-owned and professionally managed privately held company. Because of this, we have a proud tradition of putting our customers first.”

Lip service! Let me share with you my experience with Pella.

In 2001 we built a new home to accommodate us in our upcoming retirement. A comfortable ranch, with lots of natural light coming in through 19 windows. The builder’s standard offering was Windsor or Andersen windows, but gave us an option to “upgrade” to Pella at an additional charge. We chose Pella thinking that it would offer us the highest quality product. Knowing of Pella’s Dutch origins, we were charmed by the thought that we would be supporting our own brand.

Our builder installed 19 Pella windows, of Pella’s ProLine Casement type.

Pella now knows – and so do we – that these windows were defective. In 2006 Pella has re-engineered the product to eliminate the flaws and ProLine windows installed after that changeover don’t seem to present the same problem.

The problem, in layman’s terms, is that the casement protecting the wooden window frame is found to separate from the glass, allowing water to penetrate the unit. Over time moisture will build up inside the unit and corrupt the wood frame. Pella offers a ten year warranty on these windows.

When Pella discovered the problem and re-engineered the product it did not notify existing customers who had bought its ProLine Casement windows. But it could not hide the problem entirely and its was confronted with a class action suit, Saltzman v. Pella Corporation, Case No. 06-cv-4481. The suit was settled in 2012 and approved by the court in March of 2013. This settlement is highly unsatisfactory and probably the result of Pella having much deeper pockets than the plaintiffs.

In the settlement agreement Pella did not acknowledge that the product they had supplied was defective. On the contrary, Pella CEO Pat Meyer declared in a statement issued in 2012 upon reaching the settlement agreement: “In the overwhelming majority of cases, our Pella windows performed extremely well and as designed”. She continued: “The settlement is designed to address the relatively small number that may have experienced a problem.”

This is a typical case where the company is more concerned about its short term financial performance than about the customer. Long term I don’t think that Pella can get away with duping its customers.

All of my 19 windows are defective. It took me a long time to get Pella to send out a technician to assess the damage, but when he finally came out he found that of the 19 windows 6 had to be replaced and the other 13 had to have the cladding and joiners replaced.You would think that Pella would come out and do the work at no charge, but think again!It will cost me $3,642.31 to have Pella repair the damage.

Pella is hiding behind the court sanctioned settlement agreement and offers only a 40% discount on the purchase price of replacement product. That is a deal I can get when I go to Andersen for replacement windows!

Pella should accept the court sanctioned settlement agreement as a minimum compensation for the cost incurred by its customers for ProLine Casement windows. If Pat Meyer is correct in her statement that only “a relatively small number of customers may have experienced a problem”, Pella should stand behind its product and hold the customers who do experience a problem with its windows completely harmless.

I am not alone in this situation. All you have to do is Google “Saltzman v. Pella” or “Pella ProLine Casement” and you will get to read a litany of duped Pella customers. 

One of my fellow victims left a highly illustrative comment in a web posting on June 4, 2013:

”I beg to disagree with Ms. Krafka-Harkeema (Pella spokesperson) when she says that the Pella windows in question have performed extremely well. I also beg to differ in her claim to addressing customer service needs. Our first window we had to replace at full cost. The remaining windows had started to rot out but it was not visible from the exterior. The local dealer did not even have the courtesy to make a site visit or direct our concerns to Pella Corporate. Instead of advocating on our behalf, it was basically “so sad, too bad” new windows will cost you X. It took over a year to get someone from Pella Corp to come and look at how bad the windows were and even then new ones were offered at a limited discount when the company admitted to defective products. Unacceptable when our initial purchase was a substantial investment with over 22 large windows.
Manufacturing defects occur, but not to stand behind your product at the Dealer level and or to be nonresponsive at the corporate level just reflects on the company as a whole.”

This echoes in detail my experience and I fully underwrite the closing comment.

What really gets me in this case is that Pella’s executive management has steadfastly refused to deal with me and my complaint. All my efforts to get management’s attention have been fended off and tossed in the lap of “Customer Support Specialists”. If Pella’s executive management does not own the function of customer relations, it cannot legitimately claim that it puts customers first.My case painfully brings to light that Pella just pays lip service with it’s “customers first” proclamation.

Caveat emptor! Buy Pella product at your own peril. I have found out to my detriment that you cannot rely on the expectation that Pella will stand behind its product.

LEAVING BEHIND. HAVING AN EXIT STRATEGY IS CRUCIAL

I learned from Dave Sullivan, the business consultant who for years taught the Course for Presidents at Aileron, that in business one should never start an enterprise without at the same time designing an exit strategy. Dave Sullivan wants you to ask yourself: How do I extract myself when it does not pan out, when I find that I have more important things to do, or when calamity strikes? More precisely, how do I extract myself without doing harm to the business, its stakeholders and my estate?

The typical small business owner has ninety percent of his/her net worth tied up in the business and is relying on the value of that investment to fund his/her retirement.Yet, a preponderance of small business owners will be in for a shock when they try to sell or have their business valued for estate planning purposes. This is particularly the case with businesses that do not carry substantial hard assets like land, property and machinery on their balance sheets. There is a rule of thumb that says that 60% of the valuation of a business depends on the general state of the economy, 30% on Wall Street’s outlook for the industry it operates in and only 10% on the financials of the business itself. This suggests that timing of exiting a business is all important.

As Dave Sullivan points out, exit planning should not wait until you begin to feel ready for retirement. In fact, business owners would do well to separate exit planning from retirement planning. Otherwise the presumption is built in that the business owner will not voluntarily exit from the business until retirement. The exit planning Dave Sullivan is talking about is having a plan for what to do with the business when it no longer meets the owner’s goals, whether these goals are of a business nature or a personal nature. This can happen at any time in the owner’s lifecycle and in the business lifecycle.

Such exit plan should look at all alternatives for the business, including liquidation, retaining ownership but leaving the day to day operations to others, becoming a silent owner, selling, transitioning to the next generation, turning it into an employee owned business, merging it with another business, you name it.

Not all of these options may be valid at every stage of the business development or under all circumstances. Therefore the exit plan should be written as a “what if” scenario:

·         What if in five years I cannot achieve my return on assets goal?

·         What if my health fails me and I no longer have the stamina to lead the show?

·         What if I come across another business opportunity with higher earnings potential?

·         What if I want to go back to school or change careers?

·         What if a family member needs my full time attention and care?

·         What if I discover that others are better equipped to run the show than I am?

·         What if I want to retire?

A carefully considered exit plan is an indispensable business and personal planning tool. It will stimulate the business owner to maximize the value of the business independent of his/her level of participation in the business. It is also an expression of good governance as it protects the value and continuity of the business for other stakeholders, particularly heirs, employees, customers, suppliers and –if applicable – minority shareholders.

A good exit plan is a direct reflection of how the owner sees his/her role in the business. If he/she is a veritable entrepreneur the plan will focus on scenarios that will call for an early exit or distancing from management as other opportunities arise. If he/she is a business owner to have job security and make a decent living the plan will focus on retirement. If he/she wants to be the Chairman of the Board but not the CEO the plan will focus on separation of powers.

For small business owners wanting to create an exit plan there is plenty of professional counsel available. The first source to go to is The Exit Planning Institute (E.P.I) www.exit-planning-institute.org . The institute is responsible for the certification of “Certified Exit Planning Advisors”. Its web-site is a treasure trove of information on the topic of business exit planning.E.P.I. points to the damage owners can do to themselves, their heirs and the business when failing to have a well designed and implemented exit plan:

·         Undervalue your company leaving hard-earned wealth on the table

·         Pay too much in capital gains and estate taxes

·         Lose control over the exit process

·         Fail to realize your personal, financial, or business goals during the exit process.

A good exit plan is written with the input of professional counsel. My experience with small business owners is that too many are living dangerously without a good exit plan. They do so at their own peril but they need to be aware that, in the process, they are also exposing all stakeholders in the business to unnecessary risk and harm. What they are leaving behind is a mess.

THE CONSUMPTION ECONOMY

The conventional wisdom says that consumption drives our economy. We are heading into the Holiday season and several department stores and box stores are now opening up on Thanksgiving Day. Is that extra shopping day so important that we are willing to sacrifice the sanctity of one of only few remaining true American Holidays? Then it will be a race to Christmas and see if we can break the spending records of previous years. If Holiday spending is not up this year by at least a couple of percentage points then it will be interpreted as a bad sign for the economy. But is it?

Do we really benefit from importing more Chinese consumption goods that will soon be broken, tossed out or put out on E-Bay or in a garage sale?

We have become a throw away consumption society. We produce more garbage (literally and figuratively) per capita than any nation in the world and – in the process – we consume a lot more energy per capita than the rest of the developed world with the exception of Canada (where the climate and the distance between population centers are drivers of high energy consumption).

We are so focused on consumption that we put the cart before the horse. We are hell-bent on reducing unemployment not so much because we are concerned about the (lack of) quality of life of the unemployed but because we want to swell the ranks of active consumers.

Our economic policy is all about stimulating consumption as the primary means of stimulating economic growth. But how healthy is economic growth if it is primarily consumption driven? We are spending beyond our means at just about every level. Our National Debt has exploded to $17 Trillion and household debt adds over $11 Trillion to the debt burden we have to carry. It needs to be noted though that while the National Debt has continued to rise steeply, household debt has come down from its peak of $12.7 Trillion in the third quarter of 2008. There is a further significant difference between the Federal Debt and household debt when we look at what the debt has bought us. Almost 78 % of household debt is incurred in the form of home mortgages and car loans. In other words it is spent on investments in our basic needs. Another 8.6 % is incurred as student loans, which represent an investment in our future. The Federal Government, on the other hand, has just incurred it $17 Trillion in debt, without making any measurable investment in our infrastructure (roads, water, power, (air)ports, bridges, broadband) or our future (education, healthcare, research & development, environmental protection).  It has just consumed without investing.

The bottom line is that together we have spent $28 Trillion more than we had in the bank. So, do we really need more consumption? I will argue that we should be focused on getting unemployed back into the production economy rather than the consumption economy.

I cringe every year when I see what people –also the ones around me – spend on Christmas presents that nobody needs, that are getting returned or traded or just put away until the next garage sale. We are just adding to our credit card debt of $ 679 billion and will be thoughtlessly paying 18% interest on that debt.

The whole debate about government spending is misdirected. It should not be so much about the level of spending as well it should be about what we are spending it on. If, as a nation, we don’t invest in keeping our people and infrastructure competitive with the best in the world we will soon have no more money or credit to feed our consumptive addiction. We will have to invest in education (and continuing education) of all of our people; and in technology; and in research and development. We will have to do a better job of protecting our environment and we have to make up for decades of neglect of our roads, tunnels, bridges, water supply, railroad system, power grid, ports and airports. It would be nice if we started rebuilding our urban and suburban systems to stimulate and facilitate walking and biking as a safe and healthier alternative to commuting by car.

If the government would just give priority to stimulating, supporting and subsidizing the production economy rather than the consumption economy, and to promoting healthy behavior it would help create value and wealth and that, in turn, would create all the consumptive power the economy needs. We may then be spending on bikes, biking- and hiking-trails rather than automobiles and roads. We may then be spending on gyms and vacations rather than on video games and professional sports paraphernalia. But we will have more money to spend than we ever had before, without going into debt. We need to get to the point that consumption is no longer a goal in itself but the natural outcome of productive behavior in a growth economy. In other words we need to put the horse back before the cart.

I know it is heresy, but if this means that, to make up for lost time, we will have to increase taxes for a while, so be it. After all, people have no compunction about spending fortunes in the lotteries and in casinos, for which – with very few exceptions - they get nothing in return. However, we should not accept a higher tax burden without a complete tax reform that should include simplification, elimination of tax expenditures and a rethinking how tax policy can support productive economic behavior and healthy behavior of its tax payers. Maybe it is time to replace to some degree taxation of income by taxation of consumption.

FREEDOM.

I attended the special Course for Presidents, offered exclusively for alumni of this flagship Aileron course, on October 1-2 of 2013 and –as it always does – it sharpened my awareness and understanding of the importance of the Aileron concept of “Professional Management” in business.

The very interactive session with a wealth of entrepreneurship in the auditorium was both a tribute and a salute to Dave Sullivan who has almost singlehandedly shaped this Course for Presidents, but who is now stepping away to write a book and focus on his private consulting practice. He received a five minute standing ovation from the more than 50 alumni in his audience, all of whom have greatly benefited from his teachings. The session was ably and pleasantly co-facilitated by another Aileron star, Mary Connors.

The reason that I want to write about this is because it reminded me of the importance of “Freedom” in business. Although the business climate in America has become more and more regulated over time, there is still no country in the world that I know of where there is greater freedom to establish and run your own business than the United States of America. At least no other country where the business owner also enjoys the rule of law to protect his investment and achievements.

The freedom that Dave Sullivan harped on in his swan song was another, equally important, freedom. It is the freedom of the private business owner to shape and run his business in accordance with his personal vision of what the business should look like. It is also the freedom of the owner to decide what role he wants to play in the business and how much of his time he is willing to dedicate to the enterprise.

It struck me, as I was listening to the very interactive discourse that took place at this course for “retreads”, how many of the business owners in the room were passionately focused on exiting or distancing themselves from the business they own and –more often than not – have created. Not – to be sure – to rest on their laurels or play golf for the rest of their lives, but mostly for two reasons:

1.       To let the team they had built, and that- if they have done it right- has better and more complete skills and competencies than they have themselves, run the show and not stand in their way;

2.       To attend to other matters – and possibly other business – that need to be achieved in order to follow their personal vision.

A small business owner knows that he (I realize that in many instances it is “she”) has done right if he has achieved the freedom to be as active in or as distant from his business as he chooses to be. Dave Sullivan said it another way, more succinctly: “Wealth is not just a matter of money, but also of free time, freedom of choice and the opportunity to pursue your dreams.”

With freedom comes joy and joy is a key measurement of success in business. If it is not fun anymore, it is not worth it. It should be fun for the owner and it should be fun for the people working in the business. If any of them constantly think – and sometimes say – “I’d much rather be doing something else” they probably should.

A business owner who has not (yet) acquired the freedom to work on his business rather than in his business has not finished the job and is not ready to move on. The owner’s job is not done until he has built a business that can and will prosper in his absence. The owner’s job is to provide the capital required to operate the business, to establish the vision for the business, to create a business culture in which his enterprise can flourish and to put together a management team that can run the business. When all of that is done, there are almost certainly people who are better qualified than he is to make the day to day business decisions and it is time for him to cash in on his freedom to pursue other dreams that are part of his personal vision.

LIP SERVICE

Our economy has become a consumption economy and the conventional wisdom says that the consumer dollars go where they get best value, which is generally understood to be a combination of best quality and best service. But I find in my own personal finance that an awful lot of money goes to places where a good product and attentive service are hard to find. It goes there because there are no better alternatives.

In a consumption economy, marketing and - more specifically - advertising rules the roost and advertisers know only too well that it is their job to sell perception for reality. The whole purpose of advertising is to plant a perception in the consumer’s mind that the advertised product is something you cannot or should not do without.

The advertising world has also understood that it should hold out the promise and expectation of a great service experience to attract and retain the customer and so we get bombarded with commercials that are like the proverbial vacation destination brochure: the product and service you actually receive bear no appreciable relation to the impression created by the advertisement.

Banks, airlines and cable companies are probably the best examples of what I am talking about. Can you remember a truly pleasant experience in dealing with any of these unavoidable “service” providers? Mass merchandising stores are not far behind.

It is a troublesome thought that the financial health of our nation is so dependent on our preparedness to spend money on things we may or may not need, many of which have no lasting value and most of which offer only a mediocre value experience. The truth of the matter is that the only service provided in most of our c

consumptive lives is lip-service! Everyone in business is trained to liberally throw around slogans like “the customer comes first” and “great service is our promise to you” but very few actually provide the real thing. 

It shows, because we actually feel surprised when we encounter an example of really great customer service. It happened to me on our recent trip to Alaska when weather conditions delayed us for a day to get to our destination on the remote Aialik Bay of the Kenai Peninsula. The President of the company, Alaska Wildland Adventures, sent us a letter with his apologies for a situation that he had no control over but had us deprived of a day at our chosen destination (it was made up by an extra day at the Kenai River). The letter included a $300.00 credit and a certificate providing 25% discount for our next visit to that destination.

Turning a negative into a positive for a customer is one of the secrets to offering an exceptional customer service experience. It came on top of an otherwise flawless delivery of everything we were promised by this tour operator including the fact that we never had to worry about our luggage that somehow magically always managed to come back to us at the right time in the right place. It is positive incidents like this that remind us how we have become beaten down by indifferent and less than mediocre treatment we have to put up with most of the time we are buying.

I wish we could dial back advertising, but ironically it is our cherished First Amendment to the Constitution that stands in the way of doing so. How much better would our TV watching experience be if it were not constantly interrupted by seemingly interminable sequences of commercials? For one thing, it would be a great relief if we would no longer be pestered by the demeaning commercials for Cialis and Viagra. In fact, I think that all advertising for prescription pharmaceuticals should be banned because it interferes with the authority of the physician who should be in charge of selecting the proper treatment for our ailments.

The Romans, who - in so many ways - were the trailblazers for modern humanity, recognized the problem. They came up with the saying: “Mundus vult decipi; decipiator ergo”, which translates into: “People want to be deceived, so let them be.” This is language the advertising industry understands!

We all know that the Roman Empire ultimately fell because it exhausted itself in futility and, after its glory period around the start of the Christian calendar, could no longer revitalize itself and rally its people around a vision for a strong and sustainable nation. In the end it could not defend it vast borders and ward off the onslaught of hordes of enemies of much less sophistication and civilization and the world descended into the dark ages.

I see our preoccupation with consumption and our resignation in accepting shoddy service for purchases of vital needs like banking, transportation and communication as a writing on the wall that we may be heading the same way the Romans did. We are putting up with mediocrity and thus we are getting more of the same. We do not demand continuous improvement, much less excellence. We are allowing ourselves to be deceived time and again and yet we keep coming back for more. The advertising world wants to make us believe that “Perception is Reality” and we are paying lip-service.

It is time to push back against that self-serving fallacy. We are living in a make believe world and it is time to get back to valuing substance over image and investment over consumption.

INERTIA

How long do we take to respond to external impulses in our business, to warning signs, to the proverbial handwriting on the wall? There are many factors at work here. First, we are typically so busy doing what we are doing that it may take us awhile to figure out that the world is not standing still. Then, even if we pick up the warning signal that something fundamentally has changed, our tendency is to wait it out for a while and see if things don’t return to normal. At that time very likely wishful thinking kicks in and we convince ourselves that we can see it through without having to make painful adjustments that would take us out of our comfort zone. Let’s face it: we are creatures of habit as much as we don’t want to admit so, we do not normally change until the pain of staying with the status-quo exceeds the pain caused by change.

Sounds familiar? Small business is definitely more susceptible to the problem of inertia than big business because it generally lacks the benefit of a regular outside review of what’s happening inside the operation. Independent small business owners find out all the time that it is lonely at the top. Small business cannot tolerate layers of management and cannot afford expensive consultancy other than in rare cases. Therefore is has limited access to outside impulses, new approaches and critical review of existing practices and processes. Small business owners doggedly keep their heads down, doing what they do best and keep doing it. Over time they have blinders on whether they realize it or not.

Fundamentally, this is why the business landscape changes constantly and companies –even big names – come and go. Adjusting too slowly to new realities is a mortal sin in business.

Pat Jones, in his interview with Dean Graves, Superintendent at Chevy Chase Club, for the October 2009 Issue of Golf Course Industry magazine draws out that complacency is the enemy: “in short, don’t take what you’ve done today for granted and try to do better tomorrow.”

This is not unlike Bill Gates admonishing us that success is a lousy teacher, because it fools you into thinking that you can’t fail. Or Mike Krzyzewski admonishing his players: “If what you have done yesterday still looks big to you, you haven’t done much today.” 

     

So, how to overcome the gravitational pull of inertia? There are many good answers to this question. In the first place, a small business owner is well advised to hook up with Aileron. If he does, he will likely be told to get himself an outside board of directors. These two steps alone will take him out of his isolation –and probably out of his comfort zone too – and expose him to the impulses from the outside that he so much needs.   

          

Another way for a small business owner to pull himself out of inertia is to force himself for a good part of his working hours to act like an owner/entrepreneur rather than the chief crisis handler. Aileron has a “Dream Room” a place where you are encouraged to come to dream big dreams about what you are going to do with your life, your business and your future. The dream room is equipped with a white board enabling you to write down the fabulous dreams you conjure up. You don’t have to come to Aileron to do that. Taking time out to contemplate what you can and want to do different in order to produce different and better results is a good way to overcome inertia. It forces you to see that there is a different world out there than the world you have come to accept as your own. If you are not happy with the results of your efforts then it is ludicrous to expect a better outcome from doing more of the same! 

 

Dreaming is one way to shape your future. Another way is learning from other entrepreneurs, applying their ideas and concepts – particularly the proven ones – to your business. You can do that again by engaging with Aileron by registering for some of their courses. Or by joining a local or regional business round table. At the same time you should read at least two business books a year and apply the learnings in your business.    

     

One key to breaking through the inertia curse is found in opening yourself and your business up to external influences. Another one is in cultivating and increasing your awareness of how and how fast the world and the economy in which you operate is changing and then forcing yourself to adjust. The third key is to never be satisfied with the status-quo and always be working on a plan that brings you closer to realizing your dream.

Inertia is an ugly thing. It keeps you in a place you no longer should be.

DETRITUS

Detritus is an accumulation of disintegrated material. That’s what comes to mind when I’m thinking of Detroit and what its demise portends for the future of our public finances at large. It is irony that the city that is synonymous with the mismanaged private sector auto industry (no offense to Ford) and had to endure the managed bankruptcy of General Motors and Chrysler is now itself at the top of the iceberg of a growing mismatch between publicly made commitments and the capacity to deliver against these commitments now and in the future.

Detroit has the dubious honor of being the test case for how a public entity can finally face the fact that it has promised more than it can deliver, renege on its obligations and try to start anew.

I see it as a flaw of our democratic system that we can let it come this far, with open eyes, and then have no more choice other than seek refuge in bankruptcy.

It is only the scale of the Detroit default that sets it apart from what is happening all over America. Municipal bankruptcies are popping up all over the place, Stockton and San Bernardino, CA, Harrisburg, PA, Detroit, MI and the cause is just about the same everywhere: incompetent, dishonest and self-absorbed elected officials willing to give away the store to their constituents to be popular and get re-elected. It was no different with General Motors and Chrysler. It was much easier for top executives to give in to UAW demands that would not affect the P&L until after they would have retired than to manage productivity, payroll and retirement expenses in a responsible way and get the UAW to see it the same way.

Unfortunately, we are still only seeing the top of the iceberg.

Just looking at unfunded pension liabilities carried by the States, gives us a glimpse of the magnitude of the problem. The State of Illinois, by itself, has a pension fund shortfall in excess of $100 billion, growing by $17 million every day. The Economist, in its July 27, 2013 edition, points to calculations by the Centre for Retirement Research at Boston College that reckon that the combined pension fund shortfall of all States may be as high as $2.7 trillion. It also reports that Moody’s reckons that schemes are 52% underfunded.

Of course, at the Federal level, it is little different. There too, our public officials have promised much more than they can deliver with existing tax revenues and funding authorizations. The scary part there is that the unfunded obligations under our entitlement programs are not even included in the $17 trillion National Debt. No wonder that my children and their peers have no confidence and, therefore, little expectation that Social Security will be there for them. They are right, unless Congress gets its act together and deals with the important issues of deficit elimination, debt reduction, tax- and entitlement-reform.

State and Federal Governments have no access to Chapter 9 Bankruptcy that municipalities and counties have. They have no other option than to restructure their finances in such a way that they can move forward. In almost all instances that means that they will have to renege on earlier made promises.

There are no good solutions when governments of any kind have allowed to let things get out of hand. The bill becomes due someday and the only question is: who is going to pay it. In the case of counties and municipalities, if the public authorities don’t answer that question, it will ultimately be answered by the bankruptcy court.

In the case of Detroit, which reportedly has a deficit of $18 billion, this means that the bankruptcy court will have to decide how to split the burden between creditors and city employees and retirees who will have to learn to live on significantly less that they were promised by a succession of city officials who have failed them. The outcome will send ripples far and wide in that it will most certainly be precedent setting and affect the municipal bond business and the rights of public-sector workers in every municipality, county or State that has failed to tailor the entitlements of its employees to its revenue producing capacity.

The only good thing in this is that it will almost certainly hasten the process of converting public pensions from defined income programs to defined contribution programs. This process, which is nearly completed in the private sector, is well under way, at least for new employees, in States like Alaska, Michigan (!), Nebraska and Utah.

Detritus is the right word for the mess we are in, because our system of entitlements has been disintegrating even though our public officials prefer to live in denial of this reality until they no longer can, like in the case of Detroit. The real question is: “What needs to change in our democratic process to keep politicians from over promising and under delivering and how can such change be brought about.” That is a question for which there is no bankruptcy judge – or any other arbiter – to answer. The answer can only come from the public that has to hold its politicians accountable for the decisions they make.

A good place to start would be to severely cut or eliminate the retirement benefits and other perks of the very same public officials who signed off on the entitlements that now turn out to be unaffordable. If ordinary public servants have to suffer then the officials who brought this misery about should be the first to see their privileges slashed.

Fire Your Customer?

That is not such a dumb question as it might look at first glance.

Who does not have some customers who want it all on their terms; who nickel and dime you to death; who burden you with unsubstantiated claims and unwarranted returns? Who make you jump through hoops and never pay you on time and only as much as they think they owe you? Do you recognize that customer inside your business?

There is a disproportionate resource (time and management) commitment associated with managing this type of customer. Fire him! Since you don’t get all of the business from your market place anyway, leave this customer to your competition. It will absorb their scarce resources and take their eyes off the ball.

Just like there are undesirable customers, there are also undesirable suppliers, sales representatives and SKU’s.

As a rule, every distributor owes it to him/herself to set up financial tracking systems that allow for the systematic calculation of margin contribution (per month, fiscal quarter and year as desired) per:

·         Customer

·         Supplier

·         Sales Representative

·         SKU

Once these data are available on a routine basis, the magic of the spreadsheet will then easily allow you to rank your customers, suppliers, sales reps and SKU’s in descending order of margin contribution. Voila. You have all you need to dramatically improve your business. All you have to do is draw a line at the bottom 5-10-25% percent of the customers, suppliers, sales representatives and/or SKU’s and resolve to cut out unproductive elements in your operations. You draw the line where the numbers indicate you don’t get an acceptable return for your resource commitment. Let the numbers do the (hard) work for you and cut out the dead wood, religiously and periodically.

Keep in mind that poorly performing customers, suppliers, sales reps and SKU’s are a drag on your financial performance, your operating efficiency and your working capital. Since Cash is King, put it to work where it is appreciated and provides a handsome return.

Not doing anything about below par performance on the part of customers, suppliers, sales reps or SKU’s will quickly become demotivating to those who do perform and will not go unnoticed by the marketplace and employees. It will create a culture of the wrong kind in and around your business.

Growth is a vital part of business, but it also can be a cancer if it becomes growth for growth’ sake. If growth is top-line oriented without regard to the contribution it delivers to the bottom-line it serves no good long term purpose. Sometimes it is better to pull back from top-line growth by taking out the undesirables. It may turn out that firing your bottom 25 customers, terminating your under performing suppliers, killing your under performing SKU’s and dismissing your under performing sales representative(s), is the best thing you could do for your business! 

Just make sure that your information systems let you know with precision which ones to cut.

THE REST OF THE TEAM

“The main ingredient of stardom is the rest of the team.” John Wooden.

As you climb the ladder in the business world, you get to see a lot of resumes. I have written them, read more than I care to remember and edited many for friends who had good reasons to update their resume.

The one thing about resumes that strikes me now that I have left the field of active career makers is that, without exception, they always include statements like: 

“While at company blank (you fill in the name), I grew sales by 50% and increased margins by 1.2%.” or,

“I turned around a business that was moribund into a top three contender in its field.”

I know, because I have written similar representations in the many resumes that I have maintained over time.

But when, the other day, I hit upon John Wooden’s quote that I repeat in the heading hereof, it dawned on me how misleading and preposterous such representations are. Business is a team sport rather than an individual sport. Business is much more like football or basketball than it is like golf or weightlifting.

Our first resume writer may very well have been in charge of a sales team that achieved the 50% increase in sales and the 1.2% increase in margins, but it would not have happened without the team delivering the results. That does not denigrate or take away from his accomplishment as a team leader, but his resume should not state what it does but rather something like “While at company blank, the sales team under my leadership grew sales by 50% and increased margins by 1.2%.”

Our second resume writer may, as business lead, very well have been in charge of a turn-around of the business segment he was responsible for, but would the turn-around have been successful without the front office directing, supporting and financing the plan and without the staff- fed up with operating in a moribund environment – accepting accountability for the results of the work they were performing? In this instance the intellectual honesty of the resume would be significantly enhanced if it stated: “I was given every opportunity, including a motivated and competent team, to turn around a business that was moribund into a top three contender in its field and I made it happen.”

In either case, the real accomplishment of the resume writer was the fact that he was able to create and manage a team of people that collectively knew what they were doing, wanted to make their hard work matter and were willing to hold themselves accountable for the team achieving its objectives. That is no small feat and worth of a prominent display in the resume.

If you want to be a star, in sports or in business, you’d better first build a team that is competent and motivated to help you achieve your goals. The next challenge will be to keep your team focused and on track and to make sure that you give credit where credit is due: with the rest of the team.

The Blinding Light of the Obvious

At one point in my career, I had a boss who knew that he had to invite discussion among his key staff members of how the company we worked for was doing and where it was heading. But he was doing little more than paying lip-service to business-school conventional wisdom. His favorite response to anyone coming up with an idea for the improvement of the business was: “you strike me with the blinding light of the obvious”, suggesting that he had long considered the idea being brought forward and already incorporated it in his plans for the future. If the idea had any merit it had to have come from him.

It will not surprise anybody that this way of denigration of participative management eventually took the wind out of the sails of all the key employees and the outcome is predictable: the company, which once was an industry innovator and leader, was absorbed by a corporate giant and no longer exists.

In American politics, the blinding light of the obvious plays a very different role. Even the most common sense steps toward improvement of the system are being ignored or tabled. It is as if the blinding light of the obvious never penetrates Capitol Hill or the White House.

How else can we explain that:

1.       At a time of burdensome federal deficits and debt, we continue to subsidize farmers while commodity prices for the main crops they produce are and have been at above average levels;

2.       We artificially pump up the price of corn by continuing to subsidize the use of corn for ethanol production (which, without government support could not compete with oil) for automobile fuel use;

3.       As the only nation in the developed world, we allow pharmaceutical companies to advertise their scary wares directly to the public (with cautionary warnings and all) rather than leave it up to our doctors to decide what’s good for us;

4.       Congress votes to spend money on military hardware (tanks and aircraft) that the military does not even want, at least not in the numbers provided by Congress;

5.       Faced with threatened insolvency of our big entitlement programs Social Security and Medicare, we fail to take the simple steps, outlined by a variety of think tanks, public interest groups, columnists and engaged citizens that can put these programs back on the path of long term sustainability;

6.       Faced with structural budget deficit and a messy, ineffective and metastasized tax code, we can’t have a serious debate about simplification let alone the merits of a consumption tax versus income tax and the use of sin taxes to discourage dangerous behaviors;

7.       We know that our world dominance depends on how well we educate our children and yet we let the cost of higher education, particularly at the top schools, move out of reach for just about all other than the very rich;

8.       We know that our health care system is the most expensive in the world without offering, across the board, best in class results, but we utterly fail to bring cost under control even with the largest legislative effort in decades: we specifically prohibit Medicare to negotiate the cost of pharmaceuticals like the health insurance companies do and we prohibit the free flow of medicine from across the Canadian border.

There is so much the Federal Government, legislative and executive branch, could do to keep America competitive, but the system is paralyzed. Washington is immobilized by interest groups and petty jealousy between Republicans and Democrats.

It is as if the army of politicians inside the Beltway is under control of the mob and scared to death to do anything that the boss will not condone. The boss, of course, in this case is the lobbyist for whatever special interest group rules the roost. It is demoralizing to see how much our legislators are beholden to institutions like the NRA, AARP, NEA, UAW, ACLU, not to speak of the lobbies for major industries like defense, banking, oil and gas, pharmaceuticals, healthcare, financial services and communications. The voting public should be the boss, but its influence has been hijacked by institutions with pockets deep enough to buy the subservience and vote of our representatives.

The net result is that the Nation’s business no longer gets done. The Federal Government can no longer proclaim that it sets the rules of the game by which all constituents have to play and it is incapable of creating optimum conditions for free enterprise and citizens to shape conditions for a brilliant, sustainably competitive future.

One has to be blind, blinded by the lightning strike of the obvious, not to see how even the most common sense solutions to our challenges get stopped in their tracks because of the sway special interest groups hold over our legislators on both sides of the aisle. So, the question becomes: how much longer are we going to tolerate this perverted façade of representative democracy?

THE SAUDI FLAW

We blame the Islamic Arab world – and in particular the Kingdom of Saudi Arabia – for denying a good part of its population, the women, an equal role in building the future of their countries and we wonder how in this day and age a nation can prosper if it leaves a large percentage of its population on the sideline.

The answer is more likely than not that it cannot prosper under those conditions. It can stay afloat for a while, particularly if the nation is a hydrocarbon rich country that can generate wealth by exploiting its natural resources. But it is unlikely that it can reach its full potential if not the whole population is engaged in the nations building process.

In the USA we don’t have that problem. Or do we?

Warren Buffett just recently made a case* for women to shatter what- he believes- are mostly self-imposed limitations on themselves. He blames these limitations on lingering after effects of centuries of institutional inequality between men and women. There is more than symbolism in the fact that our Declaration of Independence declares “all men are created equal”.

Warren Buffet writes: “The closer that America comes to fully employing the talents of its citizens, the greater its output of goods and services will be.”

Arguably, the contribution of women in our society can be enhanced by removing any and all remaining vestiges of a time we should finally leave behind. This is particularly the case with women’s opportunities at the top levels of business and government, where women remain significantly underrepresented in spite of great progress over the last decades. But there is a whole other segment of our population that we should focus on if we believe that “running on all cylinders” is a prerequisite for success in the race to the top of nations. And this segment is by and large equally divided between men and women.

First of all, we need to realize that nobody counts the number of people employed in the USA. The Federal government through the Department of Labor makes an effort (not very successful) to measure the unemployment rate, but what would be really interesting to know is the number of people who are employed (and by deduction, the number of people who are left out of the labor process).

Isn’t it somewhat befuddling that our government cannot tell us what percentage of the population is engaged in the labor process? And, therewith, the percentage of the population that is not?

The Bureau of Labor Statistics measures a metric that it calls the “Labor Participation Rate”, which stood in April of 2013 at 63.3%. This statistic measures the number of people in the labor force that is either working or actively looking for a job as a percentage of the civilian population aged 16 and older.

It also measures a metric that it calls the “Employment-Population Ratio”, which stood in April of 2013 at 58.6%. This statistic measures the proportion of the civilian noninstitutional population aged 16 years and over that is employed. It includes people who are under-employed in terms of the time they get paid for or in terms of the level of work they are asked to perform.

Thus it appears that also in our country close to half of the population is left out of the labor process. Some percentage of this “unengaged” population is either below working age, retired with no intent to get re-engaged or studying full time.

The bottom-line is that the Federal Government cannot tell us with any degree of precision what percentage of the work-eligible and work-capable population is actually disengaged from the labor process and thus not participating in the growth of our economy and the strengthening of our nation. But we can come at it from another angle:

We know from the Census that the USA has a population of about 314 million, that about 74 million are below age 18 and about 42 million are over the age of 65. Since some unknown percentage of these age-groups are employed (let’s assume 10% of this populus), it follows that our labor pool would be approximately 210 million.

We know that in April of 2013 we had

·         11.7 million unemployed

·         14 million on disability (a staggering number!)

·         2.3 million in prison (a staggering number!)

·         7.6 million involuntary Part Time

·         2.3 million marginally attached

These 5 categories add up to 37.9 million people in the USA that would theoretically qualify for the workforce but are either unemployed or underemployed. That represents 18% of the labor pool. Arguably, this number is a more accurate measurement of disengagement of the labor process than the unemployment rate of 7.5%.

Warren Buffet, in his interview in Fortune, states: “No manager operates his or her plants at 80% efficiency when steps could be taken that would increase output”. We point the finger at the Islamic Arab world for running their nations at 50% efficiency by denying women the right to participate. But we should not be blind to the fact that we run America at much less than 100% of its horse-power.

If America wants to stay on top in the race of nations, it will have to find a way to run on all cylinders and get a much larger part of the labor pool, men and women, engaged in supporting its economic growth and development.

*In the May 20 issue of Fortune

ON LEADERSHIP

Leadership is hardly a topic to be dealt with in a column for a blog or a magazine, because it has so many aspects, but it is too important to success in business to ignore it. It is also a near inexhaustible theme for writing, because the world offers so many examples of leadership that are worth studying, because they are inspirational and worth following.

In all of my attentiveness to samples of leadership that I have seen, heard or read about, one stands out as a model that is near impossible to replicate. Like a world record that may never be broken or Cal Ripken’s string of 2,632 consecutive baseball games played. Part of the improbability of surpassing my top pick of leadership lies in the fact that it happened almost a century ago and at the other end of the world. The principles of leadership, though, are unaffected by time and location and the model could be replicated given the same degree of determination, discipline and persistence exhibited by Ernest Shackleton in his ill-fated Antarctic expedition in 1914-1916.

The story of Sir Ernest Shackleton’s expedition on board the Endurance is too long and nuanced to be repeated here, but is worth reading. The authoritative book on the expedition, with exceptional pictures taken by Frank Hurley – one of the crew members – is written by Caroline Alexander under the title “The Endurance” and was published in 1999 by Knopf.

The reason why it should be studied by believers in the value of leadership is because it exemplifies leadership of the highest purity of purpose: When the expedition vessel Endurance got trapped in pack-ice in the Antarctic summer of 1914 and ultimately broke up nine months later– killing the expedition’s mission – Shackleton shifted his pursuit from being the first person to cross the Antarctic continent on foot to the single purpose of bringing every member of his 27 crew home to safety. He must have known that this was an odds-defying feat, if he could pull it off.

Having lost, with his ship, his shelter and most of his stores he had to improvise every move he made on his way to a safe return to civilization, which his team ultimately made in September of 1916. His major challenges were time (more than 2 years of hunger, disease, frostbite and deprivation), distance (thousands of miles of drifting and floating) and weather (two Antarctic winters).

After the break-up of the Endurance and having camped out on drift ice for six months, the crew made it - with two salvaged open life-boats - in 15 days to the uninhabited Elephant Island. It was now April 1916 with another winter approaching. On this barren, desolate island Shackleton left most of his team behind to try to reach in one of the open life boats -with 5 crew members and without proper navigational instruments - the nearest whaling station on South Georgia Island 650 nautical miles away. Risking the good chance of getting lost in the huge expanse of the Antarctic Ocean, which would have doomed every one of the 27 members of the expedition. He got there in 16 days through some of the worst weather and seas imaginable and was able to arrange a vessel to pick up the expedition members who were left behind on Elephant Island. Shackleton himself captained the vessel that picked up the castaways on August 30 of 1916.

The elements of Shackleton’s leadership are unmistakable from just the outline of this story. They come vividly to life if you read the blow by blow account of the expedition as written by Caroline Alexander:

•          To place the safety of the crew ahead of his personal ambition as an explorer
•          To acknowledge defeat when the Endurance was lost and timely switch the mission at hand
•          To never relinquish the responsibility for making the tough decisions
•          To never ask something from members of his team he was not willing to do himself
•          To maintain discipline among a team of 27 individuals, each with a different appreciation of the   situation they were in and constantly confronted with life-threatening conditions
•          To never lose faith and give up on his mission in spite of near insurmountable adversity
•          To completely succeed in the (revised) mission

What makes this showcase of leadership so exceptional – and most likely not to be surpassed – is that the mission was achieved without any of the comfort and technology available to modern day explorers.

Leadership is of all ages and knows no boundaries. It is a vital component of any human endeavor. You will have difficulty identifying any highly successful business enterprise, where the leadership component was missing.

THOUGHT LEADERSHIP

“When you come to the fork in the road, take it.” (Yogi Berra)

“If you don’t know where you’re going, then any road will lead you there.” (Lewis Carroll, Alice in Wonderland)

High on the “To Do” list of business leaders figures the need and indeed the obligation to spend a good portion of their waking/working hours on figuring out what the world in which they operate will look like 3-10 years down the road and make some decisions on how to position their businesses to operate profitably in that changed environment.

This planning for the future may very well be the hardest job a business owner/leader has to do. Most of us are simply not trained or wired to force ourselves to think in a disciplined way about what may or may not happen down the road and then consider the impact on the business you’re running. It is risky business, even if you get yourself to build a vision of the future. What if you’re totally off base? Can you bet the farm on something that may - or may not - happen?

But the hard reality is that unless you’re just along for the ride and accepting that it will come to an end, you have no choice as business owner/leader to know, if not where you’re going, at least where you want to go so that, when you come to the proverbial fork in the road, you have already figured out which direction to take.

Fortunately, there is a structured way of dealing with this issue of decision making for the future. It is called “Thought Leadership”.

Glenn Llopis, the founder of the Center for Hispanic Leadership, wrote an excellent article for Forbes in August of 2011 in which he defined a “Thought Leader” as “a person who identifies trends, common themes and patterns within a particular industry or functional area of expertise to help others identify new opportunities or solutions for growth”.

Thought Leaders can teach your organization how to generate better ideas on its own. A big name in this field is Vijay Govindarajan, co-author of “The Other Side of Innovation” and a professor at Dartmouth Tuck School of Business. Vijay Govindarajan takes a facilitator approach: “What I want is for companies to self-diagnose their problems and self-discover their own solutions through my thought leadership”.

This is very much the type of support Aileron* offers – at very little cost compared to the astronomical fees top consultants charge – to small business owners.

It is lonely at the top!  Small business typically does not have much bench strength and who does a business owner turn to when he/she sorts through the options for the future? Best Practices Sharing is somewhat helpful but, by definition, only addressing something that is already in place, something that is already happening somewhere. The harder part of Thought Leadership is the thinking about circumstances that may or may not play out but, if they do, will materially affect your business. It is thinking about “how to stay ahead of the curve”.

If you are a business owner/leader you have no choice but to spend a good part of your time in scenario planning. In thinking about where you want to drive your business and what direction you will take at every fork in the road that presents itself on your journey into the future. You are also well advised to invite all of your key employees – the ones that you would not want to lose – to participate in the Thought Leadership process.

The final thing that matters is that, while charting the course may your job as the business owner/leader, you are better off if you have a few professional pilots along the road to keep you off the cliffs and the shallows that could sink your ship at any time.

Thought Leadership matters. It is one of the top responsibilities of the leaders of any organization. But in today’s complex world it should not stay in their hands. It needs to become part of the organizational culture and be driven down into the ranks and embraced there. From time to time it needs to be checked, refreshed and kept on target by external professionals.

*Aileron is a training and support institute for small business owners in Dayton, Ohio (www.aileron.org). Readers who are business owners in a range of up to $50 million in sales and want to bring their operation “to the next level” should check out this incredible resource with its own entrepreneurial origin!