LESSONS LEARNED

As I think back on my professional career and ask myself “what have you done all that time?” I come to the conclusion that the best answer to that question is: I have been learning most of the time.

Yes, I have earned a pay-check most every day. And yes, I have helped some companies along in achieving their goals and earning a return on investment, but I have never stayed long in a position where I was not learning something new or where I did not have an opportunity to hone my existing skills.

My career has been a life-long search for a position of leadership where I could truly make a difference. Thankfully, I am in such position now and have been for a while, but it would not have happened if I had not spent an inordinate amount of time learning on the job. That is not to say that I’m done learning now. I certainly embrace the notion that one is never too old to learn. But, after what amounts to nearly a lifetime of learning, I am finally in a position to give back from that treasure trove of acquired insight and it feels good. In this realm giving is truly better than receiving.

The best advice I can give people who are still in the starting blocks of the race to success is to first find out what it is that they like to do and then work very hard at getting very good at doing just that. That means learning on the job as a matter of continuing education. Whether it is working with your hands, with your head or with your heart, nobody enters a profession and is at the peak of his potential right away. For most of us it takes a while before we end up in a place where we can make our mark. The son of a good friend of mine is a lawyer who graduated at the top of his class, very intelligent, very capable and very motivated, but it will be years of hard work and learning before he is of top value to his clients.

For people who aspire to a leadership role in business there is a lot to learn. If they are trained in a particular discipline, say engineering, they will have to develop familiarity with management, sales, marketing, finance and administration. No person will ever succeed in business without first developing the capability and desire to manage people. Not in the sense of directing, much less manipulating people, but in the sense of inspiring and motivating them to all march in the same direction and help their company reach its strategic objectives.

The art of management is to get all people in an organization to contribute at their peak performance all the time, not because they are told to do so, but because they want to do so. That art is not easily mastered. It takes, in the first place an awareness that leadership is expected and then the willingness to accept the leadership role and responsibility. Leadership is most quickly assumed and accepted under fire. That is why the military is good at fretting out leadership potential at every level of the military organization.

In business we learn the most by working with the best in the business. And that can be on our side of the table or on the opposite side. I have learned a tremendous amount by having to spar with champions in their field who did not necessarily have my best interest in mind. I have also learned significantly from the worst in the business in that these confrontations made up my mind to never be like them.

Great leaders are confident and competent and surround themselves with people of the same or higher caliber. Weak leaders are no leaders at all. They surround themselves with yes men they can push around.

Almost all of my career in business was spent in the employ of others. For people who venture out on their own the learning process is mostly by trial and error. This is a much more difficult route with a much higher risk level. But the people who come through are learning quickly. It is like baptism by fire. Not really the recommended course if you can avoid it. For that reason it is generally recommended that a next generation coming up in a family business cuts its teeth first outside the family business before taking over the reins.

What can I do with my learnings? They are so many and so diverse that the best way to deal with them is to apply them in my consulting business, with clients one on one, depending on what they need consult for. I could write a book about them and, in fact, I am in the process of doing just that. And I can share them with as wide an audience as I can reach by summarizing them in a blog column like this. Here are my learnings of a lifetime directed to small business owners in no particular order of importance:

• Don't burn any bridges
• Control the things you can control and don't waste any time worrying about things you can't control, including your competition
• Know what you're in the business for (your Mission) and make sure everyone around you knows it as well
• Make sure your organization runs on all cylinders
• Know who your stakeholders are and never deceive them
• You can't save your way to prosperity; entrepreneurship is all about putting capital at risk
• Know at all times if, when and where you are making money (or not)
• Judge people by what they bring to the table not by the hours they spend on the job
• There is always more than one way to skin the cat
• When in doubt say no before you say yes; you can always reverse a decision but you can't renege on a promise
• Simplify your life and your business; cut through the clutter and get rid of distractions

REGIONALISM

If we could it do all over again, would we do it the same way? That is a question we frequently ask ourselves as we get older and -hopefully- wiser. And almost always the answer is no! With the benefit of hindsight, we would have done a lot of things differently. But you can’t go back and undo all the things you have done; the things that now don’t look so smart. Nor should we be too harsh on ourselves: circumstances, information, technologies, norms and our own insights have all changed and it is not really very meaningful to judge our actions of the past with our current metrics.

Those thoughts go through my mind as I drive around town, through North Ridgeville, North Olmsted, Westlake, Rocky River, and Lakewood and back through Brooklyn, Middleburg Heights, Parma, Parma Heights, Brook Park, Berea and Olmsted Falls. What I’m thinking about, as I drive from one little community to the next, is all the duplication of effort and resources comprised in all these small communities, packed so closely together.

Cuyahoga County alone has 59 municipalities and the State of Ohio a grand total of 3,703 units of government. We are a nation of settlers and homesteaders and we revere self-government or –rather – we don’t trust anybody but ourselves to govern our affairs. But we also detest paying taxes and we constantly reject school levies and other tax impositions at the ballot box. Seemingly we are unable to make the connection between the type of self-government we want and the cost thereof.

I shudder to think about all the police departments and fire departments that need to be staffed and equipped by all these communities, all the town halls and city councils that need to be funded with tax payers’ money. All the public works departments these communities need to support. All the different zoning boards with inevitably diverging views of what the local landscape should look like. Do we get our money’s worth?

Most of us mistrust government and would much rather do with less than more government, but here we tolerate a layered cake of Federal, State, County and Municipal government each with their own costly bureaucracies. How well equipped are all these public workers to service us at modern day standards and how much does it cost us? We pay for these public workers with our hard earned money not only for as long as they are working for us, but also in retirement, mostly with defined benefit pension plans that have long been abandoned by the private world.

If we could do it all over again, for sure we would not come out with the current governance model.

We would create larger communities with a good balance between residential and commercial development creating a healthy sustainable tax base. We would create communities delineated by natural geographic boundaries that allow for each community to have its own distinct character. We would separate governance from operations so that we can set the rules locally but provide services in a larger context in combination with neighboring communities.

Following this concept we would retain the benefits of local self-government while controlling the cost of the services that communities need to provide by applying economies of scale. With fewer, larger and stronger communities we can afford to attract the best talent available to run the business of government both politically and operationally. And we can afford to build in NE Ohio a world class infrastructure to support our competitive position in the State, in the Nation and in the World.

We need the courage to let go of what we have accumulated over time and give ourselves a fresh start. We need Regionalism instead of Localism.

If only we could do it all over again! Well, can’t we?

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.